Self-serve investing

by Dave Chellew

I worry that my way of doing business is going the way of the neighbourhood gas station. My dad moonlighted as a mechanic in the 1960s – first at a White Rose, then a Texaco and finally a Fina station. They all had the ubiquitous two bays, a small office and two pumps out front. From a very young age, I learned to pump gas, graduating to oil changes and finally tire rotation. I made great tips, and my dad was free to focus on the heavy work of being a mechanic.

I learned a lot about engine repair from him – how to change plugs, distributor caps and wires. I learned about working on valves and how to know where to back off tightening the rocker arms as the engine started to shudder. I learned to adjust the timing, measure compression and even replace cylinder head gaskets.

The days of two-bay, two-pump gas stations are largely gone. Technology has allowed customers to pump their own gas, environmental compliance forces soil remediation that outstrips the cost of replacing tanks for two pumps, and diagnostic equipment is too expensive for limited use in smaller shops.

When I bought my first used car, it had a big 350 four-barrel with low mileage. I don’t think I could go 10,000 miles without having to do major work on it. Today I have a new Ford Explorer that my wife and I use for camping and road trips. I have every expectation that if I change the oil and rotate the tires, I’ll get 200,000 or more problem free kilometres from it. Its engine is little more than half the size of my first car, yet it pushes out twice the horsepower, and I’ve never seen the cylinder block. The experience of vehicle ownership has changed for me.

Likewise, I have seen huge changes in our industry since I became a registered representative in 1983. Mutual funds and their growing acceptance unleashed the power of equity investing for the average Canadian. Technological advances that first permitted the rise of the discount broker eventually put the tools in the hands of investors – many of which approached the utility of ours. ETFs would not have been possible without automation, and the ultimate manifestation of the DIY market combines those ETFs with the architecture of self-direction to create the robo-advisor. My current skill set may well become as redundant as my ability to fix old iron engines.

I believe that the proliferation of passive investing, along with the repackaging of 'smarter' options such as smart beta ETFs and the option to access these choices in traditional advice-giving channels (albeit at lower cost), has put accelerating pressure on our compensation.

Automation affects the way we do our job, designed to push as much of the work down to the front line as possible. While electronic, these nonetheless represent changes in workload.

The biggest cost organizationally and the biggest risk, I suspect, is in the compliance regime.

Like the need to get out of your vehicle to fill your own gas, preferably by paying at the pump, I wonder how much the ecology of investor options is going to change, forcing them to do more of the work. Right now, my risk starts with the first meeting with a prospect; I better take good notes. What if that client did the onboarding for planning, investing or asset management? It pushes them deeper into my environment, but it allows me to deal with larger numbers of them without increasing risk.

I suppose I’ve come to the point where I can’t cobble together or buy solutions that allow me to continue to do business in the way that it has evolved, and I have to make a decision. Do I want to run a franchise that has 12 pumps and serves up prepackaged convenience, with maybe a side of dark roast and bagel? Do I want to pay for all the newest diagnostic tools to be the high-tech version of a planning gunslinger? Or do I want to sacrifice top income to be a grease monkey working on all those old classics?

Dave Chellew is a portfolio manager and investment advisor with more than 25 years of experience working with retail clients.