The Globe and Mail, Report on Business
Published June 23, 2007

When it comes to distribution, the investment management business is remarkably similar to the media industry. The number of distribution channels is growing rapidly and change is the only constant.

Even I, hardly an early adopter, get music from iTunes, television from a satellite, sports news from the Net and e-mails from my cellphone. Although, it could just as easily be music from my phone, television from the Net and sports from an interactive cereal box.

Investment managers have a similar array of options when it comes to delivering their expertise to clients. Prior to the 1980s, asset managers were a rare breed. If you wanted to invest, you went to your broker and he recommended what bonds and stocks you should buy.

Back then, if you did come across a Stephen Jarislowsky or Art Phillips (both legendary Canadian money managers), you could deal with them personally.

Today, fund management is the equivalent of content in the media field. An investment manager’s model portfolio can be packaged in numerous ways.

It might show up in a corporate pension plan, on a list of options available to employees in a defined contribution plan, in numerous mutual funds, in segregated funds, as part of a brokerage firm’s WRAP program and/or their separately managed accounts (SMA) product (phew!).

In some cases, the model portfolio may be combined with other managers’ models to form a more diversified (or dare I say over-diversified) product.

Or it might form the basis of a closed-end fund that features principal protection and/or uses debt to juice up the returns (hopefully).

If a manager can build a decent medium-term track record, the distribution possibilities are endless. He or she can get a lot of mileage out of one portfolio.

To illustrate what I mean, I’ll use Saxon Financial, which is a firm I’m familiar with. You can now get their highly regarded money management by purchasing the Saxon Balanced Fund, Clarington Canadian Balanced Fund or MD Balanced Fund. A model of these funds is also available from the Bank of Montreal in the form of a principal-protected note. And you may find the same model in your company pension plan. Saxon is just one example. There are firms that are spread much more broadly.

Some asset management firms are very methodical about where they want their fund management distributed. They are interested in having their model used in multiple products, but they only want it to appear once in each distribution channel (i.e., one mutual fund, one segregated fund, one WRAP product). I would say, however, that most firms are willing to offer up their portfolio to whomever wants to use it, as long as the fees are right.

In the latter case, I find it disappointing that these firms don’t seem to care what the final product looks like and whether it makes sense for the client or not. They are very ethical and service-oriented when dealing directly with their pension or endowment clients, but they become mercenaries in the wealth management arena, when they are a step or two removed from the end user. An example of this is when a manager takes on a fund with a management expense ratio of 3 per cent, even though they would never consider buying it themselves, or for other family members, at that fee level.

There is a credo in the asset management industry that says: “Your performance numbers won’t always be good, so you’d better make hay while the sun shines.” I think flooding the market with the same product takes the credo too far.

While I’ve only been around for a quarter-century, I find myself longing for the days when asset management was a cottage industry. Firms were made up of a few stock pickers and a receptionist (who did everything, including keeping the books). The more progressive firms also had a sales-oriented partner who was good at bringing in the clients.

There are still a few stock shops around – I know because they manage money for Steadyhand – but the cottage industry of today is the hedge fund managers. They are generally small shops with one or two key fund managers. They have considerably higher fees and a much bigger back office than the firms of yore, but are similar in most other respects. Their assets under management are small and they are focused on performing for their clients. And they don’t care about tracking market indexes.

My tenuous writing career is literally a cottage industry (most of my columns are written there). I wonder if I can become a new-wave content producer and repackage my column for television, the Net, cellphones and Xboxes. Perhaps, but I think I have better odds in the asset management business.