Within wealth management there is still a lot of confusion with respect to whether or not an investor should have a discretionary or non-discretionary investment portfolio. In other words, should your family manage its investments by itself, or outsource the decisions to an individual or a firm of experienced professionals?
Discretionary investment management services are a popular option for those who lack the investment experience, time or discipline to be involved with day to-day decision making. However, not all discretionary services offered by banks, broker, or portfolio managers are the same.
Here are some important factors to consider - does the advisor or firm:
• Have the skill, experience and resources to evaluate and manage assets across public and private markets?
• Only offer a one-size-fits all approach that only utilizes one or few asset classes, such as stocks and bonds? If so, look elsewhere. • Have the ability to allocate capital without conflict-of interest, to any independent asset managers from around the world in areas such as direct lending, real estate, private equity and hedge funds? This is known as an “open architecture” approach. • Have the ability to access “best-in-class” institutional quality traditional and alternative asset managers? • Provide a culture centered on client relationship management and strong communication? • Offer robust performance reporting along with relevant custom benchmarks? • Allow for clients to meet or speak with underlying asset managers? • Take tax considerations into account to optimize returns on an after-tax basis?
Firms that provide this comprehensive style of discretionary management are called “outsourced Chief Investment Officers”, or “OCIOs” for short. These firms should be licensed as a Portfolio Manager with a provincial securities regulator such as the Ontario Securities Commission.
If your family opts for hiring an outsourced CIO, you and the Advising Representative (a registered individual who can provide investment advice at a Portfolio Manager firm) will start your relationship by discussing and documenting your unique investment objectives and constraints. Topics covered should include how much investment risk you are willing to take, the desired level of return to receive for taking on that risk, liquidity needs, tax considerations, performance reporting and benchmarks, and the asset classes and markets you will allow your portfolio to be invested in. A written investment policy statement is then provided as a best practice which documents all of the above.
Your Advising Representative is then authorized to make all of the necessary investment decisions (within the agreed upon guidelines) and will not require consent for individual transactions. This service, which also consists of regular communication through methods which best suit your family, be it in-person meetings, web cam meetings, telephone conversations, emails or newsletters form an important part of the ongoing relationship. What should be understood is that this ongoing relationship is of prime importance as conditions within your family change. The investment objectives and strategy may need to change as well to provide a tailored fit.
Northland Wealth is an internationally recognized multi-award winning family office which provides outsourced CIO and family office services to successful business families and their members. The firm was built with the purpose of advising families in an unconflicted manner on their financial and human capital, with the objective of preserving and growing
the wealth over generations.
Arthur C. Salzer, CFA
CEO & CIO