Lots of questions and conversations lately from / with readers and prospective clients on the difference between financial advice and portfolio management:
In essence, in my way of thinking, they should be combined as part of a holistic wealth management offering.
However, it really depends on who is looking after you and how they are licensed, who they are employed by, how they are paid and by whom.
When I was at Raymond James, I was licensed as a Financial Advisor and Portfolio Manager by IIROC (Investment Industry Regulatory Organization of Canada), my title was Senior Vice President, Private Client Group. I was an employee of Raymond James and paid a commission based on the revenue generated by our wealth management practice.
Many advisors may not necessarily have their Portfolio Manager licensing. This actually becomes important, because without it they must find a third party to provide portfolio management for their clients (which comes with additional costs: everybody involved gets paid). These types of advisors can also select a number of securities to sell to their clients on a per transaction basis, or as part of a non-discretionary, fee-based (trades are free and there is a fee charged against the total value of the assets in the account) platform.
The difficulty, from my way of thinking, is that I was never comfortable "farming" my clients money out to the third party managers because it meant a loss of control. If a manager under-performed, it would then fall back to me to explain to the client why they had to pay me my fee (and what exactly they were getting for that) and the fund an MER and yet there was no recourse (for poor performance), other than to move to another manager.
So we used ETF's because it did not rely on the manager to perform (and only approx. 20% of managers beat their target benchmarks anyway), the ETF's matched the indexes they were designed to track.
However, in hindsight, this did not add performance value (otherwise known as "alpha") for the client. To add value we needed to find a way to justify (or lower) the fees and costs to the client. ETF's still had MER's (albeit lower than most mutual funds).
Certainly the service part is very important: this business (of financial advice) is about looking after people.
But now, we (at High Rock) have also found a better way to add value: lower costs (fewer ETF's and MER's) and a more tactical approach , but one that we have control over (because we manage the money "in-house") and where a client, if they wish, can speak directly to the person who manages their money. In fact some advisors actually use High Rock (with our expertise and experience over decades of deep research and investment management) as their third party manager.
Low cost (totally transparent) wealth management, financial advice and portfolio management all wrapped up into one package with planning (wealth forecast) and first rate client service.
Add the independence of a wholly owned (by its partners) asset management company, where the partners are invested in the exact same models as the clients (no conflict of interest) and a great deal of expertise and experience in research and trading as well as wealth management advice and you have the whole package.
It is the best possible of both worlds, reasonably priced.
The world of financial advice and investing is evolving: you can go "robo" if personal service is not important (and low cost is) to you or you can opt for something more personal if you wish.
It is great to have a choice.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist