Portfolio Management Services: Key Considerations (2024)

• January 31, 2022

Our financial savings are one of our most prized possessions. It represents all of the years of hard work we put in and our commitment to a secure financial future. It’s how we maintain our desired lifestyle and the means to which we can take care of ourselves and our families. When it comes to portfolio management, who you choose to work with is not a decision you’ll want to make lightly. From our perspective, here are the key things to consider.

When you make the decision to hire a financial professional or portfolio manager in Canada, a key consideration is knowing how far their level of accountability goes. An important question to ask is, are they a legal fiduciary or just an ordinary licensed salesperson?

When a registered financial professional has a fiduciary responsibility, it means they have a legal obligation that holds them to a higher standard of accountability when managing your finances. This requires them to strictly advise in the best interests of their clients only.

What many investors don’t know is that most financial companies in Canada are operating without any fiduciary responsibility. Many are licensed salespersons with inflated titles you’ve likely heard of – Financial Advisor, Financial Planner, VP, Director and more. The problem is that the majority of these individuals are held to a much lower standard of accountability, with more room to give you financial advice based on their own interests and the firms they represent.

A great indicator to know who you’re working with is by assessing their job title. Knowing the difference between an advisor with an “o” and an advisor with an “e” is key.

• Advisor with an “o” – A financial “advisor” is an unregulated job title we typically see in big Canadian banks. Anyone in a bank can have this title without requiring specialized qualifications. “Advisors” are under no obligation to sell an investor products that meet their financial goals. Rather, they are able to sell investors some of the least beneficial products if it means producing a higher commission or meeting their sales goals.
• Adviser with an “e” – “Advisers” can be used interchangeably with Portfolio Manager, Investment Counsellor, Investment Adviser, Investment Manager and Wealth Manager. All of these job titles have a legal duty to act with care, honesty and in the best interests of their clients. These individuals require the highest level of education and professional qualifications to ensure that they are best fit to advise clients on their financial investments.

If you’re still unsure whether the person you’re working with is a legal fiduciary, you can always verify by looking them up via the Ontario Securities Commission. This will indicate if the individual is an advising representative (legal fiduciary) or a dealer representative (salesperson).

Most financial professionals will either claim that they have a long-term audited track record or simply share performance numbers. In some cases, advisors may even lie.To really know and verify if a financial professional has an audited track record of performance, you’ll want to make sure the performance numbers they provide are verified by the Global Investment Performance Standards, better known as GIPS. GIPS is the highest level of performance verification and a good way to know if you’re speaking to a legitimate money manager.

You will want to find a financial professional who has a defined investment strategy and process that is repeatable over various market cycles. They should also be able to clearly articulate this strategy and process in a way that every client can understand. If you find yourself getting lost in the jargon, be sure to ask for clarification. There needs to be full transparency about what the financial professional is doing at all times. And, they need to be able to explain this without making it too complex so that you as a client can feel comfortable and have all your questions answered before you make any decisions.

Other important questions to ask:

• How do they view risk?
• What risk management tools do they use? (i.e., a tail hedging strategy, bonds, asset allocation?)
• What is their buy and sell discipline when a stock or investment breaks down?
• What is their criteria for selecting investments? Do they consider factors like valuation, position sizes, competitive advantages and balance sheet strength?
• How patient are they when it comes to investing?

Fee transparency in the brokerage world is nearly non-existent. Most firms and brokerages only disclose the trailer commission fee (1%), but aren’t legally required to disclose the full fee that the mutual fund company is charging (1.7%). This right here already demonstrates a lack of transparency. Even with new Client Focused Reforms (CRM II) regulations recently enacted at the end of 2021, mutual fund companies and their dealer reps are not required to fully disclose the embedded fees on client statements.

It’s also worth mentioning that management fees are tax deductible. If fees aren’t transparent from the get go, clients are instantly rendered unable to have a next-level conversation about being more tax efficient. If fees are hidden, how can you deduct them from taxes?

Client satisfaction is everything. When considering a portfolio management company, you want to ensure that you’re working with someone who is there for you, now and in the future. Before committing to any investment companies in Canada, ask yourself the following:

• Do they communicate in a professional and timely manner?
• Do they perform annual reviews?
• Do they take the time to educate you?
• Do they show that they care?
• Do they offer financial planning?

This can mean a lot of things. At Avenue, we are able to demonstrate in numerous ways that we are aligned with our clients. As a partner-owned firm, we own 100% of what our clients own and also cut our fees in half if markets are down over a calendar year. This is a key indication of alignment because our best interests are directly aligned with our clients and we are personally exposed to the same level of risk by our investment decisions.
By following this checklist of questions, you can ensure that you are making an informed and thoughtful decision when you entrust your finances to someone. In doing so, you can guarantee that you’ll be receiving unbiased advice, honest guidance and the expertise to meet your financial goals. For more information on our portfolio management services, contact Avenue today.