Toronto-based PhilanthPro Solutions launched new financial planning software designed to help donors plan their giving.

Founded by Nicholas Palahnuk, investment advisor and senior portfolio manager with the Palahnuk Group at BMO Nesbitt Burns in Toronto, PhilanthPro helps financial advisors create and manage goals-based financial plans for charitable accounts.

“It’s crazy that we don’t have tools to help people give their money away,” said Palahnuk, who is also CEO of PhilanthPro. “Our whole industry is set up to help people to accumulate wealth.”

Palahnuk has been an advisor for over 12 years with BMO Nesbitt Burns and has primarily helped clients accumulate wealth, but he discovered the pain of not having financial planning software for giving money away when he founded his own charitable foundation.

“We can kind of force these things into traditional planning software, but it’s not ideal. The taxes are wrong, it doesn’t account for grant planning . . . and it’s not easy to use,” he said.

PhilanthPro’s features include a grant planning tool to help donors keep track of grant commitments, a governance and records portal, and a charitable relationship management system. Advisors can create hypothetical scenarios, for example, to show how a large one-off deposit or donation would affect future giving.

PhilanthPro collaborated with accounting firm Grant Thornton LLP to ensure that the CRA-required minimum distribution of funds is accurately modeled for grant planning. In addition to showing minimal distribution over a time horizon, PhilanthPro can also calculate optimal distribution and perpetuity scenarios. The software will automatically update when CRA rules change, Palahnuk said.

After spending a year performing user testing with advisors and philanthropists, he said there is “a whole army of people that are very interested in the software.” PhilanthPro has been opening accounts in the first week of its launch and Palahnuk said he’s in discussions with wealth management firms about adopting the software.

PhilanthPro is suitable for clients who have charitable accounts like foundations, trusts or donor-advised funds, Palahnuk said. Pricing ranges from $3,000 to $5,000 a year depending on client needs.

It is also available in the U.S. and designed to work with the American tax system.

Wealthica opens API to other firms

Financial management platform Wealthica is opening up its application programming interface (API) to other financial institutions, with Wealthsimple using the tool to facilitate account transfers.

Wealthica, which aims to give financial advisors a complete view of their clients’ assets, can show an individual’s accounts from over 150 Canadian financial institutions and brokerages in one place. The platform updates information from financial accounts daily to aid in financial planning and portfolio management.

Wealthica’s API has powered National Bank-owned financial data aggregator Flinks since 2020, and it became available to other fintech platforms after the exclusivity deal ended in May 2023 .

Jeff Matte, Wealthica’s managing director, said Wealthsimple is using Wealthica to help investors transfer registered savings accounts, such as TFSAs and RESPs, from other financial institutions.

Firms often block transfers if there’s “a slight mistake” in the documentation, he said. “For the user, it’s really a painful experience.”

Wealthica’s feature in Wealthsimple allows users to complete the transfer on their smartphone with the system automatically filling in the regulatory forms. “In the future, we’d like to implement that in every brokerage in Canada,” he said.

Wealthica is also rebuilding its budgeting tool with an update planned by the end of the first quarter of this year, Matte said. “We’re really good at connecting accounts and fetching the transaction [data]. The key for budgeting is really the transactions.”

The Montreal-based company, founded in 2015 by Martin Leclair and Eric Lemieux, has over 50,000 users in Canada and $33 billion in aggregated assets, according to a release.

Minerva creates new channel program for anti-money laundering detection

Toronto-based anti-money laundering compliance technology firm Minerva launched a new channel program with Equifax to help financial organizations detect risk from crime.

“What Minerva is hoping to achieve is to show traditional financial services that there’s a far more efficient and effective way to meet their obligations as well as proactively address financial crime in their business,” Jennifer Arnold, co-founder and chief executive officer of Minerva, told Advisor.ca.

Traditionally, compliance professionals used a piecemeal approach to collect client information from multiple software programs and Google search, which isn’t an efficient way to determine risk and decide whether to conduct business with someone, Arnold said.

Minerva uses deep learning models and neural networks to analyze “billions” of data points to help financial organizations detect crime risk. It creates risk analysis of individual customer profiles for elements such as political exposure, sanctions and ongoing investigations. It can also perform fraud analysis in real time to predict and prevent financial crime, she said.

“Instead of waiting to get information back from somebody else . . . you can call it up in a matter of seconds and be really comfortable with the decisions that you’re making,” Arnold said.

Minerva and Equifax started working together about a year ago. Integration with financial services companies is available as a direct API from Minerva and through Equifax’s existing API arrangement with Minerva.

There are at least four other companies that have integrated Minerva into their operation, Arnold said.

“The responsibility is real for everyone in financial services to really understand who they’re doing business with [and] to make sure that they’re not facilitating money movement for criminals,” she said. “The quicker you can discover that the better off you will be.”

Italian financial software company Objectway acquired 100% of Toronto-based fintech company Nest Wealth, including shares previously owned by National Bank of Canada, as the Milan-based firm looks to expand in Canada and the U.S.

Objectway provides financial software to more than 200 banks, insurers, and wealth and asset management firms in more than 15 countries. Roger Portnoy, chief strategy officer for Objectway, told Advisor.ca that his company was looking to strengthen its client onboarding and financial planning offering.

“Nest is an onboarding technology company, a financial planning technology company, and an advisory technology platform and services company. So, in many ways, it was an ideal fit to find a company that had those capabilities that marry with our own,” Portnoy said.

The financial details of the deal were not disclosed.

Nest Wealth was founded in 2014 as a robo-advisor for retail investors before expanding with its Nest Wealth Pro tool for financial advisors. Its clients include asset managers, custodians and some of the big banks — including National Bank, which invested $6 million in Nest Wealth through its venture capital arm NAventures in 2017. Nest Wealth remained independent as that partnership deepened in 2020 with a commercial deal and investment that was worth up to $50 million.

The full integration of the technologies between Objectway and Nest Wealth will be completed in the next 24 months, Portnoy said. Existing Nest Wealth users in Canada will benefit from Objectway’s features, he said, but did not comment on whether the pricing will change.

“Over time, the Nest Wealth client will have an integrated solution from one provider, supported by one provider, upgraded and improved by one provider. It will be more cost-effective, more operationally effective, with reduced vendor risk,” Portnoy said.

Although Nest Wealth and Objectway’s tools will be integrated, Objectway intends to maintain Nest Wealth’s brand.

“It’s a well-known brand and we want to take advantage of the brand for now,” Portnoy said. “Our philosophy as a company is to allow local organizations to thrive and continue their own growth path, as well as integrate where it adds value.”

Objectway already has a small presence in Canada and made marketing efforts over the last five years, Portnoy said, but it didn’t experience as much success as the company hoped for as it lacked local delivery capabilities and could not manage integrations remotely. Acquiring Nest Wealth will help Objectway expand in Canada and the highly competitive U.S. market, Portnoy said.

“We have a strong commitment to grow, thrive and expand in Canada. We obviously recognize that more value can be generated on top of that by prudently going into the U.S.,” he said. “But Canada will, of course, be our first and dominant market for the starting point for our investment.”

Nest Wealth CEO Randy Cass said in a statement that the acquisition would accelerate the firm’s expansion into the U.S. and also open up the market in Europe, Africa and the Middle East where Objectway has a presence.

Getting to know your clients is the key to retaining them, finds a new study.

“It turns out that personalization is by far the number one thing that you can do to drive trust, and then second to that is transparency,” Rob Crnkovic, co-founder and chief research officer at CapIntel, told Investment Executive.

When asked how their financial advisor could improve, 28% of Canadian investors chose to answer “more personalized advice tailored to my financial goals,” according to a poll commissioned for the 2024 CapIntel Investor Engagement Report conducted by Angus Reid.

Further, 65% of Canadian investors reported that the main reason they stay with their advisor is because the advisor understands their personal situation and preferences.

“You need to really dig in and understand who your clients are, what their goals are, what their timelines of those goals are, and how things are changing on a year to year, even month to month or quarter to quarter basis,” Crnkovic said.

The third most important factor to clients was whether financial advisors could provide them with financial education.

“When you go and meet a doctor, you ask a lot of questions and you’re given a lot of information, but folks are actually a little bit embarrassed sometimes to ask questions of their financial advisor,” Crnkovic said. Adopting a “no stupid questions” policy can help build trust.

The survey also showed that clients continue to prefer in-person meetings as the preferred communication method with 41% of respondents selecting this option. This was followed by 28% preferring email, 18% preferring phone calls and 10% wanting video calls.

However, emails, phone calls and video calls add up to 56% of respondent preferences. “If you encompass all the different ways you can have a remote relationship with your advisor, that trumps in-person right now,” Crnkovic said.

In terms of frequency, one in three clients expected their advisors to check in with them about their investment strategy twice a year, and another one-third preferred quarterly contact. Crnkovic said financial advisors could provide investors with information via digital channels more frequently, but suggested keeping each interaction concise.

Three-quarters of respondents said they were satisfied with their current financial advisor. Satisfaction levels were the highest in the prairies with Alberta, Saskatchewan and Manitoba scoring 80% or more. Customers in Quebec (69%) and the Atlantic provinces (59%) were the least satisfied.

The research included 1,001 who worked with a financial advisor carried out from Nov. 20 to 23, 2023.

As your calendar for 2024 begins to fill, don’t forget to allocate time to your professional development. With the two-year continuing education (CE) cycle just ended, now is a great time to consider learning opportunities without worrying about CE requirements or deadlines. Many activities that don’t offer CE credits can nonetheless help you grow as a financial advisor, entrepreneur or leader.

“Everybody relies on their dealer and fund companies for education — and they’ve got their own agendas,” said Jason Pereira, partner and senior financial consultant with Woodgate Financial Inc. in Toronto. “We live in a multimedia world with lots of great opportunities for learning.”

Below are some of those opportunities, based on input from advisors and industry participants.

U.S. conferences

The dozens of advisor conferences in the U.S. are “a very underutilized resource that most advisors are not aware of in Canada,” Pereira said. “The ability to network and see the way things work outside of Canada is mind expanding for how you look at the industry.” Knowing about industry developments beyond Canada has helped him adapt his business and stay ahead of regulation, he said.

“There are so many great U.S. conferences … that a Canadian advisor is really selling themselves short by not attending at least one of these every couple years,” wrote Jason Watt, an instructor with Business Career College in Edmonton, in an email.

Kitces.com keeps a master list of U.S. conferences for advisors. Here’s a short list of favourites:

• Limitless Advisor, March 11–21, Charlotte, N.C.
• SHIFT, March 24–25, Orlando
• Futureproof Retreat, March 24–27, Colorado Springs, Colo., and Futureproof Festival, Sept. 15–18, Huntington Beach, Calif.
• FPA NorCal, May 28–29, San Francisco
• Carson Excell, Sept. 9–11, Orlando
• FPA, Sept. 18–20, Columbus, Ohio
• XYPN, Oct. 15–17, Minnneapolis, Minn.
• Academic Research Colloquium for Financial Planning and Related Disciplines (dates weren’t confirmed by publication time)

For a master list (in progress) of Canadian conferences in 2024, visit CE Corner.

Financial therapy

Andrea Thompson, founder and financial planner with Modern Cents in Oakville, Ont., wrote in an email that she took Ashley Quamme’s course Financial Therapy Skills 101 Intensive last year as a way to better integrate behavioural finance into her practice.

“I would recommend anyone who is approaching their practice from a humanist perspective to engage in some type of financial therapy course — not to become a financial therapist but to better understand a client’s innate programming, and behaviours that stem from them,” Thompson wrote.

Quamme said in an email that in 2024 she plans to offer popular sections of the course in one-hour sessions.

Another option is this year’s Financial Therapy Association (FTA) conference in San Diego in May. The theme is Financial Therapy for All: Across Cultures, Across Generations. Attendees don’t need to be members, and an international rate is available, said Natasha Knox, who is conference chair as well as founder of Alaphia Financial Wellness in the Greater Vancouver Area.

Knox also recommended FTA’s live workshops. This month’s workshop, which begins Jan. 19, is Fostering Financial and Relational Security with Attachment Theory.

“It’s the second time we’re running it,” Knox said. The course “bridges the gap between theory and implementation, so that people have the opportunity to ask questions and maybe even practise, so they’re not cutting their teeth on their clients.”

Podcasts

The best ones will have you taking notes and making changes. Shout-out to Ben Felix of Rational Reminder (with Cameron Passmore) and Money Scope (with Mark Soth): “Five stars every time,” Watt said, referring to Felix’s content. “Best low-commitment way for a financial advisor to get better at everything.”

In an email, Felix said Money Scope, which launched in December, is based on a financial planning curriculum he developed with Soth, a physician and personal finance blogger. “We wanted to build a content library that covers the full lifecycle of financial planning, from designing a good life to estate planning,” Felix wrote.

Here’s a short list of advisors’ favourite podcasts, in alphabetical order:

• Financial Advisor Success
• Financial Planning for Canadian Business Owners (Pereira’s podcast)
• Financial Therapy the Podcast with Rich Kahler
• Hull on Estates
• Kitces & Carl
• Life in the Tax Lane
• Money Scope
• Most Hated F Word
• Rational Reminder
• TaxBreaks
• Tax Chick

Potpourri

• Barbara Stewart, a CFA charterholder and researcher on women and finance, recommends Movement51 offerings. “Their courses would appeal to advisors who want to learn more about the venture capital landscape,” she wrote in an email.
• The free 2021 course on low-income retirement, developed by Alexandra Macqueen, who is now vice-president of learning, development and professional practice with FP Canada, and hosted by Business Career College, is still available.

(Relatively) new and noteworthy programs

Succeeding at Succession

In 2022 industry veteran and author George Hartman launched Ultimate Practice, which offers practice management resources and coaching. With Ultimate Practice’s Succeeding at Succession course, advisors work through the details of their exit plans.

“In addition to the assignments and questionnaires and resources built into the course, [advisors] develop what we call a playbook,” Hartman said in an interview. “They take what they’ve learned and translate that into how they’re going to use it in their own succession plan.”

He said participants have commented that the course helped them consider factors they previously hadn’t identified, resulting in changes to their succession strategy, choice of successor, timeline or other playbook details.

Both financial and behavioural factors are discussed during the course. “We talk a lot about the emotional side of leaving the business,” and how advisors will spend their time in retirement, Hartman said.

The course is offered live for 10 weeks to a group of 10 to 12 advisors ($1,997, with payment options), and a DIY version is available for those who want to work at their own pace ($997, with payment options).

The next live session starts Jan. 22, and includes a weekly group chat.

“Once a week we get together for a 60-to-90-minute conversation about what they’ve learned and how it applies to their situation,” Hartman said.

The first group to take the course — in fall 2022 — continue to meet quarterly to discuss one another’s progress, he said: “Everyone [in the group] became personally interested in the success of their fellow students.”

Investment Professional Leadership Program

Professionals still ramping up their practices may want to consider the Investment Professional Leadership Program from Ivey Business School. Developed in collaboration with the Investment Industry Association of Canada, the in-person program is aimed at mid-career investment professionals with 10 to 15 years’ experience who want to take their practices to the next level. It runs over several days and costs $12,500 (including meals and accommodations.)

Brianne Gardner, senior wealth manager with Velocity Investment Partners, Raymond James in Vancouver, took the program in 2023 as part of the second cohort of participants. (Raymond James CEO Jamie Coulter is among the program’s industry guests.)

In an interview, Gardner described the course as intensive, hands-on and collaborative, and said it fuelled personal and business growth.

Specifically, it helped her consider how her practice can adapt to disruptive trends, such as artificial intelligence, and how to manage her physical and mental health as she runs a growing practice. Referring to implementing what she learned during the program, she said, “It’s figuring out how you can be the best for yourself, your team, your business and your clients.”

For Gardner, that meant identifying and creating a plan to address her three biggest pain points: personal health, her team’s capacity and efficiency, and marketing for a high-service brand.

The plan’s implementation will be tracked and measured to hold herself and the team accountable, she said, adding that three new people have recently been added to the team as part of the plan. She said she looks forward to reflecting on the changes in one to three years.

Applications for the program are due Jan. 25.

Private Equity Certificate

The CFA Society Toronto and Mink Learning — the educational arm of Toronto-based private equity consulting firm Mink Capital — have teamed up to offer a new private equity certificate. As more high-net-worth clients look to invest in private markets, the on-demand course trains participants on the ins and outs of private equity so they can advise their clients or invest themselves. The course covers private equity funds as well as buying and selling companies.

Registrants can log into their accounts beginning Jan. 9 and have six months from their start date to complete the exam.

Send your suggestions for additional educational resources to michelle@newcom.ca.

In the world of sales, as in the world of financial advice, understanding your customers is critical. However, this is hard when customers are unsure of what they want.

An interesting example was described in a Harvard Business Review (HBR) article featuring Electrolux, the Swedish appliance maker. Despite extensive market research supporting the decision to offer washing machines for free and apply per-use charges, the move did not yield the expected results when piloted in Sweden.

The HBR article suggests that this approach conflicted with the social identity of middle-class consumers, who did not want to be associated with paying per wash — a practice they associated with lower-income consumers. This illustrates the importance of aligning business models with customers’ social identities.

Similarly, General Mills faced challenges with its Betty Crocker cake mixes in the 1950s. Despite being convenient, the mixes did not sell well because housewives felt guilty using them, as baking from scratch was seen as a way to demonstrate love for their families. General Mills realized that they needed to make the mixes seem more authentic. So, they removed the powdered eggs and required consumers to add real eggs when using the mix.  This made the mixes seem more like traditional cakes, requiring “love and attention,” and sales skyrocketed.

These examples underscore a powerful lesson in consumer psychology: people want to feel in control and do things the “right” way. When this sense of control is compromised, resistance arises. This insight is relevant not only in consumer behaviour but also in the realm of investments and financial advice.

When advisors conduct risk assessments, investors often claim they understand market risks and will be able to ride out periodic downturns, but then they panic and want to sell when the market tanks. This plays out often as a combination of investors feeling out of control but also not fully understanding their own attitudes to risk until it moves from theory to reality. This complexity of human behaviour underscores the need for deeper discovery in understanding clients’ true motivations and needs.

Moreover, investors used to exercising control in their careers or their businesses may struggle with ceding control when seeking financial advice. This means that, much like with the Betty Crocker cake mix, there are benefits when advisors involve their clients in portfolio creation and implementation. This doesn’t mean investors are picking stocks; it does mean they’re actively involved in defining their goals and have some choice between portfolios designed to meet those goals.

Co-creation takes longer but, as we experienced at my old firms, it leads to far less attrition down the road. Recent studies have shown that investor self-confidence — a sense of control, belief in their abilities and a clear plan — is closely correlated to loyalty to their advisor. There are many levels of co-creation, just as there are many types of clients. The the advisor’s questioning and listening skills are needed to find the right level of partnership.

Additionally, advisors must connect with clients on an emotional level, demonstrating understanding, empathy and care for their financial well-being. This also requires deep listening and continued questioning to find the hidden motivators that can trigger clients’ seemingly irrational behaviour. The Electrolux and Betty Crocker examples demonstrate that failing to understand customers’ emotions will lead to market failure.

Technical skills are great, but they speak to the head. First, advisors need to speak to the client’s heart. Betty Crocker only succeeded when it showed that it understood 1950s housewives’ need to show love for their families. Advisors can do that by showing they understand clients’ needs and fears, and that they care about clients’ money as much as they care about their own.

The Electrolux and Betty Crocker examples also highlight the importance of status and social identity when it comes to connecting with customers. A future column will examine how understanding clients’ social identities can be useful for advisors as they help clients achieve their financial objectives.

Toronto-based wealth management compliance advisory firm North Star Consultants and digital wealth management platform developer FusionIQ Canada became referral partners in November.

U.S.-based FusionIQ expanded into the Canadian market in September.

Under the agreement, North Star refers clients who need a digital wealth management platform to FusionIQ and FusionIQ refers clients who need compliance services to North Star, said Howard Atkinson, head of business development at FusionIQ Canada in Toronto.

Many wealth management firms have separate, unconnected applications for tasks like portfolio management, trading and client onboarding. FusionIQ’s platform, FusionIQ One, is an integrated “operating system” where advisors can see all client documentation and accounts in one place, Atkinson said.

The platform records every trade and position, so compliance personnel can review transactions in a consolidated manner, Atkinson said. Firms can also automatically block transactions that should not happen or that require compliance review.

FusionIQ already serves 10,000 advisors in the U.S. and has completed over one million transactions. The platform will be integrated with two Canadian custodians, available in English and French and “Canadianized” for Canadian account formats, Atkinson said.

FusionIQ has signed memoranda of understanding with a “large Canadian institution” and a self-directed investment firm that will offer the platform for consumers. Atkinson said he expects the company to make official announcements in the first quarter of 2024.

Richardson Wealth renews agreement with Croesus

Toronto-based wealth management company Richardson Wealth renewed its contract in November to use Montreal-based Croesus’s portfolio reporting software for another five years. The company, with $34.7 billion in assets under management, has used Croesus Advisor since 2008, said Marc Riel, vice-president of development and strategic partnerships at Croesus.

Croesus Advisor includes portfolio rebalancing tools and management platforms. It also helps advisors adapt to regulatory changes by automating the risk-rating process and reviewing compliance with an investment policy. Most of the firms using Croesus Advisor use it for reporting purposes and to communicate with clients, Riel said.

Richardson Wealth is one of Croesus’s approximately 150 Canadian clients, many of which are major financial institutions, Riel said. Croesus has over 50% market share of financial institutions in Canada and its platform processes an aggregate $1.7 trillion of assets under management, said Frédéric Le Bouar, director of product marketing and outreach at Croesus.

Croesus partners with Mako Financial Technology for KYC

Croesus and Montreal-based Mako Financial Technologies partnered to integrate the Croesus Advisor portfolio management system (PMS) with Mako’s know-your-client and document-processing automation to help advisors streamline client onboarding.

An onboarding process that used to take up to a month to complete can now be completed in a matter of days, Riel said.

Discussions for this partnership began two years ago in response to feedback from advisors who wanted  quicker client onboarding.

Croesus is in “very advanced” discussions with other companies for similar integrations, Le Bouar said: “Digital onboarding, ESG, financial planning — all the functionalities that we don’t provide in a PMS, we want a partnership in some manner.”

Nicholas Yuzwin started his own practice, NPY Wealth Management in Mississauga, Ont., in 2016 after working in the credit union system for over a decade. That same year, his personal computer was attacked with malware while his backup drive was plugged in, and hackers demanded a substantial ransom. 

He lost all his data. 

Though Yuzwin’s business wasn’t affected, the experience prompted him to hire NPC DataGuard, a cybersecurity response company based in Markham, Ont., to protect his company from cyberattacks. NPC was referred to him through his dealer, Manulife Securities Inc. 

“When that happened to me personally, I said, ‘No, this is not going to happen to me in my business,’” he said.  

Financial services companies, with a treasure trove of client information, are a top target for hackers, said Larry Keating, CEO of NPC DataGuard. Wealth management practices of all sizes should take preventative measures, create an incident response plan and know what to do during a breach. 

Preventing cyberattacks 

Financial advisors can prevent cyberattacks through the three pillars of policy, training and technology, Keating said. Standards for passwords and for protecting and sharing information must be accessible to all staff but kept confidential, he said, as they may indicate areas hackers could exploit. He recommended one hour of training per quarter on the policies.  

However, Keating said, “Without a superior investment in technology by qualified people, all the policy and training in the world isn’t going to help you.” 

A proper incident response plan should include attack preparation, breach detection, threat containment, malware eradication and data recovery. Advisors should know what their dealer’s is, and keep paper copies of the plans, as digital copies might be inaccessible during a cyberattack. 

For example, Manulife Securities has minimum software requirements, a system to encrypt sensitive emails and procedures on how to inform clients of breaches, Yuzwin said.  

Responding to a breach 

During a breach, staff must know who to inform in what timeframe, Keating said. This includes management, co-workers, any cybersecurity response firm on retainer and clients.  

They should also know what not to do. Some malware gets embedded deeper into the computer system when a device reboots or waits to steal an administrator’s higher-access credentials. 

A cybersecurity response company will use forensic analysis to help financial firms determine the nature and extent of the breach. For example, hackers may threaten to sell client data, or they may just lock the advisor out of their system.  

“If we were just locked out, that’s a completely different message to a client,” Keating said. Clients would feel a “heck of a lot better” knowing their data wasn’t compromised. 

Communicating an attack is a compliance issue. In addition to complying with regulation, dealers may be bound by carrier policies on how to communicate a breach to clients. For example, Manulife requires advisors to inform clients of an attack by phone and explain what is being done to remedy the breach, Yuzwin said. 

Although advisors may rely on the cybersecurity response company’s expertise to resolve the attack, the advisor and their staff should “without question” be the ones telling clients how it will be fixed, Keating said. “Going arm’s length at that time through the cyber response partner would only make the impacted clients feel even less loved.” 

When informing clients of a breach, advisors must choose their words carefully and may want to consult a lawyer, a cybersecurity response company or an insurer for help, Keating said. Advisors need to tell clients what happened and how it may affect them, issue a sincere apology, explain what is being done to fix the problem, explain what they will do to protect clients (such as credit monitoring) and commit to further updates. 

Saying the wrong thing can make matters worse, Keating said. Speculating about what happened or downplaying the situation can appear insensitive or break trust if the situation turns out to be worse than it first appeared. Advisors should also avoid technical jargon, which could frustrate and confuse clients, and refrain from blaming a third party — even if they caused the breach. It’s better for advisors to take responsibility, Keating said. 

Paying for cybersecurity is a “cost of doing business,” Yuzwin said. It’s the advisor’s responsibility to protect their clients’ data as well as their assets, and doing so shows clients “that you have their best interests at heart.” 

It’s also a way to earn trust from prospects, many of whom don’t think about cybersecurity when they begin working with an advisor, Yuzwin said. He always tells prospects about his practice’s daily backups, email encryption and protection from a third-party cybersecurity company.  

Yuzwin said he’s surprised when financial advisors only enact the minimum required cybersecurity measures. “That’s an accident waiting to happen because they’re eventually going to get hacked,” he said. “And once that happens, good luck in trying to retain your clients because your clients will find somewhere else to go.” 

As artificial intelligence becomes more robust, financial advisors need a method to verify a client’s identity for every transaction that doesn’t happen in person. Advisors can’t rely on recognizing someone’s voice stating their vital information, because scammers can clone voices with AI and steal a client’s identifying information.

But a commonly recommended technique, passphrases, is insufficient for protecting clients from fraudulent transactions. A passphrase is a unique sequence of words advisors ask their clients to recall to verify their identity during voice or video calls, which has a similar function to passwords used to login to online accounts.

Most people are just as likely to forget a passphrase as they would a password, said Jason Pereira, financial planner and senior partner with Toronto-based Woodgate Financial.

Instead, Preet Banerjee, a wealth management consultant and partner with Toronto-based investment analysis firm Wealthscope, recommended using common two-factor authentication methods for every virtual interaction.

At the beginning of any voice or video call, an advisor or their staff could push a one-time code to a client’s smartphone through text messaging or an authentication app and ask the client to read the code back.

“There are ways to automate this way to verify a client’s identity without having to memorize a passphrase for every person that you deal with on a regular basis,” Banerjee said. “That is much more manageable.”

For now, automated two-factor authentication for client calls is still “relatively uncharted,” Banerjee said. In the interim, advisors can tell clients they’ll spend a few minutes at the beginning of each call to go over previous interactions and confirm details that they’ve learned about each other over time to make sure they’re speaking to the right person.

Advisors should ask for information that only the client would know and be aware of which transaction types require extra scrutiny, Pereira said. For example, any request to move money out of an account and redirect it to someplace new is a major red flag.

Verification questions could include what they last discussed, recent transactions or where they said they wanted to go on holiday next year. Advisors who have frequent contact with clients will know more about them and be less susceptible to fraud.

Nonetheless, advisors may want to set up face-to-face meetings for large transactions as a surefire way of verifying a client’s identity, Banerjee said.

Advisors who meet with clients less often can still enhance security by mixing standard security questions with intimate knowledge, Pereira said. Staff can ask for the middle three SIN digits instead of the commonly used first or last three, and ask the client when they last met with the advisor and what was discussed. Taking detailed notes during meetings creates more verification material.

“There’s no replacement for knowing your clients when it comes to protecting them from fraud,” Pereira said. “[It’s] a combination of client knowledge and awareness of the situation.”

Scammers don’t just impersonate clients — some impersonate advisors to defraud their clients, Banerjee said. He said his social media profile was cloned by scammers who tried to sell cryptocurrencies and online trading programs to his followers. Advisors need to educate clients to be suspicious of anything requiring urgency and remind clients to call the advisor’s office if they have questions.

As advisors use new ways to detect and deter AI cloning, scammers will try to leapfrog that technology to circumvent it, Banerjee said. “It’s basically going to be a technological arms race.”

The results are in for FP Canada’s October sitting of the Qualified Associate Financial Planner (QAFP) exam.

The exam was written by 57 candidates, and the pass rate for first-timers was 68%, a release said. That compares to 56 candidates and a pass rate of 81% at the last sitting, in June.

In an FP Canada survey, 73% of candidates said they wrote the exam to enhance their skills and better serve clients, the release said. The same proportion said title regulation was a motivating factor.

In addition to passing the exam, candidates for QAFP certification must have a post-secondary diploma and at least one year of qualifying work experience. Effective April 2024, candidates without a diploma may obtain certification if they have at least five years of qualifying work experience.

QAFP certification launched in January 2020, and there were about 1,400 QAFP professionals in Canada as of Sept. 30, 2023, FP Canada’s website says.

Personal finance personality Dave Ramsey recently caused a stir in the financial planning community by claiming that clients should be able to withdraw 8% of their portfolios in the first year of retirement and adjust for inflation each year thereafter without being at risk of depleting their investments.

This bold claim flies in the face of more commonly cited retirement spending rules, like the 4% rule. Safe withdrawal rates — and the 4% rule in particular — have lots of problems, but they are commonly used by investors and recommended in many popular personal finance books. So, it’s worth addressing Ramsey’s claims.

Financial planner William Bengen ignited the safe withdrawal rate literature in 1994 when he wrote the research paper “Determining Withdrawal Rates Using Historical Data.” The result of Bengen’s research was a safe spending rate for a 30-year period, which was determined to be about 4% in his data. This finding was based on historical data for U.S. stocks and intermediate term Treasuries.

Ramsey’s logic is that “good” mutual funds return around 12% per year, while U.S. inflation has averaged around 4% for the last 80 years. This leaves 8% for the retiree to spend. This logic is flawed; retirement spending math simply does not work that way.

To start, “good” mutual funds are hard to find before the fact, so the idea that you can easily pick a market-beating fund is unsupported. The best performing funds historically do not tend to go on to be the best performing funds in the future.

The Standard and Poor’s SPIVA U.S. Persistence Scorecard illustrates the point. With a starting sample of 527 top-quartile funds, exactly 0% of them remained top quartile over five years. Similar data are available for Canada, though the sample is much smaller.

The case is similar with country returns. Ramsey references the returns of the S&P 500 as being a little below 12%, but, again, the phenomenal historical performance of the S&P 500 does not tell us much about expected returns.

The 2023 paper “Is The United States A Lucky Survivor: A Hierarchical Bayesian Approach” finds that the realized historical risk premium on U.S. stocks exceeds the expected premium by 2%. This premium is approximately equally split between contributions from luck, where cash flows ended up being higher than expected due to disasters that did not materialize, and learning, where investors lowered their required return on U.S. stocks over time as catastrophes did not happen, driving up the stocks’ valuations.

With U.S. valuations where they are now, there is a strong argument that expected returns for U.S. stocks are far below their historical returns. Earning high returns in the future is not as easy as picking the best performing country of the past.

Since we can’t pick winning funds or winning countries before the fact, a more sensible approach to planning for retirement is using the return experiences of countries around the world to gain an understanding of possible retirement outcomes.

This has been done in at least two papers: “The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets” (2023) and “An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4% Rule?” (2010). The broad conclusion of both is that even 4% is too high to be safe for most retirees; a number around 3% — or lower — could be considered safe.

The other problem with Ramsey’s 8% spending claim is that even if we could find a fund that returns 12% on average, it would not sustain an 8% withdrawal rate because stock returns are volatile. A 12% average return will consist of big ups and downs, and inflation similarly goes through higher and lower periods.

Constant inflation-adjusted spending during consecutive down years, or years of high inflation, can deplete a portfolio quickly. A mutual fund that returned about 12% per year since 1935, the American Funds Investment Company of America, helps make the point.

The fund returned an impressive 11.73% annualized from 1934 through October 2023. Using its historical performance to test an 8% withdrawal in the first year followed by annual inflation adjustments over a 30-year period — a constant real $80,000 in spending — yields a success rate of a little more than 50%. This means that in around half of simulated trials, the client ran out of money before the end of the 30-year withdrawal period — not exactly safe.

At a more palatable 5% failure rate, the safe withdrawal rate for this fund would be about 4.6%, slightly higher than the 4% finding from Bengen, which makes sense since we are using a fund that we know, after the fact, has slightly outperformed the U.S. market.

In any case, the reality is that most clients will be best served by some form of variable spending strategy that responds to year-to-year changes in portfolio values and expected returns, rather than the type of constant inflation-adjusted spending suggested by safe withdrawal rate research.

For clients who may have heard Ramsey argue that 8% is a safe spending rate for retirees, the answer is, in no uncertain terms, no, it’s not.