Martin Pelletier: You will be amazed at how much time is spent on low-yielding tasks
Traders work on the floor of the New York Stock Exchange during afternoon trading in New York City. Photo by Michael M. Santiago/Getty Images files Managing your time correctly is probably among the most important lessons I’ve learned, but by conducting what I call a return-on-time (ROT) audit, you will be amazed at how much time is spent on low-yielding tasks.
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I can’t stress enough how much a goals-based approach can help transform your level of productivity. Mapping out your routines and then finding ways to allocate more time to areas that are highly productive and equally enjoyable is the key to both maximizing the probability of achieving your goals and helping others achieve theirs.
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This is where size and availability of resources come in. Investment firms need to be big enough to have the proper resources and expertise allocated to what I call the three pillars of a successful wealth-management experience: wealth and estate planning, investment management, and compliance and administration.
In the United States, the registered investment adviser model has transformed the entire industry by going all in on this idea. It’s created a healthy and robust independent model that offers an excellent alternative to the bank-owned warehouses that are only now responding to this competitive threat.
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It begins with having advanced wealth-planning expertise in-house to help clients determine what their goals are and then tracking whether they are close to achieving them or not.
Unfortunately, financial plans are often used as a sales tool to attract new clients by showing how a firm’s so-called superior returns will improve their future financial picture.
Instead, look for a plan that will define a target return required to meet certain goals while mitigating things such as tax, and then custom build an investment portfolio to achieve it while reducing as much risk as possible.
This means having portfolio managers who have the expertise, demonstrated by achieving an appropriate designation such as a chartered financial analyst, and a track record of finding ways to make money in all market environments, and protect against losses during corrections.
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Their highest ROT is on doing things such as market research, portfolio design and strategy, and tactical asset allocation, instead of marketing and client administration.
Then there are the pipes and plumbing, such as compliance and administration, that are essential in providing a safe, secure and professional client experience. Firms that heavily invest in this, including the active use of new technology, often have the greatest transparency and oversight.
In Canada, however, many independents simply don’t have the time or resources to do a good job on all three pillars.
As a result, many choose to keep trying to sell their investment products into bank-owned distribution channels instead of focusing on bringing clients on to their books. The risk they face is that the banks are quickly closing access to their advisers and replacing outside investment funds with higher-margin, in-house products.
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More On This Topic Investors would be wise to stay objective and ignore the subjective opinions of others Three strategies to help you take the emotion out of investing Martin Pelletier: The end of cheap labour is a good thing for society, despite inflationary fears In other cases, compliance and administration are simply taking too much time away from portfolio management, thereby impacting performance. If any financial planning is done, it’s done ad hoc or at a superficial level.
Transforming a firm can require a lot of capital and risk if done independently, so many simply decide to continue with the status quo, ultimately to the detriment of the client and the firm.
The good news is the market is starting to develop some outside partnership opportunities that can provide an immediate solution, but that means realizing it’s better to have a smaller piece of a rapidly growing pie than own the entire pie that is shrinking in size.
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Article content It isn’t all roses at the Canadian banks either, as both investments and financial plans are often “sold to” clients instead of being managed on a fiduciary basis. Being as large as they are also creates a number of challenges, especially when it comes to being dynamic with investment diversification outside of the traditional 60/40 portfolio.
If you happen to be looking for someone to help you manage your wealth, why not include a ROT audit as part of your due diligence. Look for an appropriate level of expertise in all three pillars. And for the investment professionals out there, do your own internal ROT audit of these pillars as a means of improving both your client’s experience and yours as well.
Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc, operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning.
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