SIGNS IT MAY BE TIME TO CHANGE YOUR ADVISER
Reviewing your portfolio management can be well worth the effort, writes Martin Pelletier
Like most people, I really hate moving, as all of the heavy lifting can’t be outsourced.
Two different places have to be cleaned, walls repainted, boxes unpacked and recycled — and then there are the gazillion new address notifications to be sent out.
However, it is often worth the trouble, as there are simply times that warrant a move such as a change in jobs, downsizing to allow for more travelling in retirement, or getting that much closer to your child’s new school.
Moving away from your investment manager can feel just as disruptive, but there are also sometimes good reasons to undertake a change.
Unfortunately, these reasons are not always as clear-cut as knowing when it’s time to put that for sale sign on your house.
To help, here are five simple but effective ways to know whether it’s time to move on and consider having someone else manage your portfolio.
NO INVESTMENT POLICY STATEMENT (IPS)
The IPS is a very important document that outlines the risk tolerance of your portfolio and how it will be constructed, rebalanced and monitored.
Its importance lies in the fact that it will also provide some legal protection should your financial adviser or portfolio manager mismanage your portfolio.
While a uniform fiduciary duty is currently not imposed on all advisers in Canada (only a less legally binding know-your-client form is required), the good advisers will undertake the completion of a full IPS to help create and monitor a properly functioning portfolio.
LACK OF DIVERSIFICATION
A proper portfolio should be well diversified between stocks and bonds based on risk tolerance.
In this market, being at the higher end of the equity weighting would not be unreasonable considering bond yields are at record lows. However, this doesn’t mean going outside of the IPS guidelines.
In addition, look for international diversification as Canada is only a small component of global equity markets.
This can be done quite effectively through ETFs or managers with an expertise in overseeing international portfolios.
THE WTH PORTFOLIO
If you look at your portfolio and ask yourself, what the heck are all of these, then you may have a problem.
This includes having too high a concentration in penny stocks or exempt market securities such as Mortgage Investment Corps.
In our opinion, the average investor should not hold any of these or at most no more than five per cent of their total portfolio.
EXCESSIVE FEES
The newly implemented Client Relationship Model (CRM II) will soon force advisers to disclose all of the fees they are charging to manage your portfolio. This is a game-changer as money managers are scrambling to adjust, with some choosing to eliminate once-hidden or embedded trailers and deferred sales charges.
This is why it’s important to obtain a current snapshot of how much you have been paying, including all embedded fees. Also know that the larger the portfolio, the fewer fees you should be paying. A $250,000 portfolio should not be charged more than 1.5 per cent in total fees while a milliondollar portfolio should be one per cent to 1.5 per cent in total fees.
For those being charged under the archaic commission model, look for excessive trading and a high turnover of holdings as a potential indication you are paying too much. Total fees should also amount to near what a feebased model would be.
LACK OF COMMUNICATION
Specifically, ask yourself when was the last time you received an update on the markets in general, your adviser’s investment strategy, your portfolio’s performance and how you are positioned for their outlook.
A clear warning sign is if you haven’t heard from your adviser in person or over the phone within the past 12 months.
It’s shocking to know that the average adviser in Canada can have hundreds, if not thousands, of clients. Therefore it can be difficult, if not impossible, for them to effectively communicate on a one-on-one basis.