Ross Smith had carved out a nice niche for his construction company: It was the largest installer of bank machines in Canada before he sold it and retired to the country two years ago.
It was the kind of idyllic life financial firms promise you in glossy ads. Work hard, sock away money religiously, and savour your monthly statements in between trips to Whistler or St. Bart's.
Indeed, for more than a decade, Mr. Smith sent money blindly to his financial advisers, "never really following anything," he says.
But with the markets gyrating wildly and his multimillion-dollar portfolio down by about 25 per cent, Mr. Smith started paying attention. And he didn't like what he saw: high-commission investments, frequent trading and a lack of communication during the worst market storm in generations.
So, for the first time in more than a decade, he put his portfolio up for grabs.
Mr. Smith is one of a growing breed: high-net-worth Canadians who are re-evaluating relationships with their financial advisers in the wake of a whipsawed market.
More than at any other point in recent memory, timeworn investing philosophies are being questioned, and fees are being scrutinized.
According to the spring results of the Wealth Management Index, a survey from Angus Reid Strategies, 22 per cent of Canadian investors have contemplated ditching their current advisers.
After all, when some of the wealthiest investors in America were robbed blind by their money manager - former Nasdaq chairman Bernie Madoff, whose Ponzi scheme recently won him 150 years in jail - just who can you believe any more?
"Clients' lack of trust and confusion has gone up significantly," says Arjun Saxena, a New York-based partner in the wealth-management practice with consulting firm Oliver Wyman. "Loyalties are totally up in the air."
For Mr. Smith, the first step was a consultation this spring with Warren MacKenzie of Toronto's Second Opinion Investor Services, who evaluated his portfolio for a flat fee. Mr. MacKenzie also arranged for a number of high-net-worth specialists to come and pitch for his business.
Suddenly, Mr. Smith found himself being treated like everybody's best pal.
"Each group had 40 minutes to come in, show me how they've done over the last five years, and say their piece," says Mr. Smith, who decided to split his portfolio between two advisers, Connor, Clark & Lunn, and Cougar Global Investments. "It was nice to have so many choices."
It's all a startlingly new phenomenon because, especially in the high-net-worth space, relationships with financial advisers are usually decades in the forging. But now their "money is in motion," says Ed Keohane, managing director of Bank of Nova Scotia's Private Client Group.
Some advisers are benefiting handsomely from this tectonic shift. Rick Smerchinski, a Waterloo, Ont.-based vice-president and portfolio manager with HSBC Securities (Canada) Inc., was surprised during the downturn to pick up four new high-net-worth clients with a combined $5-million in assets.
Toronto financial planner John De Goey is finding the same: In the fourth quarter of last year, when markets were testing new lows, he welcomed a handful of new high-net-worth clients. "It was totally unsolicited," marvels Mr. De Goey, a vice-president at Burgeonvest Securities who handles the portfolios of about 70 families. "I never contacted them, never even heard of them. They just phoned me up and said, 'I think we need to talk.' "
Other advisers, though, might be facing a time of reckoning. For those who have overseen subpar returns, taken on more risk than the client was comfortable with, communicated poorly or not at all, or benefited unduly from high fees and commissions, relationships are facing the guillotine.
At the million-plus level, it's not just investment advice that's being offered. The array of services offered to high-net-worth clients by private banks and family offices can be breathtaking: not just estate planning, the setting up of trusts, or preparing your personal tax returns, all of which have become almost automatic.
These days advisers are increasingly like all-around life concierges, and might arrange to appraise your art collection, set up care for your elderly parents, or give your kids lessons in financial fluency. They'll do everything short of walking your dog.
Why so accommodating? Because the number of Canadian millionaires is dwindling, thanks to the carnage in the stock markets, and advisers are holding desperately to what they've got.
At the worst of the crisis, almost half of the world's wealth was essentially wiped out, according to Stephen Schwarzman, the chief executive officer of private-equity shop Blackstone Group. By the end of 2008, the number of millionaire households in Canada - those with at least $1-million in investable assets, excluding real estate - "fell by 70,000 as a result of the market turmoil and the erosion of asset values," says Keith Sjogren, research director with Toronto-based consulting firm Investor Economics.
For financial advisers specifically, many of whom earn their living by slicing off a percentage of those now-reduced assets, the millionaires who remain are key to survival.
Indeed, moneyed Canadians can feel like bait in the water.
"It's probably the most competitive space on the planet," says one Toronto-based multimillionaire philanthropist. "I get a surprising number of unsolicited mailings, investment managers mailing me their quarterly results, invitations from people I've never heard of at large banks to go to their seminars, phone calls from bucket shops in the bowels of New Jersey," he says.
"I even had one fellow come aggressively at me in the last 18 months, sending me weekly e-mails complete with PowerPoint presentations. He thinks he's my best friend."
In short, the high-net-worth game in Canada has changed. Investors, including Jay Taylor, are kind of bemused by all the attention they're getting.
The owner of Morty's Pub in Waterloo, Ont., Mr. Taylor has had his money with HSBC for about a decade. But in a relatively small community like Waterloo, there are "seven big competitors, all of whom have built massive new offices in the last few years," says Mr. Smerchinski, his adviser.
That means Mr. Taylor isn't enjoying much peace these days. From random phone calls to advisers foisting their cards on him at the pub, he's surprised at the aggressive turn things are taking.
"Everybody's stepped their game up in terms of poaching," says Mr. Taylor. "In this economy, everyone's more willing to show their business card than they would've been two years ago. They even claim they'd bring in 100 different experts to help me out."
Financial advisers know that key clients like Mr. Taylor are prime targets in volatile periods, when they can lose a big chunk of their wealth in a matter of months. Mr. Taylor himself saw his portfolio sink by about a quarter (though he's since made up much of that ground).
As such, smart advisers are taking pre-emptive action. That means more face-to-face meetings, inviting high-net-worth clients to seminars, retooling old portfolio plans that have blown up, or having branch managers or international experts in for private chats about what's going on in the markets. HSBC's Mr. Smerchinski, for instance, has taken to writing personal letters in advance of account statements, to soothe clients over the market's wild gyrations.
Toronto's Jane Haberbusch is one of those high-net-worth Canadians benefiting from her adviser's full-court communications press. As director of human resources at energy firm Enbridge, she and husband Glen Thorne had seen their portfolio fall by about a third during the worst of the market freefall. Through it all, thanks to their adviser, Mr. De Goey, "the communication has been fantastic," she says. "As things started to go south last fall, we got lots of e-mails, updates and performance information. I was even on assignment in Western Canada for six months, and he'd call me out there to talk about strategy and rebalancing."
As a result, Ms. Haberbusch stayed put - even though her bank dropped hints that it was ready and willing to assume her whole portfolio.
That jibes with the findings of Angus Reid Strategies' Wealth Management Index, which found that the number of annual adviser contacts is the main key to client satisfaction. Among million-plus investors, satisfied clients had an average of 18 annual contacts; dissatisfied clients, an average of just five.
For boutique advisory shops in particular, even the loss of a single client is keenly felt. That's why advisers such as Sloan Levett have stepped up their game - even answering client questions on his BlackBerry at 1:30 in the morning, if necessary.
Mr. Levett leads the wealth-management practice of Toronto accounting firm Fuller Landau, looking after about 20 clients, each with assets in the millions. He's no newbie to a rarefied clientele, having previously managed the finances of a member of the Thomson family.
It can be tough to fend off the giant banks - "the big folks often try to poach our clients," he says - but his competitive advantage is that he doesn't have a vested interest in selling particular products.
While institutions often have an incentive to steer you into specific funds, "we're objective, and that's our differentiator."
Indeed, in a down market, where every penny matters, traditional fee structures - charging a percentage of assets, and/or commissions for buying particular financial products - are being heartily questioned. Such fee-only advisers as Second Opinion's Mr. MacKenzie are seeing a bump in business, and the idea of salaried advisers is gaining traction.
In addition to being product-agnostic, Mr. Levett and other advisers seem willing to let the professional bleed into the personal. He's become part financial pro, part trusted adviser, and part on-call psychologist: If clients have issues with their significant others or their kids, are musing about whether to buy or lease a car, or just need the name of a fabulous restaurant, they ring him up.
"One even handed me a picture of his daughter and asked me if I knew anyone to set her up with," he remembers. "I said I'd try."
What investors are hungriest for now, however, is usually simple trust.
"You meet a lot of happy, smiling people when they want your money," admits Claremont's Mr. Smith, who plans to bring in Second Opinion's Mr. MacKenzie to monitor the horse race between his new advisers. "But right now, no one really seems to know anything. I just want someone to tell me the truth."
This story first appeared in Globe Investor Magazine. Read the full version on the new Globe Investor website.
By the numbers
200,000
Number of Canadian households with at least $1-million in
financial assets, excluding real estate
61.5
Average age of a Canadian
millionaire
57
Percentage of millionaires
who have already retired
1:3
Ratio of millionaires who report annual household incomes below $100,000 (often retirees living off investment income)
1
Percentage of Canadian
millionaires who say they got where they are financially by luck
Source: Ipsos-Reid
Affluent Canadians Report
© The Globe and Mail
