Embracing transparency in financial advisory

 This article was produced in partnership with Designed Securities

“My belief is you could run this business off a pen and paper at a kitchen table.  If we were sitting here in 2033, I'd say the same thing. While the technology our advisors use is state of the art, we don't think technology is a competitive advantage. We don't think it ever will be in my lifetime. In recent years, many of our direct competitors have buried themselves in quicksand with monumental failures in their technology investments.” This from Michael Konopaski, co-founder of Designed Securities. The industry veteran has a refreshing take on technology, in that he questions the focus on technology as he deems modern advances such as extensive AI adoption to be too impersonal.

“You're going to see a lot of resistance to technological advances in the future. When Joe Blow and Sally Jane sit down with their advisor at a kitchen table, they don't care about any of that, and until that time comes, neither do we.”

Konopaski emphasizes the importance of straightforward communication, especially in an industry often clouded by ambiguity and evasion. His firm adopts a distinctive approach, providing clear, and transparent responses to advisors' inquiries, such as compensation models and the company’s behind the scenes procedures. This openness is particularly evident in their unique flat fee model and their commitment to keeping it consistent, as outlined in their 15-year promise.

“AI helps you scale, but we don't scale. We customize. Can AI provide a customized response to a specific context and situation? If an advisor has 150 clients and they ask the same question and AI can give them 150 different answers relevant to each client, then we'll adopt it,” Konopaski says.

Contrary to the industry's growing reliance on technology, Konopaski believes in the enduring value of personalized advice. While acknowledging the scalability benefits of AI and technology, he advocates for the timeless importance of direct, honest communication between advisors and clients, suggesting that technology cannot replace the fundamental human elements of authenticity, trust, and personal interaction.

The essence of transparency

A key element in building trust, and transparency, as Konopaski notes, is not just a policy but a culture that permeates every aspect of the firm, from compliance to finance, and operations to strategic planning. It empowers advisors by removing the guesswork and uncertainty often associated with dealer relationships. This clarity enhances trust, allowing advisors to make informed decisions without fear of hidden agendas or undisclosed information.

“My invitation to any advisor is ask us a question, and we’ll give you an answer. In writing.”

Konopaski proudly mentions his firm’s status as Canada's first dual-registered financial firm. This distinction highlights their commitment to transparency in regulatory compliance, committing to servicing both mutual fund representatives and full securities registrants equally.

The long-term commitment to the flat fee model at Designed Securities stands out as a significant competitive advantage. Unlike traditional grid models where advisors' costs increase with their assets under management, Designed offers a fixed cost, providing a more predictable and equitable financial structure.

Konopaski addresses a critical issue in the financial industry: the conflict of interest arising from firms offering proprietary products. He asserts that true independence in advising is compromised the moment a firm introduces its own fund(s). His firm’s model circumvents this issue by not having proprietary products, thereby maintaining genuine independence and aligning more closely with client interests.

The competitive advantage in the industry

There are challenges of maintaining transparency, particularly in the context of conveying truths that may not be favorably received. Konopaski uses a relatable example to illustrate the social bias towards positive responses, even when they may not be entirely truthful. This tendency to provide a more acceptable answer, rather than an honest one, reflects a common social and business practice.

Manipulating truth to create more acceptable answers though ultimately leads to confusion and future consequence. As a simple business scenario, sometimes a dealer makes mistakes. They can blame it on a system, or back office, and try to make the error sound more justified, or they can own the mistake and move on to resolution. When you focus on ego, instead of truth, you are not building trust. At the end of the day, it is trust upon which this industry was built, not technology.

“Our firm has taken an approach which differs from other firms who are talking about scale, automation and AI. I'm a second generation in the dealer business and the thing that makes an advisor money now is the same that made my father money in the 1980s and 1990s. This business is simple; technology isn't.

“Ask a client, what would you rather have, a cool app or an honest advisor you could trust?”