Apologies in advance but I couldn't come up with a better title for today's blog.
For whatever reason (likely because Scott and Bianca used to work at Investment Dealers before joining High Rock) we get two copies of this monthly paper called "Investment Executive". It is clearly written for the benefit of the the Investment Advisor community, which High Rock is, thankfully, not part of. So the October issue lands on my desk and the headline to the main article on the front page reads, "Investor Fees Drive Growth in Profits". Hence the title to this blog. Normally I throw this rag in the garbage but because I have such a bee in my bonnet with regards to how retail investors are treated, I just had to read the article.
Here are some highlights that lit me up (my resting heart rate is normally 39bpm...today it is 42bpm to give you an idea of my pet peeve on this topic):
"Yet industry profits are rising steadily, fuelled by a boom in retail investor fees" --> Pretty self-explanatory but let me tell you that over the past 3 years we have had a Private Client division at High Rock, I would argue that only about 1% of those clients who joined us know exactly what fees (both Management Fees they pay their broker and the embedded MER's they pay on funds they own) they pay. Most don't even know if they pay per trade or are charged on a fee-based basis. Conversely, 100% of our High Rock clients know exactly what fees they pay for everything from custody fees, trade costs and our High Rock management fee. It's right here for all to see around the 4:41 mark on the video: highrockcapital.ca/private-client.html
"A big reason for the investment industry's remarkably healthy bottom line is the resilience of the retail investment business" --> No kidding? Wonder how they add that much value to the bottom line? Take a guess...comes out of your pocket.
"The big driver of revenue increases over the past few years is fees" --> What do you pay? Does your broker drive a fancy car like a Porsche?
"These trends come at a time when investment fees should be under intensifying pressure due to slow growth, low-return environment that has prevailed in recent years" --> Fees matter, a lot. Watch our Introductory Webinar in the link above and pause at the 5:05 mark. Shocking. The difference in fees is your money (or your broker's Porsche).
"The Investment Industry Regulatory Organization of Canada (IIROC, which is a self-regulatory body owned by the banks/dealers...a conflict of interest in and of itself) review found that firms are pushing their brokers to put clients into fee-based accounts by providing both the maximum grid payout for these accounts along with performance bonuses connected to assets under management held in these kinds of accounts" --> Holy Dinah, that is a big one. There is a big push for brokers to put their clients into fee-based accounts which simply means you pay the dealer/broker a percentage of your assets under administration (say 1.5%). The brokers claim this is to remove any potential conflicts of interest (like selling you mutual funds just so they get paid a commission from said mutual fund company) but does it really? What if a static (passive) portfolio was created for a client, Ms. Smith. Fees would be paid by Ms. Smith at initiation and then no trades would be done at all...well the broker/dealer wouldn't be too happy with that because trading commissions have come down huge the past 10 years so the broker wouldn't make much money in Year 1 at portfolio initiation and wouldn't make any money in Years 2 and onward? So the employer (dealer) tells the broker to put Ms. Smith in a fee-based account where they charge her 1.5% every year. Nice annuity of revenue for the broker, isn't it? And now we find out the dealer provides incentives like bonus payments to the broker to move Ms. Smith into a fee-based account? Therein lies the difference between a Standard of Care (to treat clients fairly) and Fiduciary Duty (a legal obligation to hold the client's interests above your own at all times) (Guess which one High Rock is held to by the Ontario Securities Commission?). In fact, we feel so strongly about our Fiduciary Duty to our clients that we created and signed a Voluntary Code of Conduct: highrockcapital.ca/uploads/3/4/2/5/34254660/our_voluntary_code_of_conduct_as_stewards6.pdf
Here's the article in it's entirety: www.investmentexecutive.com/-/investor-fees-drive-growth-in-profits?redirect=%2Fsearch%3Fp_p_id%3Dsearch_WAR_search10%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Dcolumn-1%26p_p_col_count%3D1%26_search_WAR_search10_search%3Dgeneric
At High Rock, Scott and I are the only shareholders. Sure, we want to provide a reasonable living for our families but we are not pressured by Sales Managers, Executives, Branch Managers, etc to increase profits anyway we can. We don't have public quarterly earnings reports and have to worry about the stock getting hammered 10% on a bad quarter. We don't have schemes like "boondoggle" trips for top-performing brokers, bonus payments etc for those brokers who can "squeeze" out more revenue from each client. That's not what High Rock is about and never will be.
We are about managing our own money and our client money in exactly the same models and securities with the exact same timing and pricing on trades (I just did 9 corporate bond trades today and every client, including Scott and I, gets the same bonds, at the same price and the same time). We use our decades of Institutional experience to invest our collective capital in a very disciplined, low-cost way and we keep a constant eye on managing risk, first and foremost. On top of all that investment management, we take client service to a new level; meeting with clients a minimum of twice per year, wealth forecasts to create a tailored financial plan and an open door policy if you ever want to talk the guys who are actually managing your money (vs farming it out to asset management firms, like High Rock, in fact).
If that sounds different or interesting to you...call us. Really.