Veritat Advisors -- Worthy of Praise

Every once in a while I run into a financial services company that really impresses me. I feel it would be almost irresponsible to not be public about my praise. Based in the United States, Veritat Advisors was brought to my attention by the insightful Chris Stephenson of Steadyhand Investment Funds.

Veritat Advisors quite basically is a financial planning service offered online. Now, wait! Before I lose you, I'd like to recognize that it is an uncomfortable dynamic for a lot of folks. To take a professional service that is offered online seriously might be tough for some people.

That being said, Veritat Advisors set their company up in a manner in which a financial advisor can take on a client anywhere in the US, not just the city they’re a resident of. They have a virtual console in which a client can see their advisor on a webcam and be presented slides, presentations, etc. Their fees are low, and they offer the fee-only compensation arrangement charged monthly ranging from $25-$40/month after a $250 initial fee. Even their most basic service guarantees a financial plan, which they go over once every quarter. They say they are legal fiduciaries, which is amazing.

For financial advisors to become a fiduciary is something I’ve been really passionate about seeing in Canada. As it stands, Canadian financial advisors can’t legally just become a fiduciary, but many like to deputize themselves as such (do you ever hear “we hold ourselves to a fiduciary standard?”)…it is something, but we can do better.

This is just from what I can see. They say their financial plan is comprehensive, but I haven’t seen it myself. The FA whose profile I was able to look at is well educated (CFP and MBA) and certainly is qualified to write a comprehensive financial plan. They have an optional portfolio managementfee of 0.5%, which is low. It’s really amazing value, but they don’t give any suggestions on to what investment counselor they may be using (my guess it has to be a strong indexing approach as, although US has cheaper management fees than Canada, they aren’t that low).

That all being said, the service is based online and over the phone. If you feel face-to-face meetings are important, they would certainly be under par in that department. However, their online client console does seem like quite an able substitute.

It must be pointed out that I’ve never been a client of Veritat nor have I formally evaluated their service as I would an advisor for the Onus roster. My conclusions are based strictly on observations made in the manner in which they present themselves on their website. However, with a 14 day free trial and 30 day money back guarantee, they’re putting their money where their mouth is, as a client can walk after the financial plan is done for them. That’s quite a risk and illustrates confidence.

The bottomline is if these guys are as advertised, this is a pretty amazing service, and Canada would be well served to have a similar shop like this.

‘Z’

What's the damage?... Wait, don't want to know!

Late last week, I was discussing the state of the retail investment industry with a proud do-it-yourselfer. It was clear from immediately talking to him that he knew more than the average Canadian, and I was quick to commend him for his knowledge and passion. All that being said, he completely devastated me with his next comment:

"It is ridiculous. Some advisors now charge their clients twice: a fee for themselves in addition to the MER."

It must be added this line was said with contempt, although it wasn't particularly relevant to this gentleman, a retiree who very much enjoyed picking stocks for his portfolio. The clients are charged twice but only after significantly reducing the MER to accommodate this charge (these are referred to as F-Class funds). This is done in order to make it clear to the investor how much he or she is paying to their advisor, leaving just the MER, which goes to the fund company, embedded. This method is clearly, I believe, beneficial to the client, which leads me to wonder: How widespread is this belief that this transparent fee serves as an increase in fees to the client?

The term, "unbundling," I first encountered in John DeGoey's book, The Professional Financial Advisor. At full-service brokerage firms, it is referred simply as "fee-based." (*) Basically, it means the financial advisor's embedded compensation is removed and fees are charged to the client in a transparent manner (in brokerage firms, it is as a percentage of clients' total assets). Whether it is recommended or even provided as an option is purely at the discretion of the full-service financial advisor. DeGoey, himself, mused the riskiness of convincing a client to convert to fee-based. I never thought it'd be such a challenge till hearing this comment.

Through the course of Onus's research of Toronto's full-service financial advisors, it is more likely they offer it as an option without recommending it. This conclusion I always found unsatisfactory......unsatisfactory, that is, until I heard this remark.

Investor advocates have been screaming for transparency in the industry. Not because they enjoy screaming mind you, but for the good of Canadians. Finally, on account of such efforts, the industry is moving into such a direction as to allow clients to see how much they are spending on their financial advice as opposed to it remaining hidden. If this is all for naught...

Do clients genuinely feel better not knowing how much in fees they are paying? Is it truly difficult for Canadians to see the value of unbundling? If this is so, do even the most passionate of 'investor advocate' advisors have the guts to recommend this approach?

On the last question...Of course, I believe so.




-------------------------
(*) Fee-only at a full-service brokerage, which is more accurately referred to as 'asset-based,' is not to be confused with authentic fee-based advisors, who charge an hourly or fixed fee. As their pay comes directly from the client, this is where their loyalty is directed. For an example, see http://www.secondopinions.ca/ or http://www.tewealth.com/.