{"id":576,"date":"2016-05-18T11:15:14","date_gmt":"2016-05-18T18:15:14","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=576"},"modified":"2016-05-18T11:28:32","modified_gmt":"2016-05-18T18:28:32","slug":"whats-in-a-name","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/whats-in-a-name\/","title":{"rendered":"What’s in a name?"},"content":{"rendered":"
\"Mal<\/a>
Mal Abrigo – a small nondescript town in Uruguay. The British built a train station here that was never connected to anywhere – I guess nobody wanted to come to a place called “bad overcoat”.<\/em><\/figcaption><\/figure>\n

According to a 2014 \u00a0Advocis sponsored \u00a0PwC report<\/a>\u00a0there are approximately 100,000 financial advisors in Canada (yes, 1 for every 350 man, woman and child). \u00a0Of those, 44% are insurance based, 33% non-bank dealer based, 13% bank based and 10% at full service brokers. \u00a0(The report only lists 450 “fee-only financial planners”). Business models run the spectrum in terms of product focus, client type, compensation scheme, regulatory designation, etc. \u00a0Despite the large differences, from the consumer point of view, they are all presented as “financial advisors” which causes a tremendous amount of confusion and I suspect a lot sub-optimal outcomes.<\/p>\n

As a result there is a fair amount of furor among various industry constituents about whether there should be a more restrictive naming conventions imposed on the industry. \u00a0If someone’s main job is to broker stocks, call them a stock broker. \u00a0If someone’s main job is to sell insurance, call them an insurance salesperson. \u00a0If they sell mutual funds, call them a mutual fund salesperson. \u00a0If someone creates financial plans for people, call them a financial planner. Arguments on both sides of the debate unsurprisingly are rooted in self interest. \u00a0 The motivations are sensible\u00a0\u00a0– “financial advisor” or “wealth manager” sound a little more attractive from a marketing perspective than more direct titles. \u00a0I suppose the challenge is that retail investors don’t understand that dynamic or perhaps worse, actually believe that there is<\/em> some regulation or governing body policing job titles with the consumer’s best interest in mind – “this person is called an advisor so I assume they are giving me advice that is good for me”.<\/p>\n

When I worked in the equity department for a global investment bank, it didn’t seem to matter what I did – I was called “salesperson”. \u00a0Some argue that job titles should be\u00a0restricted to provide a better indication to consumers of the nature of the commercial relationship. \u00a0Unfortunately we think this would likely cause more confusion. \u00a0Whatever naming system the various industry players eventually agreed upon would be unlikely to\u00a0properly specify providers’ roles which, if anything, would leave consumers even more confursed or worse, with a false sense of security. \u00a0There will be bad advisors with good names and good advisors with bad names. \u00a0That won’t change.<\/p>\n

What needs to change is the level of transparency and investor education. \u00a0Current regulatory changes are in progress to address improved transparency. \u00a0Investor education is a bit trickier. \u00a0You can’t mandate it, proposals to introduce financial education earlier in life at schools generally go nowhere given budget constraints and, frankly, people hire advisors in the first place partly because they need help learning about finance.<\/p>\n

Regulations take years and often have unintended consequences. \u00a0The market is slow to weed out bad apples and the established players are firmly entrenched. \u00a0Improvements will happen but slowly. \u00a0In the meantime we suggest you direct the following questions to\u00a0your existing or prospective advisor, no matter what they’re called:<\/p>\n