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Generalist or Specialist-Which is Better for You?

Tuesday, December 15, 2009

When I started as a rookie advisor with Investors Group 13 years ago, the company mandated that advisors be dual licensed to offer investments(mutual funds,GIC’s and Canada Savings Bonds), plus maintain a license for life insurance, that allows you to sell life insurance and disability insurance(DI). Advisors were told that if we look after these elements & refer mortgage business to that department, we were essentially building “a wall” around our clients, so nobody else could talk with them (because we had all their business).This business strategy was crafted due to a number of factors; a) it was found that client retention levels rise when a client has multiple products with the firm, b)there was a fear that the advisor could lose the business if his client was” talking” with another advisor/broker, and c)perhaps the firm was fearful of competitive companies that offered financial solutions not available under the Investors Group platform. Many other companies in the financial services industry get the same client surveys as Investors Group and have also adopted this business philosophy (Jack of all Trades/broad-based generalists).It has worked in the past, but will it be successful when competing against more focused business models? I will attempt to give you my thoughts on this subject.

Generalist (Jack of all Trades):

Generalists usually operate under one of two banners. The first is the advisor who offers mutual funds plus life and disability insurance. The second is the broker who offers stocks, ETF’s, mutual funds, plus the insurance aspect. These advisor/brokers are trying to “do it all for you”. The problem with this business model is that there are an enormous amount of mutual funds in Canada, and the stock markets move very fast, so they have to stay on top of this area and be prepared to adjust client portfolios in times of market correction. When clients call the broker to buy/sell, they have to do this in a timely fashion, so this must take priority, plus this is revenue generating. In addition to that, they have to keep up with the insurance side of the business. This is a juggling act that requires a huge time commitment to maintain your knowledge as all of these disciplines are constantly changing. It requires regular attendance to seminars (online or out of office).It requires a tremendous amount of reading to keep informed. Many advisors/brokers simply farm off the investment side using managed wrap accounts, some of which have excessive MER’s.
A few advisors can manage this juggling act and thus can be an excellent choice, if they have your trust and the business model/typical client is a match with your situation. More often than not, this model of “doing it all” is simply a strategy to increase/balance revenue for the advisor/broker. When the stock markets correct and assets under management drop (thus revenue decreases), they have the insurance side to continue producing a steady revenue stream. From a revenue standpoint, there is much merit in this. The client has much less to gain than the advisor in this scenario. He/she may be dealing with an advisor/broker who is trying to do too much. When you call your advisor/broker, are your calls/emails being returned promptly, and are your questions answered by your advisor/broker, or an assistant or associate? You called your advisor/broker, not his assistant/associate. The response time and who responds can help answer concerns about whether your advisor/broker is being stretched in too many directions and where you are on his list of priorities.

The Specialist:

Specialists again generally operate under one of two business models. The first is the advisor/broker who handles the investments decisions, but refers a colleague to complete the insurance part of the plan. This model is efficient because specialists work on different aspects of the plan. This is much like in football, when a coach plays certain players on offence and others on defense. Many years ago, players played on both sides of the ball. The second is a structured team that would normally have upwards of 200 client families and managing over 30 million in assets. They would have 1-2 advisors/brokers managing the investments and 1-2 advisors searching for any insurance opportunities (life, DI, or critical illness).A receptionist is usually part of the team too. She typically books appointments plus handles some administrative and marketing tasks, so the advisor can focus on what he/she does best (meeting with clients).The structured team operates under the same premise as Investors Group (keeping all business/potential revenue under the same umbrella), but uses the unique skill set of members on the team to do what they do best. This is a huge advantage over the generalist. Specialists have chosen to operate a business model where they do a few disciplines very well, rather than do everything mediocre.

My own story is that when I left Investors Group, I automatically transferred my insurance license as well. A few years later, I began to question this decision for a couple reasons; 1) I enjoyed the investment side of the business more than the insurance side, although through my training, I realize that insurance needs to be incorporated into the plan in order to help clients become financially independent, and 2) I was spending too much time going to seminars and meeting with insurance representatives, just to keep up with this field. I decided not to re-new my insurance license and focus on the investment side of the business. When I meet with a client and determine that they don’t have proper insurance in place, I refer them to a colleague who enjoys this field and keeps up with all the changes in product offerings, by the multiple companies providing insurance solutions in Canada.
Specialization has transformed the practice of law and medicine, where generalists do fine as long as they are competing with other generalists. As soon as a specialist becomes part of the picture, they can no longer compete. New doctors have been migrating to these more attractive and lucrative specialty practices. Over time, specialization of the financial services business will likely continue, as generalists will have difficulty competing against the value proposition of superior advice offered by focused specialists.
Specialization has also occurred at the retail level. Not so ago, we could go in to The Bay or Sears and get clothes,toys,perfume,furniture,electronic equipment, plus other home and garden implements. Now they have specialty stores like Toys R Us, The Brick, Future Shop, Best Buy and many others that make it difficult for the big department stores to compete in those niche segments.Wal Mart looks to be the only retailer that can compete in most area’s and enjoy success. As always, you will have to choose what type of advisor/broker is right for you and your family. I hope my column has been provided some insight into how many advisor/brokers run their businesses and why they may use their model.



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Personal Opinions & Recommendations Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.