Financial advice

Big picture thinking to add value Financial advice at its best encompasses a broad range of services aimed at helping clients manage their finances holistically. This type of advice is centered around a deep understanding of a client’s overall financial situation, goals and challenges. It involves:

➔    Behavioral coaching: Guiding clients through financial decisions and helping them stay disciplined in their habits. According to a study by Russell Investments, the value of an advisor who delivers holistic wealth management services provides a total value of 3.52 per cent to the client – far exceeding the typical fee charged.¹ A major component of the formula to calculate this value references behavioral coaching (accounting for the largest portion of the value an advisor brings) equating to 1.43 per cent of value.¹
➔    Investment strategizing: Creating a comprehensive strategy includes factoring in many components such as financial habits, savings, legacy goals, tax strategies, and more. In fact, 92 per cent of retirees with a written strategy feel more confident about their financial situation compared with 73 per cent of retirees that do not.²
➔    Goal setting: Assisting clients in setting realistic and achievable financial goals and developing strategies to meet those goals. Making quick decisions on investments and acting on impulses tends to end poorly for most people in many situations. An advisor can add value by helping clients to clear out the noise and focus on what is important for the clients.
➔    Risk management: Identifying potential financial risks and recommending ways to mitigate them. Advisors can objectively look at potential risks before they become roadblocks for clients and add value far beyond just the numbers.

Financial advice is inherently personal and requires a deep understanding of the client’s unique circumstances. It is about providing guidance that helps clients make informed decisions and achieve long-term financial stability.

Product advice: The specifics

Product advice, on the other hand, focuses on recommending specific financial products and solutions that align with a client’s needs and goals. This includes:

➔    Investment products: Mutual funds, exchange-traded funds (ETFs), stocks, bonds, and other investment vehicles.
➔    Retirement accounts: Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs) and other retirement savings options.

While product-driven advice is essential, it is more transactional in nature and may be more easily replaced with technology. It involves understanding the features, benefits and limitations of various financial products and matching them to the client’s needs. However, product-driven advice alone is not sufficient to ensure long-term financial success. It must be integrated into a broader plan.

The importance of combining both

Clients often need a combination of client-centric financial advice and product-driven advice to achieve their financial goals. Financial advice provides the strategic framework, while product advice offers the tools to implement that strategy. Here are some reasons why combining both is crucial:

➔    Holistic approach: Financial advice ensures that all aspects of a client’s financial life are considered, while product advice provides the specific solutions needed to address those aspects.
➔    Customization: A comprehensive investment plan can be tailored to the client’s unique needs, incorporating the right mix of financial products.
➔    Long-term success: Financial advice provides clients with a strategic roadmap, keeping them aligned with their evolving goals while product advice ensures they have the right tools and resources to sustain progress and adapt to future opportunities.

Challenges and opportunities

One of the challenges in the financial services industry is the tendency to focus more on product sales than on providing holistic financial advice. This is partly due to the established revenue models of large product manufacturers. However, there is a growing recognition of the need for prioritization of financial strategies over product sales.³

Conclusion

Understanding the difference between financial advice and product advice is essential for both advisors and clients. While product advice is important for selecting the right financial tools and solutions, financial advice provides the strategic guidance needed for long-term success. By combining both, advisors can offer a comprehensive service that meets the unique needs of each client, helping them achieve their financial goals and secure their financial future.

Independent financial advisors, with their unbiased approach, personalized guidance, transparent fee structures, and deep client relationships, are particularly well-positioned to provide exceptional value in the client relationship. Their ability to offer customized, holistic financial advice makes them invaluable partners in the journey towards financial success.