Summer is officially here, so you’re probably thinking about your plans for the next few months. Maybe you’ll spend time at the cottage, or at the beach, or perhaps in the Okanagan valley for some great wine tasting. Don’t forget that stock markets are still open for trading, which brings me to my next point. Who’s watching your portfolio while you’re off enjoying the nice weather?
You might say it’s your portfolio manager, your financial advisor or stock broker who is watching it. But do you know how often they actually monitor your portfolio? Do you also know the difference between each one? A financial advisor is essentially a new and improved title for the old stock broker. They are professionals who provide investment advice, like buying or selling products such as stocks or mutual funds. Portfolio managers are professionals who manage investments on behalf of individuals, pensions or endowments, based on a specific mandate.
The advice from both professionals can sometimes be the same, but management of your assets is very different. Let’s start with the stock broker/financial advisor. They provide advice on when to buy or sell an investment but they must get your approval first before a trade can be completed. This can obviously be a problem if they need to make 50-100 phone calls for every trade they want to make. If the price of a stock is falling and they want to get their clients to sell the position then it is very inefficient to have to make that many calls. You always have to question where you are on that call list . . . are you the first call they make or the last? The stock could be much lower by the time the advisor gets to you thus affecting the performance of your portfolio.
A portfolio manager makes the investment decisions for you. When you invest your assets in a discretionary portfolio, the portfolio manager has discretion to make the investment decisions based on specific parameters found in your investment policy statement (IPS). This is a legal document, which sets the investment objectives, constraints, asset allocation, etc. Basically, the IPS sets the framework for your investment plan and the portfolio manager executes the strategy and makes the day-to-day investment decisions. This is ultimately what separates a portfolio manager from a financial advisor.
One of the benefits of portfolio management is it improves reaction time to market events. Some investors prefer making the investment decisions themselves, but the reality is that most investors don’t allocate enough time to properly manage and monitor an investment portfolio. I always say to clients that if we don't know more than you do when evaluating investments then you shouldn't hire us in the first place. Therefore leave the decisions up to the professionals. Portfolio managers make decisions based on economic data, research and can leave emotions out of the decision making process. They also have a fiduciary duty to act in your best interest. Strict licensing requirements entails that they have a higher education than traditional brokers.
Next time there’s a correction in the stock market, ask your advisor what their strategy is to protect your portfolio. If you haven’t heard from your advisor lately it might be time to consider working with a qualified portfolio manager.
Lori Pinkowski is a senior portfolio manager and senior vice-president, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Monday morning on CKNW at 8:40 a.m.
