This article was first published in the National Post on September 11, 2021. It is being republished with permission.
by Tom Bradley
If you’re like me, you’d rather mow the lawn than have to find a new adviser or investment manager. It’s a daunting task and you never know if you’ve made the right decision. But as the chief executive of your portfolio, you need to hire and then manage someone, unless you’re willing to go it alone.
Maybe it’s your first time hiring a manager, or perhaps you need one because you recently fired one. Either way, my partner, Salman Ahmed, and I use a framework called the Seven P’s when selecting managers for our funds.
These P’s will help organize your questions and ensure the important ones get asked. Ideally, you should interview at least three candidates, even if you have one who is highly recommended.
Friendly and firm is what you’re looking for. Someone who is personable and approachable, yet strong enough to help you stare down the hard decisions. Experience and credentials will vary, but an understanding of asset allocation and portfolio construction is a must-have. These skills will help match your portfolio to your situation and personality.
Deal-breaker: The adviser is more interested in selling you the latest hot product than learning about your needs.
You buy into a distinct investment philosophy if you hire a manager at an investment counsellor, such as Mawer Investment Management, Pembroke Private Wealth Management or our firm. The adviser’s approach is the firm’s approach.
If you hire an adviser at an investment dealer, it will be their personal philosophy. Brokerage firms cater to all types of approaches.
Either way, you need to understand how the adviser plans to build your wealth. Are there some industry biases or a focus on dividends? Will the portfolio be mostly in Canada or more broadly diversified?
Note: Exchange-traded funds (ETFs) are not an investment philosophy. They’re a useful tool for implementing one, but reveal nothing about how returns will be generated.
Where your adviser works could be important. At brokerage firms, it’s all about the person, since the tools and support behind the adviser are pretty standard. If, however, you’re considering a counsellor, then the firm is key (including its philosophy and track record). Always make sure there’s a history of stability and treating clients like you well.
On the latter point, if you have $250,000 to invest and the firm’s commission structure favours million-dollar clients, there’s little chance you’ll get the service you’ve been promised. Compensation drives behaviour.
What you’ll pay is a touchy subject that shouldn’t make advisers squirm, but often does. Nonetheless, like any product or service you buy, you need to ask what it will cost. Will it depend on the size of assets in your accounts, or be based on transactions? Will there be other charges such as a registered retirement savings plan (RRSP) or transfer fees? And how will it be reported to you on an on-going basis?
If you’re not getting straight and complete answers, be assured you’ll be paying too much.
This P refers to the decision-making process: how managers come up with ideas and make buy or sell decisions. This is especially relevant if you want to invest in individual stocks.
Equally important is how you will be served and advised. Who will you deal with? How will you be communicated to? Is financial planning included? And how often will you meet?
It’s a deal-breaker if there’s no mention of how the adviser helped clients in past bear markets. After all, turbulent times are when you most need sound counsel.
That is, long-term performance. At least five years, and, hopefully, 10 or more. It’s about growing your assets over time.
Returns are easier to assess for investment managers who have a published track record. With advisers at brokerage firms, you’ll want to see a sampling of long-standing clients. Don’t settle for returns from a “proposed” portfolio. Anyone can use hindsight to put together a top-performing portfolio.
Warning: If the adviser doesn’t admit to any weak periods or mistakes, you’ve either found the best money manager in the world or ...
This is probably more important in our process than yours. We’re looking for investment geeks to manage our clients’ money. You want investment chops, too, but also need someone who is grounded and has more enthusiasm for helping navigate your financial journey than driving the latest BMW.
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