IMAGINE YOUR ADVISOR IN THE OLYMPICS

The Olympics reward top performance in standardized competitions. How would your advisor fare?

The Current Measure

Advisors get ranked primarily on sales. They may get rewarded with bonuses and conferences, where permitted.

For insurance, there’s the Million Dollar Round Table (MDRT) which requires verified 2012 income of:

1. “gold” (Top of the Table): $924,000 (in US dollars)
2. “silver” (Court of the Table): $462,000
3. “bronze” (Million Dollar Round Table): $154,000

Earnings are not the best way to measure advisor performance. That’s like ranking movie quality by box-office receipts for the year. The winners would include Pirates of the Caribbean  2 (2006), Die Hard 3 (1995) and Harry Potter 1 (2001).

Better Measures

Where would you like advisors to excel? Yesterday, a Pollara survey identified the top three ways:

1. Trustworthiness and honesty (89%)
2. Level of knowledge (88%)
3. Experience (83%)

Let’s create competitions.

Tests of TRUST

Measuring trust takes more than a stopwatch. Claims won’t do. To judge, we need evidence of past and ongoing actions. The same goes for honesty and ethics.

Last month, in a survey of advisors, “24% say they believe that financial services professionals may need to engage in unethical or illegal conduct in order to be successful”. What’s worse, 26% said “they had observed, or had firsthand knowledge of, wrongdoing in the workplace.”

How can we measure trust? Perhaps via the new prescription for trust, which focuses on chemistry, credentials and congruence.

Tests of Knowledge

In school, our book knowledge was tested regularly. In our online world, knowing details isn’t as important as knowing where to find the answers. A simple web search may be enough. Olympians invest in themselves massively despite diminishing returns.

• Problem solving: for the scenario provided, what solution does the study material recommend?
• Compare/contrast: for example, for different forms of advisor compensation
• Ongoing education: what takes place and where's the proof; show hours of study per year

Tests of Experience

Experience comes from applying book knowledge in actual cases. Advisors who learn from the past can adapt to our changing world. Olympians practice and practice even when they'd rather not.

• Problem solving: for the scenario provided, what real-world solution would different advisors provide (an amateur can only parrot what the books say)
• Learning: how have the answers changed from five years ago (e.g., newer, cheaper investment options may be available; the last financial crisis may have had an effect)
• Communication: explain a complex topic in accurate and understandable language (e.g., the effect of deducting investment expenses daily, the fine print in a contract, what's really guaranteed)

A blog is an easy way for advisors to show experience and generosity between competitions.

Drug TestS

What would disqualify an advisor from competition? Misconduct makes the list. Regulators catch some. Here are three of the recent examples:

• misrepresentation of credentials (sponsors: HSBC, CIBC World Markets): $10,000 fine and permanent ban
• misappropriation of client funds (sponsor: TD Waterhouse): $1.45 million fine and permanent ban
• unauthorized trades (sponsor: Raymond James): $20,000 fine, close supervision for 12 months

Client dissatisfaction could disqualify advisors. For example, how much service gets provided after the commission dollars are spent? Anonymous surveys could be used. The Ontario Securities Commission (OSC) is starting to contact clients directly as part of routine compliance reviews.

The Winner

There’s no charge for watching the Olympics. There’s no charge for screening advisors. The cost comes from picking a loser or sticking with a loser. With some diligence, you win.

Links

• Why advisors become advisors
• Keeping promises when no one’s watching
• The word advisors imply but dare not say
• Investing like Henry Ford: beyond The Globe and Mail interview
• image courtesy of The Department for Culture, Media and Sport
• image courtesy of Alessandro Paiva (Brazil)

Podcast 181

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PS What would you add?