WWW.WEALTHPROFESSIONAL.CA ISSUE 7.09 | $12.95
LEADING PORTFOLIO MANAGERS
How are Canada’s top PMs positioning their portfolios to weather market volatility? FACTOR-BASED INVESTING
What advisors need to know about this increasingly popular trend
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ONE-ON-ONE WITH WEALTHSIMPLE’S CEO Michael Katchen on how he pulled financial advice into the digital age
THE FUTURE IS FEMALE
A sneak peek at WPC’s upcoming Women in Wealth Management events
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ISSUE 7.09
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CONTENTS
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UPFRONT 04 Editorial
Looking beyond the doom and gloom of recession predictions
06 Statistics
Dissecting middle-class Canadians’ disproportionate tax burden
42
23
08 Head to head
PEOPLE
Are advisors worried about the inverted yield curve?
ADVISOR PROFILE
10 News analysis
44
12 Intelligence
To find success as an advisor, Cory Garlock had to go his own way
This month’s big movers and shakers
14 ETF update
RBC iShares dives into factors with five new funds
16 Alternative investment update
SPECIAL REPORT
Why REITs are poised for a comeback
LEADING PORTFOLIO MANAGERS
Eight of the industry’s top portfolio managers share their finely tuned strategies for building portfolios and managing client relationships through the market’s ups and downs
PEOPLE
INDUSTRY ICON
Wealthsimple’s Michael Katchen was one of the pioneers in introducing roboadvice to Canada’s wealth management industry – and he’s just getting started
20
18 Opinion
Could Facebook do for cryptocurrency what AOL did for the internet?
FEATURES
WOMEN IN WEALTH MANAGEMENT
WPC sits down with a few of the speakers from the upcoming Women in Wealth Management conference
FEATURES 40 The need for private equity Examining private equity’s role as a portfolio complement
PEOPLE 55 Career path
Cutting his teeth as an advisor in the midst of the dot-com crash proved invaluable for Jamie Suprun
FEATURES
52
STOP THAT 80HOUR HUSTLE
Working nonstop isn’t a recipe for success. Here’s how to take a break
2
Industry experts break down the basics of factor-based investing
56 Other life
Facing down obstacles with portfolio manager and Spartan racer Kevin Haakensen
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AT 93, A GREAT DRIVING RECORD [ DESPITE A FEW CRASHES ]
Since 1926, Loomis Sayles¹ has helped institutional and individual investors confidently drive toward their financial finish lines. Through bull and bear markets – and a crash or two – Loomis Sayles has grown to over USD$278 billion in assets under management. Investors seeking diversified global exposure, and a steady hand on the wheel, can access Loomis Sayles’ expertise through IA Clarington Global Allocation Fund. 1 year
2 years
3 years
Manager tenure2
IA Clarington Global Allocation Fund – Series F
7.8%
11.2%
10.6%
7.9%
60% MSCI AC World Index, 40% FTSE World Government Bond Index (currency hedged)
5.5%
7.5%
7.1%
6.0%
Peer group (Global Equity Balanced)
1.4%
4.9%
5.0%
3.9%
3
As at August 31, 2019.
Speak with your iA Clarington representative or visit iaclarington.com/gaf to learn more.
INVESTED IN YOU.
Loomis Sayles is the tradename of Loomis, Sayles & Company, L.P. 2 Effective February 23, 2015, the sub-advisor of the Fund changed from Aston Hill Asset Management Inc. to Loomis, Sayles & Company, L.P. and IA Clarington Investments Inc. IA Clarington Global Allocation Fund (Series F) 1 year: 7.8%, 2 years: 11.2%, 3 years: 10.6%, manager tenure: 7.9%, 5 years: 7.6%, since inception: 8.4%. 60% MSCI AC World Index, 40% FTSE World Government Bond Index (currency hedged) 1 year: 5.5%, 2 years: 7.5%, 3 years: 7.1%, manager tenure: 6.0%, 5 years: 7.7%, since inception: 9.0%. Peer group (Global Equity Balanced) 1 year: 1.4%, 2 years: 4.9%, 3 years: 5.0%, manager tenure: 3.9%, 5 years: 5.2%, since inception: 7.2%. The inception date of series F of the Fund was July 19, 2010. Manager tenure data from March 1, 2015. There are various important differences that may exist between the Fund and the stated indices that may affect the performance of each. The benchmark is a blend of FTSE World Government Bond Index (Currency Hedged) (40%) and MSCI AC World Index (60%). The FTSE World Government Bond Index (or WGBI) (currency hedged) measures the performance of fixed-rate, local currency, investment-grade sovereign bonds. The WGBI is a widely used benchmark that currently comprises sovereign debt from over 20 countries, denominated in a variety of currencies. The MSCI AC World Index (MSCI ACWI) is a free float-adjusted market capitalization weighted equity index comprising 23 developed and 23 emerging market country indexes. The Fund’s market capitalization, geographic, sector, credit quality and currency risk exposure may differ from that of the benchmark. The Fund may hold cash while the benchmark does not. Overall, the Fund’s bond and equity exposure can differ from the benchmark. It is not possible to invest directly in market indices. The performance comparison is for illustrative purposes only and does not imply future performance. The information provided herein does not constitute financial, tax or legal advice. Always consult with a qualified advisor prior to making any investment decision. Indicated mutual fund rates of return include changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Returns for time periods of more than one year are historical annual compounded total returns while returns for time periods of one year or less are cumulative figures and are not annualized. Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with mutual fund investments, including investments in exchange-traded series of mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. 3 MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. The iA Clarington Funds are managed by IA Clarington Investments Inc. iA Clarington and the iA Clarington logo are trademarks of Industrial Alliance Insurance and Financial Services Inc. and are used under license. 1
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UPFRONT
EDITORIAL
Spot the differences
T
he question of whether a recession is imminent has been one of the most heavily debated subjects in the financial world over the past several months. It seems that every week, some analyst or expert comes out with a new theory to support the idea that a recession is just around the corner. There are myriad factors that suggest an impending downturn. Trade tensions continue to dominate headlines, and with them comes the subconsequence of currency wars. Global growth has been slowing, and EPS growth estimates have weakened. Then there’s the yield curve inversion, which has been a reliable indicator of recession in the past.
wealthprofessional.ca ISSUE 7.09 EDITORIAL
SALES & MARKETING
Editor Darren Matte
Director, Client Strategy Dane Taylor
Writers Libby MacDonald Leo Almazora James Burton
Sales Executive Alan Stewart
Executive Editor Ryan Smith
Project Coordinator Jessica Duce
Copy Editor Clare Alexander
CONTRIBUTORS Daniil Saiko John Eades Anna O’Dea Aytekin Tank
ART & PRODUCTION
“Bull markets don’t die of old age – they die of fright of recessions” However, not everyone is taking such a pessimistic view. Sam Stovall, chief investment strategist of US equity at CFRA, recently addressed a group of advisors at the S&PDJI Masterclass in Toronto with a much more optimistic outlook. “Bull markets don’t die of old age – they die of fright of recessions,” Stovall told the group. While the pessimists tend to focus on the troubling situations outlined above, there are plenty of positive things happening right now: The Fed has made two interest rate cuts in recent months, and real GDP is still projected to grow, including in Canada. Perhaps the biggest beacon of hope Stovall offered is the fact that every recession in the past 60 years has been proceeded by a housing decline, which is an indicator of eroding consumer confidence. Given that Canada’s housing market is actually up 2%, the doom and gloom might not be as close as some believe. If inflation remains low and consumer confidence remains high, advisors might begin to feel comfortable taking a more positive outlook – but it’s also OK to be cautious. The environment ahead shows opportunity, but also indicators as to when to become defensive. It’s often been noted that the markets are currently on the longest bull run in history – a sentiment typically accompanied by the subtext that it can’t possibly last much longer. But if we’re already witnessing something never seen before, who’s to say it can’t continue? This has been an unprecedented economic run – but perhaps the next phase of the economic cycle will be another first. The team at Wealth Professional Canada
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UPFRONT
STATISTICS
A taxing situation Canadian incomes are some of the most heavily taxed in the world, so advisors need to be well versed in tax strategies to get the most for their clients MANY CANADIANS feel like their taxes are too high – and considering where the average and median income earners fall on the tax scale, they might have a point. The $30,000 to $60,000 tax bracket, which encompasses both the average and median incomes for the country, is the highest taxed in Canada, with an average marginal effective tax rate of 46%. When provincial programs are factored in, that number ranges
$35,000
from 53% (in Quebec) to 38% (in Alberta). And while tax bills across the country have risen over the years, the average income has not moved in stride, meaning that Canadians today are spending more of their income on taxes than generations before. That makes it more important than ever for advisors to craft solid tax strategies to allow clients to keep more of their income.
$46,700
Median income in Canada
$71,700
Average income in Canada
$94,365
Median household income in Canada
Average household income in Canada
SQUEEZED IN THE MIDDLE While the federal statutory income tax rate in Canada shows a gradual increase in tax as incomes rise, the marginal effective tax rate (the combined effect of the tax-and-transfer system, which represents the real net-of-tax returns to earned income) tells a different story. Middle-income-earning individuals pay the highest marginal effective tax rates in Canada.
Source: Statistics Canada, 2017; Prosper Canada and the Canadian Council on Social Development, 2018
WHERE’S THE TAX MONEY GOING? A breakdown of a sample tax bill for a Canadian family with a household income of $117,731 shows which taxes eat up the most of their income. Other taxes: 2.0% Fuel/vehicle taxes: 1.4% Sin taxes: 2.2%
THE PROVINCIAL PICTURE Marginal effective tax rates vary quite a bit by province, depending on the various tax programs and credits available at the provincial level. Within the $30,000 to $60,000 tax bracket, Quebecers currently pay the highest marginal effective tax rate at 53%, while Albertans enjoy the lowest at 38%. AVERAGE MARGINAL EFFECTIVE TAX RATES FOR $30,001–$60,000 TAX BRACKET 60 50
Profit taxes: 3.9% Property taxes: 4.0% Total tax bill 44.7%
40
Sales taxes: 6.9%
30
Payroll/health taxes: 9.1%
20
47%
53% 44%
45%
44%
42%
45%
40%
38%
42%
10 Income taxes: 15.2% Source: Tax Freedom Day 2019, The Fraser Institute
6
0
Newfoundland Prince Edward & Labrador Island
Nova Scotia New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Source: Marginal Effective Tax Rate Across Provinces, The Fraser Institute, 2019
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STATUTORY TAX RATE VERSUS MARGINAL EFFECTIVE TAX RATE
50%
Federal statutory tax rate (average of income bracket)
46% 45%
Marginal effective tax rate
43% 41%
40%
40%
41%
39%
35%
33% 31% 29%
30% 26%
25%
25%
22.5%
20% 14%
15% 10%
7.5%
5% 0%
$0–$30,000
$30,001–$60,000
$60,001–$100,000
$100,001–$150,000 INCOME BRACKET
$150,001–$200,000
$200,001–$300,000
$300,001+
Source: Marginal Effective Tax Rate Across Provinces, The Fraser Institute, 2019
TAX OBLIGATIONS ON THE RISE A look at the income earned and taxes paid by the average Canadian family between 1961 and 2018 reveals that tax growth has outstripped income growth in recent years, meaning taxpayers today are devoting more of their income to taxes than their parents and grandparents did. INCOME AND TAXES FOR THE AVERAGE CANADIAN FAMILY
$100,000
Average cash income
THE GOVERNMENTAL BREAKDOWN The total tax bill for the average Canadian family (with two or more individuals) is currently $52,238, more than half of which goes to the federal government.
Tax bill
8.1%
$80,000
$60,000
$40,000
38.7%
Federal: $27,789 Provincial: $20,222 Local: $4,226
53.2%
$20,000
$0
1961
1974
1981
1990
1994
1998
2002
2006
2010
2014
2018
Source: Canadian Tax Simulator, The Fraser Institute, 2019
Source: Tax Freedom Day 2019, The Fraser Institute
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UPFRONT
HEAD TO HEAD
Is an inverted yield curve a sign of a recession? The yield on the 10-year US Treasury bond recently dipped below the two-year yield, but is it cause for concern?
VP, investment and portfolio strategy Northland Wealth Management
Victor Kuntzevitsky
Blake Griffith
Financial planner Griffith & Associates, Sun Life Private Wealth & Estate Services Group
Benjamin Felix
“Not on its own; the length of time and amount of inversion matter. The curve is no longer inverted, as the Fed was successful at steepening the curve by lowering short-term interest rates. Other signals must coincide, such as a consecutive decline in retail sales. Today’s service economy can adapt better during recessions, as there is less impact from inventory build-up. It is inevitable that the economy will slow down eventually, as we are in the late stages of the long-term debt cycle. A smart portfolio is positioned to withstand the de-leveraging shock that often occurs during recessionary periods.”
“Since 1950, an inversion of the yield curve has preceded every US recession; however, I believe the US will avoid a recession this time. That said, the principal reason the US will avoid a recession is a largely coordinated effort among the Federal Reserve, politicians and the government to do anything in their power to avoid one – and a bear market. I suspect we’ll see continued manipulation using fiscal and monetary manoeuvres, potentially including tax cuts, government spending, interest rate cuts and quantitative easing. It’s anyone’s guess how this science experiment will end, but I doubt it will follow historical signals.”
“Inverted yield curves tend to forecast future recessions. There have been eight US yield curve inversions and seven US recessions since 1966; an inverted yield curve forecasted six of those recessions within six quarters. The 1966 inversion was not followed by a recession within six quarters. What should you do with this information? Nothing. In their July 2019 paper, ‘Inverted Yield Curves and Expected Stock Returns,’ Eugene Fama and Kenneth French found no evidence that yield curve inversions can be used as a market timing tool, concluding, ‘We find no evidence that yield curve inversions can help investors avoid poor stock returns.’”
Portfolio manager PWL Capital
HOW RELIABLE IS THIS INDICATOR? When the yield on 10-year US Treasury bonds slipped below the yield on two-year Treasuries in mid-August, it caused a fair amount of hand-wringing among financial pundits. An inverted yield curve – when interest rates on short-term bonds are higher than those on long-term bonds – is typically a signal that investors are so jittery about the near future that they’re crowding into longer-term investments. Indeed, an inversion between two- and 10-year treasury bonds has heralded every recession for the last half-century and is viewed as one of the most consistent gauges that a recession is on its way – but it has also flashed a false positive a time or two. As USbased consultant Ed Yardeni of Yardeni Research put it in a note to clients, “An inverted yield curve has predicted 10 of the last seven recessions.”
8
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Middlefield
GLOBAL REAL ASSET
EXCHANGE OFFER AND CASH OPTION
Fund
IF YOU OWN SECURITIES OF ANY OF THE FOLLOWING ISSUERS, YOU ARE INVITED TO EXCHANGE THOSE SECURITIES FOR UNITS OF MIDDLEFIELD GLOBAL REAL ASSET FUND
DEADLINE: PRIOR TO 5:00 P.M. (TORONTO TIME) ON OCTOBER 24, 2019 Middlefield Global Real Asset Fund (the “Fund”), is offering units of the Fund to investors at a price of $10.00 per unit in exchange for the securities of any of the issuers listed here or for cash subscriptions. Prospective purchasers under the exchange option are required to deposit their exchange eligible securities prior to 5:00 p.m. (Toronto time) on October 24, 2019, in the manner described in the preliminary prospectus. The Fund’s investment objectives are to provide holders of units with: (i) stable monthly cash distributions, and (ii) enhanced long-term total return through capital appreciation of the Fund’s investment portfolio through a diversified, actively managed portfolio comprised primarily of dividend paying securities of global issuers focused on, involved in, or that derive a significant portion of their revenue from physical real estate or infrastructure assets, which the advisor believes will generate attractive risk-adjusted returns for the Fund due to the tangible, difficult to replicate, long-term nature of such assets and their ability to shape and support global economic activity. The initial target distribution yield for the Fund is 5% per annum based on the original subscription price (or $0.04167 per unit per month or $0.50 per unit per annum). Middlefield Capital Corporation, the advisor, will provide investment management advice to the Fund.
GLOBAL REAL ESTATE ISSUERS Alexandria Real Estate Equities Inc Allied Properties REIT American Tower Corp Americold Realty Trust Artis REIT AvalonBay Communities Inc Boardwalk REIT Boston Properties Inc Brookfield Property Partners LP Canadian Apartment Prop REIT CBRE Group Inc Choice Properties REIT Colliers International Group Inc Cominar REIT Crombie REIT Crown Castle International Corp CT REIT CyrusOne Inc Dream Global REIT Dream Industrial REIT Dream Office REIT Duke Realty Corp Equinix Inc Equity Residential
ARE AP.UN AMT COLD AX.UN AVB BEI-U BXP BPY.UN CAR.UN CBRE CHP.UN CIGI CUF.UN CRR.UN CCI CRT.UN CONE DRG.UN DIR.UN D.UN DRE EQIX EQR
Essex Property Trust Inc European Residential REIT FirstService Corp Granite REIT H&R REIT HCP Inc InterRent REIT Killam Apartment REIT Northview Apartment REIT NorthWest Healthcare Properties REIT Prologis Inc Realty Income Corp RioCan REIT SBA Communications Corp Sienna Senior Living Inc Simon Property Group Inc SmartCentres REIT Summit Industrial Income REIT Tricon Capital Group Inc Ventas Inc Welltower Inc Weyerhaeuser Co WPT Industrial REIT
ESS ERE.UN FSV GRT.UN HR.UN HCP IIP.UN KMP.UN NVU.UN NWH.UN PLD O REI.UN SBAC SIA SPG SRU.UN SMU.UN TCN VTR WELL WY WIR.UN
GLOBAL INFRASTRUCTURE ISSUERS Algonquin Power & Utilities Corp American Electric Power Co Inc American States Water Co American Water Works Co Inc Aqua America Inc AT&T Inc BCE Inc Boralex Inc Brookfield Infrastructure Partners LP Brookfield Renewable Partners LP California Water Service Group Canadian National Railway Co Canadian Pacific Railway Ltd Capital Power Corp Consolidated Edison Inc Duke Energy Corp Emera Inc Enbridge Inc FedEx Corp Fortis Inc/Canada Gibson Energy Inc Hydro One Ltd
AQN AEP AWR AWK WTR T BCE BLX BIP BEP.UN CWT CNR CP CPX ED DUK EMA ENB FDX FTS GEI H
Innergex Renewable Energy Inc Inter Pipeline Ltd Keyera Corp Kinder Morgan Inc/DE Macquarie Infrastructure Corp NextEra Energy Inc Northland Power Inc Northland Power Inc Northwest Natural Holding Co NorthWestern Corp Pattern Energy Group Inc Pembina Pipeline Corp Southern Co/The Southwest Gas Holdings Inc TC Energy Corp Tidewater Midstream & Infrastructure Ltd TransAlta Corp TransAlta Renewables Inc Union Pacific Corp Westshore Terminals Investment Corp Williams Cos Inc/The
INE IPL KEY KMI MIC NEE NPI NPI/R NWN NWE PEGI PPL SO SWX TRP TWM TA RNW UNP WTE WMB
KKR & Co Inc Morgan Stanley Royal Bank of Canada Shopify Inc Toronto-Dominion Bank/The
KKR MS RY SHOP TD
OTHER ISSUERS Amazon.com Inc Bank of Nova Scotia/The Blackstone Group Inc/The Brookfield Asset Management Inc JPMorgan Chase & Co
(L to R) JEREMY BRASSEUR, Managing Director, Corporate Finance, DEAN ORRICO, President and Chief Investment Officer, ROB LAUZON, Managing Director and Deputy Chief Investment Officer and SHANE OBATA, Director, Investments and Portfolio Manager
AMZN BNS BX BAM/A JPM
ADVISOR
To learn more about Middlefield Global Real Asset Fund, speak with your financial advisor or contact us at: 1-888-890-1868 invest@middlefield.com www.middlefield.com
Middlefield Limited 812 Memorial Drive NW Calgary, Alberta T2N 3C8
First Canadian Place 58th Floor, P.O. Box 192 Toronto, Ontario M5X 1A6
A preliminary prospectus containing important information relating to these securities has been filed with securities commissions or similar authorities in each of the provinces of Canada. The preliminary prospectus is still subject to completion or amendment. Copies of the preliminary prospectus may be obtained from any of the syndicate of agents using the contact information for such agent. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.
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UPFRONT
NEWS ANALYSIS
The future will have factors As the concept of factor-based investing continues to gain momentum, experts explain why advisors can’t afford to ignore this trend
FACTOR-BASED INVESTING has grown considerably in recent years, and it was a central theme at the S&P Dow Jones Indices Masterclass in Toronto in September. Despite the debates on factors themselves, the panel at the event agreed it’s a concept advisors can’t afford to overlook now or as the economy enters its next stage. “The way I look at it, whether you like it or not, you are a factor investor, so it’s a good idea to figure out what factors are in your portfolios,” said Vijay Vaidyanathan, CEO of Optimal Asset Management. “When I say factors, I almost exclusively mean
subsets of it. He added that while there are some who have claimed other factors, such as oil risk or liquidity, they don’t pass these tests, so he doesn’t consider them factors. However, Andrew Neatt, portfolio manager at TD Wealth Private Investment Advice, disagreed with one of the factors Vaidyanathan outlined. “I don’t really think size is a factor,” he said. “Size is a market cap situation, and it’s subjective whether we consider it a factor.” Neatt stressed the importance of persistence when it comes to factors; for him, only low volatility, momentum, quality and
“Whether you like it or not, you are a factor investor, so it’s a good idea to figure out what factors are in your portfolios” Vijay Vaidyanathan, Optimal Asset Management value, momentum, quality, low volatility and size – factors that satisfy three tests: Is there good reason to believe the access return will last in the future? Is there data that goes back 30 to 35 years to make sure there is logic behind it, and is there a cheap way to harvest that factor?” Vaidyanathan stressed that the market is the main factor, and the five he listed are
10
value meet that requirement. “In this industry, we need to keep it simple,” he said. “We shouldn’t go down the road of 30 to 40 years ago and make the same mistakes that we did with active management – overcomplicating it. By keeping it to four factors, at the simplest level, we’ll have more success in attracting assets.” The panel agreed that keeping things
simple is best not only when designing factorbased products, but also when explaining factor-based strategies to clients. “We want to keep it simple when presenting portfolios to clients,” said Justin Cal, an associate investment advisor at TD Wealth Private Investment Advice. “That way, we can extract positive performance from factors and tell the story behind why we are implementing them tactically.” The positive performance is something Vaidyanathan says advisors should pay attention to, highlighting how the factors of momentum, low volatility, quality and value have played out on the S&P 500. “If you do simplest thing and put money equally in the four factors to give you equal exposure to the factors in the market, the excess return of that equally weighted portfolio over the S&P 500 is really the excess return of the factors,” he explained. “If
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HOW FACTOR-BASED INVESTMENTS PERFORM YEAR-TO-DATE RETURNS ON S&P FACTOR INDICES S&P 500 Low Volatility Index
23.24% S&P 500 Momentum Index (US Dollar)
20.07% S&P 500 Quality Index (US Dollar)
20.76% S&P 500 Value Index
18.03% 0%
5%
10%
15%
20%
25% Source: S&P Indices
you look at the excess return, it is 2.5% per year. That is a lot of money to leave on table.” He added that not every factor will
“Be careful of the methodologies you choose or combine,” he said. “Low volatility with one firm may be different to another.
“Be careful of the methodologies you choose or combine … Ultimately, it is similar to choosing an active manager” Andrew Neatt, TD Wealth Private Investment Advice perform every year, and there are times when they will all underperform, so understanding what factors can do in portfolios is critical. Neatt cautioned that using such a simplified approach could give an investor unintentional exposure or unintentionally miss a certain exposure. He stressed how important it is for advisors to consider exposures when combining factors.
Ultimately, it is similar to choosing an active manager in the past. Also, be careful what methodologies you are combining. You want to combine something not correlated. That could mean a defensive with a not-so-defensive strategy like low volatility and momentum.” While the panel members were proponents of factor-based investing, they recognized
that not all advisors will gravitate toward them. However, Vaidyanathan noted that even if advisors aren’t incorporating factors, they can still be useful as a way to size up the active managers they’re working with. “If you have an active manager you don’t know a lot about, and you want to get a sense of their performance in the future, you can use factors,” he said. “The first step would be to back out the factors driving that manager. It immediately tells you something about the future and what you can expect. I think it is a highly underutilized aspect of factors and factor indices. It helps you get your head around factors and is an easy way to understand what is going on with your portfolio. “It frustrates me when people say factors are just too complicated,” he adds. “Factors are designed to simplify and clarify what is going on with portfolios.”
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18/10/2019 4:34:10 AM
UPFRONT
INTELLIGENCE CORPORATE ACQUIRER
TARGET
PRODUCTS COMMENTS
Blackstone Group
Dream Global Real Estate Investment Trust
The US-based private equity firm plans to acquire Dream Global in a $6.2 billion deal
Wealthsimple
Simpletax
Its purchase of the web-based tax preparation service marks Wealthsimple’s first expansion beyond saving and investing
PARTNER ONE
PARTNER TWO
COMMENTS
Assante Wealth Management
WealthBar Financial Services
The two are partnering to launch a new online investing platform for Assante financial advisors and their clients
Ontario Teachers’ Pension Plan
BCG Digital Ventures
The two are working together to launch Koru, a venture incubator focused on building novel ideas within OTPP’s portfolio companies
Roadman Investments
Altmed Capital
Roadman has entered into a corporate advisory agreement with the Canadian alternative medicine business incubator
CI debuts its first two ESGfocused funds
CI Investments has announced its first two products focused on responsible investing. The CI First Asset MSCI World ESG Impact ETF, trading on the NEO Exchange under the ticker symbol CESG, tracks the MSCI World ESG Select Impact ex Fossil Fuels Index, a benchmark covering large- and midcap companies with a positive ESG impact across 23 developed countries. The CI MSCI World ESG Impact Fund offers similar exposure through a mutual-fund wrapper that invests in unhedged common units of CESG.
Assante teams up with WealthBar for online investing platform
Assante Wealth Management has partnered with WealthBar to launch Assante Connect, a new online investing platform designed for clients of Assante financial advisors. Designed to respond to clients’ changing needs and preferred level of support, Assante Connect will give advisors a new way to stay connected with their clients and adapt to their evolving goals. “Assante Connect will broaden the reach of our advice by leveraging technology and an appealing and accessible digital experience, combined with advice from experienced financial professionals,” said Assante president Sean Etherington. “What makes Assante Connect distinct is the combination of leadingedge technology and award-winning portfolio management at a competitive price,” added WealthBar president and chief technology officer Chris Nicola. “Canadians will benefit immensely from not only the investment expertise, but from knowing that their trusted advisor is always available.”
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Evolve releases second preferred share ETF
Evolve ETFs has launched the Evolve Dividend Stability Preferred Share Index ETF (PREF), which joins the Evolve Active Canadian Preferred Share ETF (DIVS) on the TSX. PREF tracks the Solactive Dividend Stability Canada Preferred Share Index, which measures the performance of up to 50 preferred equity securities of TSX-listed companies. Citing ongoing challenges in the Canadian preferred share market that could lead to tax loss selling pressure at the end of the year, Evolve CEO Raj Lala said PREF “may be an ideal solution for investors who are considering tax loss selling and still want to remain invested in the asset class.”
www.wealthprofessional.ca
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PEOPLE Manulife revamps equity class fund
Manulife Investment Management has made changes to the Manulife Canadian Equity Class, formerly known as the Manulife Fundamental Equity Class. Manulife has raised the minimum Canadian content requirement in the fund from 51% to 90%, giving investors exposure to a portfolio of high-quality, large-cap Canadian equities. The firm has also cut management fees for various series of the fund, reducing rates from 1.81% to 1.68% for the Advisor Series, from 1.78% to 1.68% for Series T, and from 0.77% to 0.68% for Series F and FT.
Mackenzie lowers fees on 13 index ETFs
Mackenzie Investments has announced fee reductions for 13 of its index ETFs. The affected ETFs include equity and bond products with exposures to Canada, the US, China and other international jurisdictions. The fee discounts range from 0.01% to 0.16%, bringing the management fees for the affected funds from 0.04% to 0.55%. “By lowering our prices on 13 ETFs, we’re delivering better value to our investors and building upon our leadership in the ETF market,” said Michael Cooke, SVP and head of ETFs at Mackenzie.
Fidelity unveils innovative fixed income suite
Fidelity Investments Canada has launched a new suite of fixed income ETFs on the TSX. A mix of active, multi-factor and index-based strategies, the ETFs include the Fidelity Global Core Plus Bond ETF (FCGB), the Fidelity Canadian Short-Term Corporate Bond ETF (FCSB), the Fidelity Systematic US High Yield Bond ETF (FCHY), the Fidelity Systematic US High Yield Bond Currency Neutral ETF (FCHH) and the Fidelity Systematic Canadian Bond Index ETF (FCCB). Each ETF has a corresponding mutual fund version; Series F management fees range from 0.25% to 0.53%, while Series B fees range from 0.75% to 1.03%.
NAME
LEAVING
JOINING
NEW POSITION
Craig Gilchrist
N/A
ScotiaMcLeod
Senior vice-president and head
Kristen Kimmell
N/A
RBC Wealth Management US
Head, advisor recruiting and field marketing
Darin Rayburn
N/A
Melcor REIT
President and CEO
Scott Welch
Dynasty Financial Partners
WisdomTree Investments
Chief investment officer, model portfolios
Amanda Whitewood
N/A
CPA Canada
Chair, board of directors
Melcor REIT announces leadership transition
Melcor REIT has named Darin Rayburn as its new president and CEO. He takes over from Andrew Melton, who is stepping down as part of a planned succession. With 25 years of experience in commercial real estate, Rayburn was instrumental in Melcor REIT’s formation and IPO. He served as the REIT’s CEO until becoming president and CEO of Melcor Developments in 2017. “With two and a half years of experience as Melcor’s CEO, Darin now has the capacity to lead both companies and to drive synergies to create value for both shareholders and unitholders,” said Melcor REIT chairman Ralph Young.
WisdomTree welcomes new CIO of model portfolios WisdomTree Investments has announced Scott Welch as its new chief investment officer for its model portfolios. In this newly created position, Welch will oversee the firm’s asset allocation team and investment committee, and will be charged with developing investment research and content, managing model portfolio asset allocation and portfolio construction decisions and processes, and optimizing the company’s investment solutions for current and future advisors. Welch has more than three decades of industry experience, most recently serving as CIO at Dynasty Financial Partners. “Scott’s deep knowledge and expertise … will be incredibly valuable to leading a successful asset allocation team and investment committee at WisdomTree,” said Jeremy Schwartz, WisdomTree’s executive vice-president and global head of research.
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UPFRONT
ETF UPDATE NEWS BRIEFS Institutional investors look to expand ETF allocations
Institutional investors expect to allocate 39% of their portfolios to ETFs over the next two to three years, compared to their current 29% allocation, J.P. Morgan Asset Management found in its latest Global ETF Study. The lion’s share is expected to go to equity products, which respondents predicted would rise from a 16% allocation today to 21% in the coming years. Institutional investors predict their bond ETF allocations will increase from 8% to 10%, alternative ETFs will go from 3% to 4%, and multiasset ETFs will rise from 2% to 3%.
Scales begin to tip in favour of passive products
US-based passive equity mutual funds and ETFs reached US$4.271 trillion in AUM in August, compared to the US$4.246 trillion in actively managed funds, according to new data from Morningstar. The shift came as investors added US$88.9 billion in assets to passive funds in the 12 months through August while pulling US$124.1 billion from active funds over the same period. Morningstar attributed this trend to the difference in fees, which average 10¢ per year for every $100 of assets in passive funds, compared with 70¢ for active funds.
Passive REIT ETFs pulled down by mall and hotel sectors
While US-listed REIT ETFs have delivered double-digit returns over the past decade, the overall space is showing signs of being hampered by digital disruption. A closer look at the FTSE Nareit REIT Index reveals that retail REITs have eked out a return of just 0.87% over the past year, as mall REITs plunged 18.78% and hotel/resort
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REITs have fallen 16.59%. That presents a potential threat to broad, index-based REIT ETFs, but it could represent an opportunity for active REIT ETFs that can avoid segments facing fundamental disruption.
New research reveals the hallmarks of a zombie ETF
Low AUM is the top indicator of an ETF that might not survive in the long run, according to a new report by independent research firm CFRA. In its analysis of fund closings in the US ETF universe between December 2014 and August 2019, CFRA found that 89% of closed funds never broke the US$100 million AUM barrier, which many believe is the threshold for fledgling funds to achieve sustainability. Another 34% were exchange-traded notes, which never took off with investors because they require the investor to take on the credit risk of the issuer. Other shuttered funds represented highly specialized international strategies that likely failed to attract a robust investor base.
Are passive ETFs throwing the financial system off balance?
The trend toward passive funds has affected the composition of risk in financial markets, according to a recent paper by researchers from the US Federal Reserve. They found that leveraged and inverse ETFs could stoke market volatility, and the concentration of AUM in passive products among a few large asset managers could also have repercussions if they suffer massive redemptions. However, the researchers pointed out that the increased use of in-kind ETF redemptions, along with index-inclusion effects, could help to soften risks that arise from liquidity and redemption issues.
Raising the flag for factor investing Increasing investor interest in factor-based products prompted RBC iShares to launch a new ETF suite
While passive products have been credited with fuelling the rapid growth of the Canadian ETF industry, investors are beginning to open up to more specialized products, especially factor-based strategies – and asset managers are eager to stay in step with the trend. “As investors look to achieve their portfolio outcomes with evolving markets, we want to be there with the solutions they need,” says Pat Chiefalo, managing director and head of iShares at BlackRock Canada. With that in mind, RBC iShares has added five new factor-based iShares ETFs to its lineup, including the iShares Edge MSCI USA Quality Factor Index ETF (XQLT), iShares Edge MSCI USA Momentum Factor Index ETF (XMTM), iShares Edge MSCI USA Value Factor Index ETF (XVLU), iShares S&P US Small-Cap Index ETF (XSMC) and iShares S&P US Small-Cap Index ETF CAD-Hedged (XSMH). “People are asking how to tactically use these products in different markets and market cycles, and how they can understand the markets through a factor lens,” Chiefalo says. The small-cap options, he adds, complement the company’s mid- and large-cap products to round out the RBC iShares menu for US market exposure. “I think small-cap is a good opportunity for Canadian investors,”
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he says. “It gives you access to smaller, more nimble US companies, which really have delivered in performance over the long term.” The ETFs’ focus on US stocks rather than Canadian ones is significant, as it provides exposure to a larger and more liquid market. While it’s possible to build a factor-tilted portfolio from a smaller market like Canada, investors who want to express conviction in a single factor can get more mileage and a richer portfolio from US exposure.
“People are asking how to tactically use these products in different markets and market cycles” “Our products are transparent and have a very robust methodology,” Chiefalo says, noting that they rely on the same strategies iShares has used for many years to achieve desired factor exposures. The sheer scale of the RBC iShares partnership offers another advantage. As the world’s largest asset manager, BlackRock can leverage its scale to deliver cost efficiencies to Canadian investors, ultimately providing the most competitively priced factor exposures in the market. RBC, meanwhile, offers a valuable network to reach more investors and advisors. “A lot of effort has to go behind servicing clients around factors,” Chiefalo says. “They’re not something investors can simply take off the shelf and employ right away. There’s a lot of education and analysis that goes into them.”
Q&A
Karl Cheong Head of ETFs, Canada FIRST TRUST PORTFOLIOS CANADA
Years in the industry 17 Fast fact Launched in late August, the First Trust Cboe Vest US Equity Buffer ETF (AUGB.F) offers a blend of upside performance and downside protection that’s unique to the Canadian ETF space
Built-in downside protection What investor need or appetite is First Trust attempting to address with the US Equity Buffer ETF? We believe Canadian investors need reliable risk management tools going forward, as the next five to 10 years in the capital markets will undoubtedly look very different than the last 10 years. Equity markets are at all-time highs, and severe overcrowding has led to excessive valuations in fixed income markets, so going forward, investors will require alternative return streams to traditional stocks and bonds. Those closer to retirement are no longer looking to participate one-for-one in the market or have one-for-one market downside, given the current volatility. Many seek capital preservation through cash, but they don’t always factor in the costs from tax and inflation, which currently leads to a negative real rate of return.
How does your ETF address those needs? This is the only TSX-listed product that offers a defined outcome after a one-year time period and 10% downside protection, which is possible through our exclusive subadvisory relationship with Cboe Vest. In 2016, they pioneered this space in the US with the first target-outcome mutual fund, which has just received a five-star Morningstar ranking. AUGB.F, which we launched in August, is the first of four ETFs we are rolling out. The second one will be out in November with a different ticker; its performance target is unspecified at this point, though it will have the same downside buffer. Advisors have the flexibility to build a laddered portfolio or trade in and out of different ETFs in the series, which is just one of the advantages of an ETF wrapper over traditional structured products. Right now, we are pursuing quarterly launches, but we hope to have a monthly offering, depending on market demand. We have also filed to launch another similar strategy with a 25% downside buffer.
Why was the SPDR S&P 500 ETF Trust (SPY) selected as the underlying instrument for this strategy? We chose SPY as an underlying instrument because it reflects a popular and well-followed broad market allocation. It also enjoys a very liquid options market, and utilizing SPY options results in better tax treatment in the form of capital gains versus using SPX index options. Based on feedback we’ve received, we are exploring the possibility of developing the strategy for other broad indexes, such as the TSX and the Nasdaq 100.
How do you plan to educate prospective customers about this product? At First Trust, our business model is to relentlessly focus on the independent investment advisor to help them grow. We intend to spend the majority of our efforts educating advisors on the value proposition of this ETF, its underlying mechanics and where it fits in a portfolio via advisor webinars, branch presentations, individual meetings and events across the country.
www.wealthprofessional.ca
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UPFRONT
ALTERNATIVE INVESTMENT UPDATE
Why it’s time to revisit REITs A pivot toward diversification and defensiveness is setting the stage for the vehicle to make a comeback
increasing popularity of alternative investments. Real estate, Russo points out, provides fixed income via contractual rents defined in many lease structures. But REITs also have growth potential; aside from rising in pace with inflation, many leases are marked to market. Those two features give REITs returns with low correlation to both equities and fixed income. “REITs themselves show general volatility of roughly 12%, versus equities at 9%,” Russo says.
“We have an outlook of double-digit returns continuing for the next two to three years”
Last year provided a rude awakening for investors around the world. Volatility and drawdowns in the stock market caused a significant contraction in portfolio assets. Canada and many other countries experienced their first decline in household wealth in a decade. Accordingly, defensive attitudes have risen, which has given rise to a comeback for real estate investment trusts. “The global REIT universe is up about 15% this year, compared to historical returns that have been in the neighbourhood of 10% to 12%,” says Corrado Russo, senior managing
NEWS BRIEFS
director of investments and global head of securities at Timbercreek Asset Management. “We’re about 300 to 500 basis points higher than that, depending on the strategy we’re in.” In recent years, REITs have fallen out of favour as investors feared rising rates would hurt the real estate sector, but central bank policy is beginning to shift. With REITs trading at one standard deviation below their historical average multiple relative to the S&P 500, and many at discounts relative to their intrinsic value, they represent a bargain opportunity. They also stand to benefit from the
Passive investing’s new frontier: hedge funds
Aberdeen Standard Investments has partnered with Hedge Fund Research to launch a series of products that will track a range of investable hedge fund indexes. ASI’s monthly priced strategy tracks the HFRI 500, which is composed of 500 hedge funds across a broad range of strategies. The strategy will subsequently allow access to HFR’s investable index family, which includes around 30 underlying investable hedge fund strategies and substrategies. ASI eventually plans to offer tracking funds for thematic indexes as well.
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“But by stripping out certain REITs or markets – like developers, emerging markets and highly leveraged REITs – like we do at Timbercreek, you can create a much lower-volatility portfolio that’s in the 7% to 8% range.” Then there’s the increasing inclusion of new sectors such as data centres, cell towers and self-storage spaces. “The positive for managers like us is that in contrast to the basic segments of retail, office, industrial and hotel real estate, these new sectors have more of a secular growth story,” Russo says. “They’re not reliant on the cyclicality of the economy to drive rents up or enable favourable occupancy rates. “It’s been a great year for REITs,” he adds. “Right now, we have an outlook of doubledigit returns continuing for the next two to three years.”
Continued growth ahead for private equity
According to new research from the Thinking Ahead Institute, the private equity market is taking on more importance as young companies increasingly look to raise capital from private channels to avoid relatively short timeframes for returns and rising costs of regulation. This means public-market investors are now accessing companies at a later stage of their development than before, which is prompting more investors to look for ways to access private equity to take advantage of early-stage growth opportunities.
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Q&A
Nick Barisheff President and CEO
The beauty of solid gold investments
BMG GROUP
Years in the industry 20 Fast fact BMG Group offers investments in precious metals through its BMG BullionFunds, as well as physical access to gold, silver and platinum through its BMG BullionBars program
What changes in demand for precious metals exposure have you seen in recent months? Up until recently, we were getting mostly redemptions; now we’re just getting sales. We’ve also witnessed an acceleration in our sales of bullion bars to high-networth investors, who realize the value of owning and storing the asset. Institutions and the public in general have not yet started buying, as far as I see.
What should investors expect when they purchase bullion funds or bullion bars? There are plenty of mandated regulatory expenses when you buy a bullion mutual fund; the MER runs 2.5% to 3%, and storage fees for retail are at 1%, including insurance. Funds are designed to qualify for registered accounts like RESPs, RRSPs and TFSAs. When mutual fund investors get their investment funds from the manager, the manager then goes and buys the assets according to the mandate in the prospectus. Purchasing bars takes a bit of time. We’re registered with FINTRAC, so we have to do background checks before accepting someone as a client. But it’s well worth the exercise for the investor because they get a right to direct ownership of the bullion. They can take delivery any time or just leave it in storage with occasional vault visits, which we can arrange. Everyone’s compelled to buy gold ETFs because they’re inexpensive, but they don’t hold any assets. They have shares of borrowed gold through a chain
TDAM expands pooled fund lineup with real asset fund
TD Asset Management has launched the TD Greystone Real Asset Pooled Fund Trust. Offered to accredited investors, the fund seeks to provide income and long-term capital growth through a diversified portfolio of Canadian and global real estate and infrastructure investments, as well as public securities. Rob Vanderhooft, chief investment officer at TDAM, noted that because real assets tend to have lower correlation to other asset classes, they are desirable in an environment of low interest rates, low yields and rising volatility.
of authorized participants and custodians. Under IMF regulations, when a central bank leases gold, the title to the gold ultimately remains with the central bank. If ever there’s another Lehman type of event where the APs go bankrupt, ETF shareholders will find that the central banks own the bullion; the banks will just contact the custodians and take the bullion back.
What benefits do you see for investors seeking access to precious metals? Precious metals are the ideal hedge to protect investors, even if we don’t experience another financial crisis. We’ve run the numbers up, down and sideways, and we’ve found that allocating 10% to 20% of their portfolios to physical bullion lets investors reduce their volatility and improve returns of their portfolio. I’ve observed a perfect correlation between the price of gold and US dollar debt; it dropped off in 2012, but it’s picked up again, and US debt has been constantly rising. There’s also been a huge increase in paper financial assets, with US$300 trillion in stocks and bonds; gold bullion held around the world amounts to just 0.5% of that. Considering that gold amounted to 5% of a typical portfolio in the 1970s, if 5% of investors currently holding stocks and bonds reallocated to gold, the price would have to increase to $11,500 per ounce, as mine supply would not be able to meet this increased demand.
Hedge fund investors want specialist managers
A recent Goldman Sachs survey of 300 hedge fund investors found that they tend to favour managers who focus on specific areas such as healthcare and technology. Twenty-eight per cent said they’re looking to add sector-focused equity managers, while only 19% are planning to add generalists. The preference was driven partly by the track record of healthcare managers among Goldman Sachs clients, who reported annualized returns of around 45% since the start of 2016; generalists, in comparison, gained 28%.
Alternative credit fund offers Canadian first
In a collaboration with BlackRock Asset Management Canada, Bridging Finance has launched the Bridging Fern Alternative Credit Fund, a new diversified fund-of-funds focused on alternative credit and offering low correlation to traditional asset classes. Bridging Finance CEO David Sharpe said the fund is the “first of its kind in Canada and offers Canadian retail investors the opportunity to gain exposure to certain funds and fund managers that are typically only available to institutional investors.”
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UPFRONT
OPINION
GOT AN OPINION THAT COUNTS? Email editor@wealthprofessional.ca
The AOL of crypto? Facebook’s proposed Libra cryptocurrency could be the product that takes digital currency from the fringes to the mainstream, writes Daniil Saiko THE EARLIEST iteration of email was a fringe application used by tech-savvy engineers and hobbyists. Its everyday practicality was yet to be seen. That changed with the introduction of AOL and its ubiquitous CDs, which took the internet and email from fringe to mainstream. Despite mass media coverage, crypto currency is currently in the same position as the pre-AOL internet. Generally only used by speculators or people deeply involved in blockchain technology, digital currency still hasn’t been widely understood or adopted by the general public. The world’s largest social media company, Facebook, is attempting to become the AOL of cryptocurrency with its first offering, Libra. A cryptocurrency designed for a mass audience, Libra’s mission is to “enable a simple global currency and financial infrastructure that empowers billions of people.” Facebook has been very strategic, cherrypicking cutting-edge ideas from leaders in the crypto space, such as Bitcoin and Ethereum, and truly leveraging open-source and community knowledge. Libra is built on a blockchain system and backed by the Libra Reserve, which employs a basket of global currencies and short-term government securities to maintain a stable price for its tokens. Facebook envisions multiple real-world applications for Libra, from peer-to-peer payments to both online and bricks-and-mortar shopping. Facebook has set up an entity called the Libra Association, a non-profit organization made up of 28 founding companies, which will control the development of the central code
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base for Libra. Members come from various industries and include notable founding members such as Visa, Uber Technologies and Women’s World Banking. Contrary to many claims, Libra is federated and not decentralized. That means that while some aspects of the application will be open-source and decentralized, the Libra Association will still control the fundamental code base and what will get deployed to the user base.
maintain its own unique value, independent of sovereign currencies. The second type is Libra’s Investment Token, which will be exclusive to the founding 28 members and other accredited institutions that have invested a minimum of US$10 million. The token entitles holders to a proportion of the interest earned on the assets in reserve after the Libra Association pays for engineering research, non-profit grants and other operating costs. This creates an incentive for Libra’s founding members to make the application more popular and grow the amount of money held in reserve. Libra has drawn some serious concerns from regulators and governments, which have called for stringent oversight or even a complete ban. At a recent G7 meeting, French finance minister Bruno Le Marie said that “a private company shouldn’t have the possibility to create a sovereign currency.” In addition, there are fears that the digital currency could be used for money laundering, fraud and other financial crimes. Furthermore, Facebook has to contend with its less-than-stellar track
“For Libra to break into the mainstream of society, users will need to be confident that their money and data are secure” For a crypto economy to be successful, there needs to be an underlying incentive system to keep the network running. In the case of Bitcoin, digital mining rewarded users by compensating them in bitcoin. This process helps validate transactions, which in turn encourages further transactions. Libra’s twotoken system attempts to improve upon this structure by creating separate incentives for consumers and investors. The first type of currency will be the Consumer Token. Users can buy Libra with their local currency, which will be held in the Libra Reserve. If they decide to cash out, the Libra will be destroyed, and the user will receive the equivalent value back in the currency of their choosing. This means there will always be 100% of the value of Libra in circulation, allowing the cryptocurrency to
record when it comes to protecting user privacy. For Libra to break into the mainstream of society, users will need to be confident that their money and data are secure. Facebook has a long road ahead to make Libra the currency of the future, but it became one of the most successful technology companies in history by changing the way people communicate. Its next feat could be revolutionizing the way we purchase our coffee, split dinner cheques and send money across the world. Daniil Saiko leads global sales engineering and integrated products strategy for cross-border payments and currency risk management solutions at Cambridge Global Payments, where he works with companies and banks to design FX and payments infrastructure.
www.wealthprofessional.ca
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PEOPLE
INDUSTRY ICON
WHERE FINANCE MEETS TECHNOLOGY Wealthsimple CEO Michael Katchen combined his love of investing with his Silicon Valley background to shape digital investing in Canada
FROM A young age, Wealthsimple founder and CEO Michael Katchen had a knack for investing. At 12 years old, he won a stockpicking challenge, and his love of investing grew from there. After earning a business degree from the University of Western Ontario, Katchen headed to California to begin his career in the tech industry. When the company he was working for was acquired, his friends who profited off the deal turned to him for investment advice. Little did he know that it would be the start of a new chapter in his career. In 2014, Katchen returned to Canada to launch Wealthsimple, a global digital investment service aimed at making smart investing easy, low-cost and transparent for everyone. “The process of helping this group of colleagues and friends build portfolios started the idea of Wealthsimple,” Katchen says. “People want to invest – they know it’s the smart thing, but they don’t always want to hire a traditional advisor or want to do it on their own. They wanted something easy, smart and that they could trust. That’s what we’ve been trying to offer ever since.” Katchen says his decision to return to Canada to start Wealthsimple was motivated by two factors: patriotism and the country’s maturing technology industry. “I deeply care about Canada and think an
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important part of our long-term prosperity is going to come from the tech industry,” he says. “We need to diversify our economy and move towards knowledge-based sectors. When I saw what was going on here, I got excited about trying to be a part of that.”
Strength to strength Since Wealthsimple debuted in 2014, the company has grown steadily, recently
financing – we just raised $100 million from Allianz X and Power Corp. in a landmark financial deal. I think that’s a big statement, not only for us, but for tech in Canada.” That new financing will help Wealthsimple add more services to its already growing spate of offerings. The company recently introduced TFSAs to its lineup of RRSP, RESP, RIF, LIRA, personal, joint, corporate and high-interest savings accounts. Wealthsimple
“People want to invest ... but they don’t always want to hire a traditional advisor or want to do it on their own. They wanted something easy, smart and that they could trust. That’s what we’ve been trying to offer” passing the $5 billion AUM mark in August. Yet it’s the early successes that stand out for Katchen when he runs through the company’s highlights. “The first people who weren’t family or friends, who trusted this business with their life savings, would be a major moment,” he says. “Then when we hit a billion in assets – the prime minister came to the office to celebrate that milestone. Now our most recent
also rolled out its Trade app earlier this year, which offers users commission-free trading of stocks and ETFs. The company’s offerings also include Wealthsimple for Advisors, an all-in-one wealth management platform that gives financial planners, investment advisors, portfolio managers and dealers front- and back-office solutions to help them optimize and scale their businesses.
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PROFILE Name: Michael Katchen Title: Co-founder and CEO Company: Wealthsimple Based in: Toronto Years in the industry: 6 Career highlight: When Wealthsimple hit $1 billion in assets and the prime minister visited the company’s office to celebrate the milestone
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PEOPLE
INDUSTRY ICON
“For us, Wealthsimple was a reaction to a personal problem: Friends wanted to invest, and I tried to help them,” Katchen says. “That is still our approach today – we have clients who have a broad set of financial needs, and we want to be the firm that helps them navigate and achieve better outcomes.” While Wealthsimple continues to grow – most recently, the company announced that Rapport Credit Union had adopted its platform – Katchen acknowledges that there were bumps along the way. He points to the initial growing pains Wealthsimple experienced as a
exists in many Canadians’ minds between embracing and fearing technology. “Canadians’ attitudes towards tech in financial services have changed dramatically,” he says. “When we launched, the industry was dismissive – they said it was a cool concept, but Canadians trust the banks, and if the banks launch competitors, they will crush Wealthsimple. The banks have launched competitive products, but we continue to grow and maintain our share of the industry. Today, we own a 72% share of the digital advice industry, and our job is to grow it.
“When we launched, the industry was dismissive … Today, we own a 72% share of the digital advice industry” startup, when it was forced to use a third party to clear trades. “When we launched, we were trying to introduce tech to an industry that didn’t know how to handle it,” he says. “You couldn’t open an investment account without paperwork. We tried to launch a digital investment firm, but the third party required paper applications and wouldn’t work with us on digital onboarding. For our first year in business, we had to go print off every application – so it would feel paperless to the user, but we would print off the paperwork and physically bring it to the back office to open the account.” Yet Wealthsimple overcame those early challenges and now has its sights set on bigger things. “Now that we are here, it’s funny how the goalposts move,” Katchen says. “We are nowhere near big enough – there are opportunities in front of the business, and we feel like it’s just getting started. I think that’s exciting.”
The way forward To continue to grow, Katchen realizes that Wealthsimple will need to bridge the gap that
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“That’s why we launched Wealthsimple for Advisors, because it’s all about empowering advisors to continue to thrive in a world where client expectations and cost structure have changed and give them the benefits to empower them in this digital age.” For now, Katchen remains humble about what he has created, something he learned from one of his mentors, Purpose Investments CEO Som Seif. In his view, Wealthsimple is just getting started. “I think it is funny that Wealthsimple is perceived as a bigger success in the outside world than by us at the company,” Katchen says. “I think this team is incredibly humble, and we believe we have so much further to go to achieve the impact we want to have on the industry. It’s this rare combination we try to emulate that I learned from Som, having confidence and humility at the same time. To have a point of view to make change, remain open-minded, stay hungry and put in the work to get where you want to go – that is something I’ve tried to make part of our culture.”
WEALTHSIMPLE AT A GLANCE
HEADQUARTERS Toronto, ON
FOUNDED 2014
AUM $5 billion
SERVICES RRSP, RESP, RIF, TFSA, LIRA, personal, joint, corporate and high-interest savings accounts; Wealthsimple Trade app; Wealthsimple for Advisors; tax software
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
LEADING PORTFOLIO MANAGERS WPC sat down with eight of Canada’s top portfolio managers to find out their investment strategies, the changes they foresee for the industry and the qualities they believe every PM should have
DISCRETIONARY PORTFOLIO managers are some of the most soughtafter advisors in the industry, thanks to their experience, expertise and the relationships they have with clients. Portfolio managers may have varied views on the market and different ideas about how best to construct portfolios, but they all have the same essential goal: doing what’s best for their clients to allow them to focus on other aspects of their life. WPC spoke to eight leading portfolio
managers across the country to gain insight on their strategies and find out where they see current opportunities and challenges for investing. While their opinions varied, many of their responses revolved around the common themes of crafting and committing to a strategy, analyzing the business cycle, reducing costs for clients, removing emotion from the process and managing client expectations – a timeless collection of advice that’s relevant to any advisor.
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Walk in your clients’ shoes Colin Ryan’s strategy revolves around financial planning and a long-term view that he invests in alongside his clients
IN MAY, Colin Ryan, senior vice-president, managing director and portfolio manager with BMO Nesbitt Burns in Winnipeg, was named Portfolio/Discretionary Manager of the Year at the Wealth Professional Awards. A 27-year industry veteran, Ryan says he was fortunate to know what he wanted to do from a young age. After obtaining an honours degree in finance from the University of Manitoba, he joined Burns Fry and earned his CFA designation. He applied to be a portfolio manager in 1999 and has spent the past 20 years honing his strategy, which involves a long-term approach centered around financial planning – an approach he applies to his own portfolio. “I personally own almost everything that my clients own, except for the fixed income because I have very long-term time horizon,” Ryan says. “I own most of the same equity and growth investments as our clients. That way I am totally aligned with the recommendations we make for them.” Having some skin in the game is just one the hallmarks of a good portfolio manager, Ryan says. Another is basing clients’ portfolios on their goals and objectives, which are clearly laid out in a financial plan.
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“My team and I spend a lot of time upfront with clients developing a plan that takes into account everything: retirement goals and objectives, business goals and objectives, business succession, risk and rate of return, and unique circumstances, and we put that into a document called an investment policy statement and a financial plan, which becomes the backbone of how we manage someone’s wealth.” In doing so, Ryan frees up the time of his private and institutional clients so they can
to trade and the economy, it is important to have companies with strong balance sheets that pay dividends and show the ability to continue to grow dividends.” In terms of fixed income, Ryan believes it’s one of the biggest challenges portfolio managers have had to deal with over the last decade because of low interest rates and muted returns. “We have kept things relatively simple and short-term for private clients,” he says, “just because interest rates are so low, and private clients really like the safety and
“I own most of the same equity and growth investment as our clients. That way I am totally aligned with the recommendations we make for them” focus on more important things. “I think it’s important to start with someone’s financial plan,” he says. “Everyone is different – some people have a simple plan, and others are extremely complex. It’s important to have that framework done first because if you don’t, you don’t know how to invest that portfolio.” Ryan says his team tends to keep portfolio construction simple because complexity doesn’t always equal results. Strategic asset allocation is designed for the long term and changed tactically when necessary. “We keep things very simple and focus on a value-oriented, dividend and dividendgrowth approach,” he says. “We think in the current environment, where you have low interest rates and cross currents with respect
security of guaranteed fixed income.” His long-term approach means Ryan can avoid overreacting to short-term noise. This is where his longevity in the industry pays off, as he’s seen different periods of market volatility play out, including the 1998 Asian crisis and the 9/11 attacks in 2001. “I have been through a number of cycles and found that making decisions based on short-term volatility isn’t always the correct way to manage a portfolio,” he says. “We find that day-to-day movements in the marketplace are generally not based on fundamentals of the market. So we stick with good-quality companies – some have moats around them, barriers to entry, solid balance sheets – growing businesses that
Name: Colin Ryan Title: Senior vice-president, managing director, portfolio manager Practice: The Colin Ryan Group Firm: BMO Nesbitt Burns Location: Winnipeg, Manitoba Years in the industry: 27 Certifications: CFA, ICD.D pay their dividends and raise them. A lot of the companies we own have track records of raising dividends for 20 years or more. Those types of companies can weather the storms that come along.” Other qualities a good portfolio manager must have, Ryan says, include a great team and an emphasis on communication and education. “I have a CFA, which is essentially the gold standard for portfolio management,” he says. “There is a lot of continuing education behind that, so I think you have to be someone who has a lifelong commitment to continuing education. My team has also been with me for the better part of 20 years, so we have a lot of consistency, which is good for clients. “I think a good portfolio manager is someone who actually cares about their clients and treats them as individuals, not numbers,” he adds. “You have to care about the relationship and take time to listen to the clients because, at the end of the day, it is their money. Your role is to be a good active listener to understand what they want to see happen with their money. Then make sure to keep them updated regularly.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Follow the rules Jay Nash’s rules-based approach to portfolio management takes the emotion out of selecting investments
WHEN JAY NASH, SVP and portfolio manager with National Bank Financial, began his career in the late ’90s at Midland Walwyn, he observed several turning points in the market, including the long-term capital issue in 1998, irrational exuberance in 1999 and the technology correction of 2000. Witnessing it all, he realized that basing a strategy around current events in the market would result in being wrong more often than right, so he decided to adopt a rules-based approach that removes any emotion from picking stocks and sectors. Two decades later, that approach has paid off, judging by Nash’s multiple nominations for Portfolio/ Discretionary Manager of the Year at the Wealth Professional Awards. “My process has evolved over the last 20 years, but that was where it started, and it was a matter of tightening it up over time,” Nash says. “I work from asset allocation first and foremost. When you are looking at portfolios, you want to make sure the risk for each client is appropriate and that they have the right balance. Then you look at the top-down macro side, deciding if the current environment provides a better or worse risk/return ratio than would be present. Then you turn to the bottom up – the individual positions.” Far from a cookie-cutter approach, Nash endeavours to control the ingredients
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for each client and their unique situation. “No two portfolios are the same, as everyone’s timeline, risk parameters and types of accounts – corporate or individual – are unique,” he says. “It doesn’t mean you have to have different stocks or managers in each one; you just have to adjust the weightings.” After he establishes individual parameters, Nash applies his rules-based approach. “One of the rules I adhere to, in the managed
any investor at any level is susceptible to making emotional decisions. “When we look at other factors, news flow is there and the data is changing constantly, but it still feeds to an emotional response, whether fear or greed,” Nash says. “Those two emotions drive everything, unless you have a set of rules that sets your process.” An integral part of that process for Nash is active management. While he agrees with the
“[Fear and greed] drive everything, unless you have a set of rules that sets your process” realm for mutual and exchange-traded funds, is I hold no sectors of any kind, whether geographic or economic,” he says. “I focus primarily on the ETFs or managers – active or passive – that provide the best exposure to a given portion of the portfolio. When looking at opportunistic moves, much of my process is driven by Morningstar and CPMS data and the rules we have in place within that quantitative program. They guide us day-to-day and remove the emotion when it comes to one sector or stock at any given time.” Removing that emotion is one of the biggest challenges Nash sees today. Given the access to information that’s available now,
statistics that show the benefits of holding passive investments in larger and more liquid markets, he has also seen that when it comes to global equities and small cap, active management tends to be successful. “Overall, there are exceptions in both cases,” he says, “but I am a believer that active management in the less liquid or overly diverse markets has a real advantage.” In addition to observing a shift in market events and the types of investments used, Nash has also noticed a change in the role of a portfolio manager. “The job itself has evolved significantly,” he says. “It was very stock- and story-focused
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Name: Jay Nash Title: Senior vice-president and portfolio manager Practice: Nash Family Wealth Management Firm: National Bank Financial Location: London, ON Years in the industry: 20 Certifications: CIM, FCSI in 1998. People turned to you, as an advisor, to provide guidance for their portfolio alone. Today, the guidance is much broader. They are looking for your help with their portfolio and many of their lifestyle decisions as well, such as a financial plan, and you need to provide all of that within your services. That has been a huge change and requires a more diverse set of skills. I believe the modern investment advisory relationship is much more team-focused than it was, with the need for specialties versus the old individual advisor-to-client relationship.” To meet investors’ growing expectations and create productive relationships with clients, Nash believes strong communication is a must for portfolio managers today. “The ability to communicate with those who work with you, the ability to listen and hear what clients truly need, and the ability to adjust your approach to everyone’s unique needs are key qualities,” he says. “While every investor would happily turn to you and say, ‘Give me all the upside without any downside,’ it isn’t the reality. In our business, understanding what the client is really asking for is a skill set that is required today.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Pay attention to the business cycle Rabbie Gill has built his investment strategy around an analytical view of the business cycle and how it affects asset classes and sectors
RABBIE GILL of Fieldhouse Capital Management might have one of the most unique backgrounds of a portfolio manager. After entering the industry in corporate finance and then becoming a research analyst, Gill worked on the regulatory side before making the move to wealth management. The combination of these experiences has allowed Gill to evolve his own investment and portfolio construction strategy, which has a heavy emphasis on analyzing the business cycle. “My philosophy started as a fundamental analyst, breaking down financial statements and assessing value,” he says. “Over time, as I evolved into the fixed income side, I became more interested in macro and looking at the business cycle. My investment process is anchored around the business cycle and macro events – a lot of people overlook the importance of macro. I take a look at the phasing of the cycle, how it impacts asset classes and sectors, and where the opportunity is.” While Gill’s style is centred around active management, he doesn’t focus on a single investment idea or structure, but rather the
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process around the cycle and how he can position portfolios for the best risk/return ratio. He explains how his past experiences have shaped his current philosophy. “Over time I started to understand the cause of these [market] movements and broke it down into timeframes to see if I could dissect asset class movements,” he says. “I’ve learned that if you understand where you are in the business cycle, it gives you information to look at the price basis of
cate with end clients.” Given his strategy of breaking down the business cycle, Gill sees the current volatility in the market as an opportunity. “For my process, volatility is a positive thing because it gives you the opportunity to take profits or get a better entry point from a higherprobability, lower-risk perspective,” he says. “If you break down the business cycle, there is the up portion where there are opportunities, and you can have the ‘buy the dip’
“I’ve learned that if you understand where you are in the business cycle, it gives you information to look at the price basis of different asset classes” different asset classes. It is a process evolving over time, and as you get more info, you do more of what works.” While his analysis background has helped Gill shape his philosophy, his regulatory insights have helped him navigate investments and communicate with clients. “It gave me experience on how to identify red flags with investments, investment management themes or financial numbers with the story that was being marketed around a company,” he says. “It was invaluable – it’s hard to learn that from a textbook or lecture. I also understand the thought process and position of the regulators towards the investment process, which I think is value added and helps me communi-
mentality. As you roll over, you want to adjust your exposure to defensive assets. Volatility is a key function of what allows my process to be successful over the long term.” At the core of this process is active management. Gill says that in light of the evolving nature of the markets, a disconnect among investors on understanding the timeframe they’re investing in, heightened volatility, and central banks using monetary policy to exacerbate the length of the business cycle, having active management throughout is crucial. In his nearly two decades in the industry, Gill has observed many changes, but one that stands out is a sense of complacency among some portfolio managers in this long-
Name: Rabbie Gill Title: Portfolio manager Practice: Fieldhouse Capital Management Location: Vancouver, BC Years in the industry: 16 Certifications: CFA running bull market. “Every time they think things are getting bad and they position for downside, there is a quick move and it snaps back,” he says, “and I think that has created a sense of complacency.” The bigger challenge, however, is investors’ outlook. “Many look at what has happened in the last five, 10 or 15 years and think it is going to happen going forward,” he says. “Yet we are in a state of flux with the business cycle. It becomes harder to have clients understand that you have a process that is repeatable and get them to be proactive rather than reactive.” While his process has led to success, Gill believes having a good strategy is only one element of quality portfolio management. “You need to be an individual who is objective, analytical and who doesn’t get tied down by the cognitive bias that we have as humans,” he says. “You are really a risk manager, more than necessarily trying to outperform or be a great stock picker. It comes down to preservation of capital and understanding how not losing is really winning over the long term. You need to be willing to understand where you may be wrong and how to manage that effectively.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Take the emotion out of decisions By using a top-down portfolio management philosophy based on the statistical data behind ETFs, Mary Hagerman removes emotion from the equation
MANAGING CLIENTS’ emotions and expectations is one of a portfolio manager’s most important jobs. Mary Hagerman of Desjardins Wealth Management has found that the best way to do this is by using ETFs, and the research and data behind them, to separate emotions and investing. “Going back to the financial crisis, one of the overwhelming outcomes was that if you could manage your clients’ emotions, keep them in the market and have them not sell at the worst possible time, then you actually came out unscathed,” says Hagerman, who has been an advisor for more than 30 years and a discretionary portfolio manager for around a decade. “If you could stick with your strategy and not try to trade your way out, or even buy the dip, you were better off. I have always been a top-down portfolio manager. That convinced me it was the way I wanted to continue managing clients’ money, with an emphasis on keeping emotion out of the investment process. I do that through the tools in the portfolios – ETFs, which essentially have no active management.” Within her top-down approach, Hagerman manages all of her portfolios around a benchmark. “If I feel a particular conviction to over-
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weight a geographical area, add a sector or enhance a position, I do it based on research I consult,” she says. “I go with a consensus view as opposed to contrarian. I am looking for ETFs that will fulfill the portfolio model based on my benchmark indices.” Having conviction is something Hagerman believes is crucial for portfolio managers, because at some point their strategy won’t
“Right now, we are in this extended bull market that is not so much about what you own as what you don’t,” she says. “My focus is on staying broadly diversified based on my benchmarks and not getting sideswiped by overweighting a position that doesn’t work in the portfolio. I think the challenge now is to stay invested in the market, which I think will continue to offer value in the cycle, but
“You have to have conviction in the way you manage money and stick to it throughout all phases of the market” be winning. “You have to have conviction in the way you manage money and stick to it throughout all phases of the market,” she says. “I have a methodology for creating and managing portfolios that I stick to and that I am not going to change just because of a period of volatility.” The combination of managing emotions and remaining committed to her strategy has helped Hagerman navigate all phases of the market cycle.
at the same time have a defensive approach. “I have to hang on to my long-term strategy and communicate that to clients,” she adds. “If I don’t think there will be recession in the next year and I think clients should remain invested in the overall portfolio they have for their risk profile, then it’s a question of not trading around volatility, but maintaining a stance that reflects my view of the markets.” Much of Hagerman’s current strategy was
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Name: Mary Hagerman Title: Portfolio manager Practice: Hagerman-Archambault Group Firm: Desjardins Wealth Management Location: Montreal, QC Years in the industry: 30 Certifications: FCSI, CIM, F.Pl built around the lessons of the 2008 financial crisis, which also happened to be when ETFs were just starting to grow in popularity. That’s part of the reason she has given them a starring role in her portfolios. “Last year, ETFs outsold mutual funds – 2018 was a big year, the year ETFs took first place as to what investors and portfolio managers were using,” she says. “ETFs play a big role because of their lower fees, and the growth of the product has allowed individual investors to have the same access to the market as institutional investors at pretty much the same cost.” Leveraging the cost and transparency benefits of ETFs has been a successful recipe for Hagerman. In May, she was named ETF Champion of the Year at the Wealth Professional Awards, and she has no intentions of deviating from what has worked. “I think the biggest challenge is to stay on top of the client relationship and the emotions investors have regarding money,” she says. “What is often the trigger to people doing the wrong thing at the wrong time is based on the relationship. I think the here and now for asset managers is backed up by the right connection with clients and controlling their emotions.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Focus on the why Martin Pelletier believes most of the Canadian wealth management industry is getting it wrong by prioritizing products over investors’ objectives MARTIN PELLETIER had an interest in investing from a young age. After he graduated from high school, he became one of the youngest people, at the time, to write the Canadian Securities Course. Pelletier entered the industry as an analyst, making recommendations on companies for institutional clients. Yet his passion remained with investment management. So, in late 2009, Pelletier and partner Craig Stanford formed TriVest Wealth Counsel, a boutique investment firm in Calgary. They started as many others did, with an in-house strategy that they looked to get into various distribution channels. Yet as the firm progressed, Pelletier realized that the rise of low-cost ETFs had significantly changed the nature of the business and the options available to investors. Consequently, TriVest evolved into a goals-based, objectiveoriented approach, which has led to success with its high-net-worth clients. “In Canada, we are selling financial products and focusing on the what, which has commoditized the industry,” Pelletier explains. “I think the opportunity is to focus on why people are looking for financial advice: helping someone make sure they have enough in retirement, to leave behind for the next generation or other philanthropic objectives. I think that is the future of wealth management. “I wish we would have adopted [a goalsbased approach] earlier because it is an
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effective way of managing clients’ assets,” he adds. “It starts with understanding who they are, what they are trying to achieve, designing a portfolio around those goals and analyzing the risks to getting there. Then you outsource and use whatever tools are available to achieve those goals.” Pelletier is a big fan of outsourced investment solutions, as he sees benefits in both
tive, active and passive has been successful for our clients.” Another key to Pelletier’s success had been the importance TriVest has placed on objectives, which Pelletier says has helped his clients weather recent volatility. “Risk and return go hand in hand,” he says. “You can do your best to reduce the level of risk for the return generated, but there is
“In Canada, we are selling financial products and focusing on the what ... I think the opportunity is to focus on why people are looking for financial advice” active and passive strategies. “We deploy active and passive, a combination of both,” he says. “It is very difficult to outperform very efficient markets like the S&P 500. Data has shown that only 4% to 5% of managers outperform the S&P 500 every year, and it’s not the same manager each year. Emerging markets and Canadian markets, for example, are areas where there are opportunities to add alpha – markets that aren’t as transparent or liquid, in some cases. Especially in uncharted spaces, there are strategies that can add absolute returns instead of just alpha. Having a combination of alterna-
only so much you can do. The basic principles of portfolio diversification are setting specific goals and not taking on excess risk. The biggest mistake an investor or advisor can make is to work backwards – working on the portfolio, designing it to beat the market or generate this superior alpha-weighted return. In reality, it is difficult to do, and what is your goal? Some clients only need a 5% return, so how do you get that and mitigate risk? Our clients with a lower growth objective have seen their portfolios perform well because of the downside protection, and those with higher growth objectives know there is no way
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Name: Martin Pelletier Title: Managing director, portfolio manager Firm: TriVest Wealth Counsel Location: Calgary, AB Years in the industry: 20 Certifications: CFA around near-term volatility.” As an independent firm, TriVest’s approach has to stand out. Pelletier acknowledges going up against the Canadian banks is a challenge, as are the increased administrative, compliance and regulatory obligations. “It is difficult for smaller boutique firms to compete unless they are running lean operations,” he says. “Those who want to grow may have a tough time achieving the targets, given the regulatory burden. Firms have to find ways to make up for a loss in efficiencies, which may mean deploying technology and exploring ways to streamline one’s back office.” However, Pelletier does see benefits for the independent channel. “There are advantages such as not having to sell your own proprietary product, offering services banks can’t and the personal touch.” For independent firms to succeed, it all comes back to meeting the clients’ needs, Pelletier says. “It may sound tacky, but it is the bottom line,” he says. “Figure out what problem you are trying to solve. If you can demonstrate that to the client, there is a value-add. In my business, the biggest problems are: Will my clients be able to maintain their lifestyle in retirement, can they protect and grow their capital, and can they lower their taxes? If you focus there, it adds value for your clients.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Find new ways to diversify Rob Edel understands that all asset classes have their time – and that’s why he’s now moving into private investments NICOLA WEALTH CIO and portfolio manager Rob Edel got his start in the financial industry in the late ’80s and has seen plenty of different scenarios play out in the market. This led him to the realization that all areas, asset classes and sectors have their own cycle, which creates opportunities. Understanding the workings behind trends and how to place them into a longer-term view became the basis of his strategy. Edel has had a passion for investing his entire life. He began buying stocks when he was in high school, took the Canadian Securities Course when he was in Grade 12 and followed it with Portfolio Management Foundations at university. He went on to work with TAL Global Asset Management prior to its acquisition by CIBC, where he managed a US equity portfolio, before joining Nicola in 2003. Today, Edel says his strategy is about working toward being well diversified. “It’s an uncertain world and a tough investment environment,” he says. “We try to have diversified portfolios, making sure the diversification is real because, in times of crisis, correlation tends to move in one direction. You have to make sure you don’t have any hidden risks, find asset classes that give you
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different exposures, protect clients’ wealth within those asset classes, and make sure you manage it the best way.” To accomplish that diversification, Edel has turned to private and alternative investments, which he believes are experiencing their turn in the cycle. “We have an in-house team that is making investments in real estate,” he says. “We have several funds in that area; it is a large part of our client portfolios. We also created a private equity and
area as they were five years ago, because of the amount of money that has moved into the space, he still sees benefits. “We still think they are there; it’s just harder because you have seen an increase in private equity valuations,” Edel says. “It’s not as prevalent as it was in a world where interest rates and cost of capital have been driven down to practically zero. We still think you have an advantage; it’s just not as much as before.”
“Everything is more expensive. When you look at an entire portfolio, across asset classes, everything looks expensive, and there are no safe assets anymore” private debt pool. There is an offset to that – you are giving up liquidity when you move into these classes and need to be aware of it.” Risk is usually associated with private and alternative investments, which is something Edel acknowledges, but he says the performance has resulted in capital flowing in. “We still think that, from a diversification point of view, clients and investors need to move more in this direction,” he says. “We do see opportunities from a valuation, return and diversification point of view.” One of the reasons Edel has been more open to private equity is the pricing differential between it and public equities. When public equities are valued higher, this allows for private investments to make up the differential if the company goes public. While he adds that his team isn’t as excited about the
Yet private assets can be a way to gain the returns clients are looking for, especially in light of current volatility. “Non-correlated assets play into favour,” Edel says. “Having assets that aren’t marked to market can help. We are also aware that there is a difference between price volatility and actual volatility. You have to make sure you are buying quality assets, whether public or private.” Staying on top of quality investments is one of the reasons Edel believes active management remains important. While fee compression has given rise to more passive investments, he says active management is vital for certain asset classes – especially when the current bull market eventually ends. “There are implications for passive investing in bear markets when money starts
Name: Rob Edel Title: Chief investment officer and portfolio manager Firm: Nicola Wealth Location: Vancouver, BC Years in the industry: 32 Certifications: CFA coming out quickly that most investors aren’t aware of,” he says. “I also think that the amount of money that goes into passive, and what it does to the valuation of certain companies, is creating opportunities in the broader market. In this environment, value isn’t being rewarded, but it is causing a disconnect with valuations, which, at some point for patient investors, will be realized.” Valuations are one of the biggest challenges Edel sees today. “Everything is more expensive,” he says. “When you look at an entire portfolio, across asset classes, everything looks expensive, and there are no safe assets anymore. That makes the job of creating diversified portfolios harder, and it puts more of an emphasis on trying to find that diversification. It is an extraordinary time as an investor – central banks are driving you up the risk curve, and I think investors have to be wary of that.” While the answer for Edel right now lies in private equities, he says it’s important for portfolio managers to always keep an open mind. “I spend 80% of my day reading,” he says. “It’s being aware of all the things happening in the different asset classes and markets and trying to have as big a network as you can to understand where the risks and opportunities are.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Leverage the power of ETFs James Gauthier has embraced building portfolios with ETFs for the long term, focusing on the right asset mix and risk tolerance JAMES GAUTHIER, chief investment officer at Justwealth, has seen the wealth management industry transform before his eyes – and at the centre of that transformation has been the emergence of ETFs. “I remember when there were no ETFs and then when the first one launched in Canada,” he says. “The number of providers and ETFs has exploded. This product wasn’t available years ago, but now it is a good choice for investors because it is low-cost and it works.” In the industry since the mid-1990s, Gauthier started as an actuary for Mercer, but soon moved over to the investment counselling side, working with pensions and endowments. After completing his CFA certification, he spent time at a couple of the big banks before starting Justwealth, a digital wealth management platform that relies on ETF investing as a cornerstone. “My philosophy is very long-term and goals-based,” he says. “It’s not just about reaching a certain return; it’s about satisfying objectives, whether that’s income, growth of capital or increasing capital within the client’s specific risk tolerance. We look at what the objective is, what the risk tolerance is and match it with a portfolio. “Our process has three levels,” he
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continues. “The first is asset allocation, taking a long-term view that is 10 or more years out and deciding on the right mix of asset classes. Then we look for the appropriate ETFs. We use them exclusively and screen the universe of North American ETFs to find the best candidates. Finally, we monitor and make sure
eye out for opportunities when there are rule changes or when new products offer exposure in a more efficient way. “When companies innovate, it forces us to re-examine and re-evaluate the portfolio,” he says. “If something new is constructed and it provides better access to an asset class or is
“We try not to get too excited over things like thematics and fads because they can die in the short term. We identify long-term strategies and stick to them” the portfolios perform as expected and keep up with the ETF industry for new launches.” There’s certainly been no shortage of new products – as of the end of July, the ETF industry had reached 721 funds and 37 providers – but Gauthier stresses that it’s important not to get distracted. “We try not to get too excited over things like thematics and fads because they can die in the short term,” he says. “We identify long-term strategies and stick to them.” However, Gauthier and his team do keep an
a better structure on a process, and if it fits, we will implement it. An example of this is in our tax-efficient portfolios that aim to offer the maximum after-tax return. Years ago, we liked a discount bond ETF because it was taxed more favourably, but when we looked at the underlying holdings, there were only six bonds in the ETF, so we didn’t feel it was well diversified. A year later, there were 50 bonds in it and it was more diversified, so we added it to portfolios.” Gauthier’s team currently uses 47 different
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Name: James Gauthier Title: Chief investment officer and portfolio manager Firm: Justwealth Location: Toronto, ON Years in the industry: 23 Certifications: CFA ETFs to construct portfolios. While some of these employ a smart beta or active strategy, those account for relatively small portions of the allocation because of their relative expense. In addition to the emergence of ETFs, Gauthier has witnessed many other industry shifts, but he says some things haven’t changed. “Communication and building strong relationships with clients remain an important part of being a portfolio manager.” In that regard, Gauthier identifies managing client expectations and maintaining an appropriate level of communication as his biggest challenges. “Behavioural finance is something I am fascinated by – the notion of why people make bad decisions with their finances,” he says. “It comes down to two things: panic selling and momentum buying. That’s not a smart way to do it. You need to have a long-term approach that aligns with objectives within a risk tolerance. We deal with a wide range of clients, so it is important to listen to their individual objectives, translate that into action and communicate it back to them. Also, to mitigate potential for disappointment, it is important to be truthful and let them know what the reasonable expectations are, but also the downside risk – don’t just tell them what they want to hear.”
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SPECIAL REPORT
LEADING PORTFOLIO MANAGERS
GO-TO STRATEGY
Take a disciplined approach Susyn Wagner’s experiences have taught her that sticking to a strategy will pay off in the long run ALTHOUGH SHE began her career in the financial industry in 1987, Susyn Wagner, vice-president and portfolio manager with CIBC Wood Gundy in Calgary, didn’t start practicing discretionary portfolio management until 2007, just in time for the financial crisis. The 2008 recession forced Wagner to weigh her options as to how to handle the situation. She chose to stick to the rules-based, disciplined approach she had developed, which turned out to be the right decision, as her portfolios came out of 2008 to post positive returns in 2009–10. Now, she can look at that track record for inspiration when other periods of volatility arise. “I became a discretionary manager because, at the time, many of the mandates I was using weren’t performing well,” she recalls. “When I explained to my clients why they weren’t doing well, it sounded hollow. I felt that I could develop a disciplined process that would provide similar rates of return at a lower cost.” Wagner’s strategy includes using Morningstar CPMS software to help with stock selection. When she began, others were using it, too, but they weren’t getting the desired results. So Wagner combined the tool
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with her own disciplined approach. “Our system involves buying based on the fundamentals of a company,” she says. “If things with a company change and it is necessary, we make a change to the portfolio. We turn over the portfolios 20% to 30% a year; in more volatile markets, that can be even more. You have to be patient, but if earnings or valuations in a company change, and if you have a specific rule, then you have to implement it. It’s important to follow the process.” In 2007, Wagner rolled out three portfolios: an all-equity strategy that contains US and Canadian equities, supplemented with
sure her team knows each client and their risk tolerance, having that cash is key. “We concentrate on the needs of the client from an expense perspective,” she says. “We always make sure we have good cash reserves in place so we don’t have to access the growth-oriented investments. In 2008, all of our clients had good cash reserves, so we didn’t have to go in and access equities, which allowed our portfolios to recover. That helps with returns because you don’t have to access investments at the worst possible time.” Having that cash reserve as part of her portfolios continues to help in today’s vola-
“[The financial crisis] is when I truly learned to follow the discipline, even if I felt uncomfortable. By following it, our portfolios did turn around” ETFs for international exposure; a balanced strategy with income-oriented investments and equities; and a core Canadian strategy. Not long after, the 2008 financial crisis began, and many of the portfolios were underperforming. “It was a difficult time,” she says. “Many portfolios were down, but that is when I truly learned to follow the discipline, even if I felt uncomfortable. By following it, our portfolios did turn around.” One of the reasons Wagner believes her portfolios were able to rebound is the importance she places on having healthy cash reserves. She says that in addition to making
tile investment landscape. “There are so many unknowns in today’s market, such as Brexit and trade discussions,” she says. “With all the unknowns, I err on the conservative side when it comes to cash flow or having a cushion in the account for clients, in the event of a pullback.” The cash reserve provides a stable source that clients can draw from and is strategically replenished during optimal market conditions while the growth portions of Wagner’s portfolios remain untouched. This investment methodology is important for her clients, who are primarily retired or near retirement and often aren’t in a position to
Name: Susyn Wagner Title: Vice-president and portfolio manager Practice: Wagner Investment Management Team Firm: CIBC Wood Gundy Location: Calgary, AB Years in the industry: 32 Certifications: CIM, FCSI, CFP re-create their wealth. “Knowing when to buy a stock is as important as knowing when to sell,” Wagner says. “Both of these actions mean that you need to be patient, especially in down cycles. Sometimes the mere act of doing nothing can help you more than any other rule with investing. “We all question our decision-making process in times of volatility,” she adds. “When things are on the upside and we are doing fine, we think we’re heroes. When it’s not, we feel like goats. Being able to have confidence in your investment strategy is key to be a successful manager. Unfortunately, that takes time – time in the markets to experience the ups and downs.” While a confident, disciplined approach is a must, Wagner believes the most important skill a portfolio manager must have is the ability to listen to the client. “It is by far the most important tool,” she says. “Know your client and make sure you keep in contact with them when the markets are volatile so they don’t panic and cause you to make inappropriate changes. The management of the equities is a small part of what we do; it is managing client expectations that is most important.”
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SPECIAL PROMOTIONAL FEATURE
PRIVATE EQUITY
The need for private equity As yields on traditional investments have fallen, private equities have never been more attractive as a portfolio complement TRADITIONAL ALLOCATIONS to public equities and fixed income simply aren’t cutting it in today’s investment landscape. As the yields on these investments, which used to drive portfolios, continue to decrease, advisors are searching for new ways to generate returns for clients. One way is through alternative or private investments, which until recently have been difficult for retail investors to access. But the landscape is changing, so the time could be right to use private equities to complement traditional investments.
“From the 1970s through the 1990s, investors were getting strong returns and liquidity from public equities,” he says. “What caused things to change was the 2008 financial crisis. It was a shock to portfolios and resulted in alternatives, or private investments, having more appeal because they are not marked to market on a daily basis.” That non-correlation and insulation from the market has another benefit, Lauzon points out. “Unlike public equities, investors cannot check on privates multiple times in a day and
“Privates are uncorrelated to the market, so they act as a good diversifier” Rob Lauzon, Middlefield Group In the past, the initial investment required for private equities (often $10 million or more) was too high for average investors, the illiquidity or lock-up periods scared them off, there were complicated agreements, and the opportunities might have only been offered to accredited investors. However, fund companies like Middlefield Group, through its partnership with Blackstone Asset Management, are starting to bring these types of opportunities to smaller investors. Middlefield plans to offer sleeves in its funds that offer exposure to private equities, opening the door to a wider range of investors. Rob Lauzon, managing director and deputy CIO at Middlefield, explains why that access has become more important today.
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are less influenced by the fluctuation,” he says. “Private equities are looked at usually on a quarterly basis.” Another fallout from the 2008 financial crisis has been the low interest rate environment, which led institutional investors to consider private equities. Now, smaller investors are witnessing the performance of private equities and want to get in, which has increased the demand for fund providers like Middlefield to provide that access. Lauzon notes that private equity includes a wide range of investments, but his team focuses on real assets – “things that are tangible, such as toll roads, airports and apartment buildings,” he says. “These assets tend to hold their value while providing an income stream.”
REAL ASSET INVESTMENTS BY THE NUMBERS
54%
Share of institutional investors who intend to increase their real asset allocations in 2019
67%
Growth in institutional investment in infrastructure between 2013 and 2018
$2.1 trillion
Shortfall in infrastructure spending in the US Sources: BlackRock, Preqin, American Society of Civil Engineers
For Middlefield, using private equities adds another level of diversification to its funds. “Privates are uncorrelated to the market, so they act as a good diversifier,” Lauzon says. “Since they are not marked to market, the NAV in private equities might not move as much, and that means there is less volatility. For us, using real assets, there is also cash flow to them, so we can get income. We feel that these private assets are a nice complement to portfolios.” There are a few things investors and advisors should consider when dealing with private equities, Lauzon says, including finding quality investments, understanding the risks and illiquidity, the track record of the manager, and the fee structure. “With private equity, the sectors are vast,” he says. “The risk levels in them also vary. With something like venture capital, the risk can be quite high, but the real assets we focus on tend to be less risky. We tend to get more data on hard assets, which is why we like them.”
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PEOPLE
ADVISOR PROFILE
Forging his own path TD investment advisor Cory Garlock needed to carve out his own approach to find success in the industry. Now he’s helping others plan for their financial success
CORY GARLOCK traces his interest in the financial industry to a stock challenge he participated in when he was just 16. He quickly took charge of the project, and the combination of numbers, analysis and working with people made him realize that he wanted to be a financial advisor. What he didn’t realize then, however, was just how hard it would be to succeed in the industry. After earning an economics degree from Western University and completing the securities course, Garlock struggled to find a position in the industry. “It was a combination of no industry experience and the start of the high-tech meltdown,” he says. “Places were looking to cut staff as opposed to adding.” He eventually landed a position at a call centre, working on balance transfers. His job was to get people to transfer their credit card balances at a lower rate. “It taught me not to be shy, to pick up the phone and not be afraid of hearing no,” he says. “I got told no several times.” After a couple of months, Garlock realized he wasn’t going to find success with the script he’d been given. “I contoured my own approach,” he says. “It worked for me – the clients responded, and I got results. I would
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ask, ‘Is there anything I can do to improve your experience as a cardholder?’” That was just the first instance of Garlock crafting his own approach. After the call centre, he moved on to Sun Life, where he spent seven years focusing on life insurance and investments. There, too, he found plenty of challenges to overcome. “Being 25, I realized I had to get in front of qualified people,” he says. “I would make 150 to 200 calls a week, looking for clients. When the weather was nice, I would go to new subdivisions and prospect new homeowners for mortgage insurance.” His persistence paid off and led him to a position at RBC, where he spent another seven years before shifting to TD. He immediately gained an appreciation for the
banks, sensing the affinity for them among Canadian consumers. “The brand and sector inspire confidence,” he says. “I also think they are important in this electronic age because people like logging in and seeing the state of the union of their financial affairs.” Garlock adds that there are also advantages for advisors in working with a major bank. “A lot of the people I work with have been in the industry far longer than me, so it’s great that I can learn from them. My impression is you get more continuity of advisors at a bank than with some other channels.” Along the way, Garlock took numerous courses and earned multiple certifications (CFP, PFP, CIM, FCSI), and eventually he no longer had to prospect the way he did in the
GARLOCK ON HOW THE INDUSTRY HAS CHANGED In his 18 years in the industry, Cory Garlock has witnessed multiple changes, but two stand out for him. “Fees are top of mind with everyone these days. My approach is to be very transparent and deliver a lot of value for the cost associated,” he says. “The other [change] is how we market to people. You have to be a lot more innovative to get in front of them. What I do is host regular breakfasts and bring in guest speakers on different topics. I invite my clients and encourage them to bring a friend.”
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FAST FACTS: CORY GARLOCK
FIRM TD Wealth Private Investment Advice
LOCATION Ottawa, ON
YEARS IN THE INDUSTRY 18
“[Working in a call centre] taught me not to be shy, to pick up the phone and not be afraid of hearing no. I got told no several times” early years of his career. He even carved out a niche with physicians, who currently make up 20% of his client base. “I think the main reason is doctors really appreciate planning,” he says. “I fell into doctors by referrals, but the funny thing is, when I sit down with one, I know their typical challenges, so the meeting tends to resonate.” This past May, Garlock was recognized for his success as a finalist for Canadian Advisor of the Year at the Wealth Professional Awards, which he says was a pleasant surprise. “There is a lot of competition – I can’t put a price on being nominated with that group,” he says. Moving forward, Garlock says he’ll
continue to focus on planning and strengthening the relationships he has created. “The cornerstone of my business is I do a lot of planning,” he says. “There are all types of issues that come up through the planning process that, when advising on, help to enhance the relationships I have with my clients.” TD Wealth Private Investment Advice is a division of TD Waterhouse Canada Inc., a subsidiary of The Toronto-Dominion Bank. All trademarks are the property of their respective owners. ®The TD logo and other trademarks are the property of The Toronto-Dominion Bank. The Wealth Professional Awards Canadian Advisor of the Year award is one of the highest accolades offered to an individual in the wealth management and financial planning industry. This award recognizes the most outstanding advisor in Canada. The Wealth Professional Awards Young Gun of the Year award recognizes the young advisor who has displayed excellence with more than three years experience as an advisor. To be eligible, nominees must have been accredited for three years, as of January 1, and be under 40 years old. The Wealth Professional Canada Top 50 Advisors list is chosen by Wealth Professional Canada.
CERTIFICATIONS CFP, PFP, CIM, FCSI
EDUCATION Bachelor’s degree in economics from Western University
CLIENT SPECIALTY Doctors
ACCOLADES Finalist for Young Gun of the Year (2017) and Canadian Advisor of the Year (2019) at the Wealth Professional Awards and a member of WPC ’s Top 50 Advisors list in 2019
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FEATURES
EVENT PREVIEW
What’s coming up at Women in Wealth Management After a successful inaugural year in 2018, Women in Wealth Management returns to Toronto and Vancouver with two events aimed at celebrating and empowering women in the industry ON THE heels of a successful launch last year, the Women in Wealth Management conference and awards are back in 2019 – and thanks to the event’s overwhelming popularity, Key Media International, the organization behind Wealth Professional Canada, is producing two events in 2019. The first will take place in Toronto on November 26 at the Steam Whistle Roundhouse and will be capped off by the Women in Wealth
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Management Awards. The event will then head to the Vancouver Convention Centre on December 3. Both gatherings will provide an excellent opportunity for women in the industry to share their experiences and learn from their peers. “After receiving so much positive feedback from the inaugural event, we are pleased to be offering more opportunities for women in the industry to develop and expand their skill
set,” says Chris Davis, head of events at Key Media. “This is an area of wealth management that is growing, and we are extremely proud to be a part of that growth.” Both events will feature a stellar lineup of speakers and panelists. WPC had the chance to sit down with a few of this year’s featured speakers to find out more about their backgrounds and get a preview of the messages they’ll be sharing with attendees.
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How to break into the industry as a young woman FEATURED SESSION Unlocking the Value of Mentorship (panel discussion) Where: Women in Wealth Management Vancouver When: December 3, 11:40 a.m. Panelists: Filomena May, Filo Financial Solutions at Raymond James Lenore Davis, Dixon, Davis & Company Susyn Wagner, CIBC Wood Gundy Alysha To, LePoidevin Group Kathy McMillan, Richardson GMP ON HER first day in the financial industry, Filomena May was told to quit, accused of not having a thick enough skin because she shed a couple of tears. After deciding to stick it out, she was asked to become a manager, only to have the offer revoked when she disclosed her pregnancy. But drawing on incredible mentors and a reservoir of self-belief, she refused to buckle under the discrimination, which occurred earlier in her career at a different firm. Now
“I just kept telling myself that I had the potential and smarts,” she says. “I aligned myself with really good mentors, male and female, which kept me accountable to myself and my own performance, and I strived to become a student of the business, rather than worry about the noise and having the naysayers bring me down. “It was very difficult,” she adds, “but it led me to stay true to my values and realize my vision of establishing my own practice so
“There’s always going to be criticism; it doesn’t matter what you’re doing – it’s just important to stay focused and stay true to your vision” Filomena May, Filo Financial Solutions, Raymond James thriving in her own practice at Raymond James, May has brought other advisors onto her team and aspires to open another location. The early rejection was a pivotal moment that helped May realize the need to focus on her own ability and ambition and ignore the background noise that women in the industry often have to endure.
that I can help clients and other advisors on a holistic level in the competitive financial world. It showed me what my real strength and potential were, and it allows other women, not just in the financial world, to see what’s possible when we find our own unique edge and pursue our passion.” While May doesn’t believe the noise has
gotten any quieter in recent years, she is encouraged by the fact that the proportion of women in the industry has increased from 5% to 15% from when she began her career. She still gets asked whose assistant she is and still feels pressure to be “one of the boys”; however, she now realizes that coming from a vulnerable, authentic place has become one of her strengths in a male-dominated industry. “That’s been a bit of a struggle, and it still continues,” she says, “but now I’m able to just embrace it and not even worry about it. There’s always going to be criticism; it doesn’t matter what you’re doing – it’s just important to stay focused and stay true to your vision.” When May opened her own branch at Raymond James a year ago, she was motivated just as much by personal ambition as she was by a desire to plant a flag for female leadership and empowerment. As advisors continue to move toward a more holistic approach, May believes women have the attributes to thrive in this evolving landscape. “The population is aging in the financial industry,” she says. “There are a lot of baby boomers, and there are going to be a lot of changes in the financial industry, so it’s about trying to be more proactive to keep this industry alive.” By her own estimates, May has had to work at least twice as hard as her male peers to get to where she is today. It puts her in a position to empathize with other women. “There’s a shift in dynamic from men looking after the finances, and it’s becoming more and more predominant that women look after the finances and are living longer,” she says. “There’s also a higher probability that they will either be single or widowed and therefore have to make sure that they have a better understanding, so there’s comfort in working with a female.” Filomena May is a financial advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd., member of Canadian Investor Protection Fund.
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FEATURES
EVENT PREVIEW
How #MeToo is impacting financial independence FEATURED SESSION Tools to Build Your Book of Business (panel discussion) Where: Women in Wealth Management Toronto When: November 26, 2:30 p.m. Panelists: Jackie Porter, Carte Wealth Management María José Flores Suarez, Carte Wealth Management Ann Richards, CIBC Wood Gundy Ginny Arnott-Wood, Raymond James
IN 2019, the importance of being ‘woke’ and movements like #MeToo are raising awareness of racial and gender discrimination, prompting a sea change within society. Jackie
away when she was just 16, Porter knows all about making it on her own – she is now an established advisor, author and speaker with a seven-figure net worth. When her
“If we feminize the financial industry from an engagement point of view, that helps everybody, not just women” Jackie Porter, Carte Wealth Management Porter, a senior financial advisor at Carte Wealth Management, believes the effects are also being felt when it comes to financial independence, although she concedes that there’s still some way to go. Raised by a single mom who passed
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book, Single by Choice or Chance: The Smart Woman’s Guide to Living Longer, Better, came out in 2016, Porter recalls that nobody seemed to care about the topics she raised as much as they do now. “They care more now,” she says. “All of a
sudden, women, single women and women taking control of their lives seem way more important. For me, that’s a great step. I think it does have something to do with the #MeToo movement, and it’s a great thing. It means society is moving forward and realizing that women’s voices are important and actually enrich any conversation. If we feminize the financial industry from an engagement point of view, that helps everybody, not just women.” After 22 years in the financial industry, Porter remains passionate about helping women become more confident and independent with their money. Her goal is to become “the friendly face of finance” and remove the intimidating nature of some aspects of the industry. “What excited me about financial planning is that I could actually help people by giving them practical solutions to their problems – and a lot of problems have to do with money,” she says. “So, one of the things I want to do is write another book and focus on some of the relational issues that have to do with money. My next book is going to be called Stocks, Bonds and the Relationship … it’s about trying to make finances friendlier; it’s talking about what’s a stock and a bond from a relational standpoint. And I can explain pretty much anything from that standpoint. “I also want to create some financial organization tools for people because I think that finding people’s documents gets in the way,” Porter adds. “People struggle with where to put things, and that’s one of my missions: to get financial organizational things out into the marketplace that people can actually use.”
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How to build thriving relationships FEATURED SESSION A Bright Future: What Can You Do to Empower the Next Generation of Female Advisors? (panel discussion) Where: Women in Wealth Management Vancouver When: December 3, 3:50 p.m. Panelists: Susan O’Brien, BMO Nesbitt Burns Catherine Dorazio, CC&L Private Capital Lynn Stibbard, HarbourFront Wealth Management A DESIRE to cultivate human relationships prompted Susan O’Brien to start her own wealth management practice 21 years ago – and she hasn’t looked back since. After starting in tax, she found she needed a more personable role and transitioned into the
retire in the best position possible,” she says. “I love finance; I’m a finance graduate, but I really needed something human, something personal. And I really wanted long-term relationships, not just tax reviews or audits.” While juggling a young family and the
“The rate of change we are seeing in today’s environment is huge, and we need to change with it” Susan O’Brien, Susan O’Brien Group, BMO Nesbitt Burns financial advice sector. “I thought if I could really set people up for life, then they could do all the things they wanted to do, like take care of their family, send their kids to university, buy their dream house, buy a vacation property, travel and
pressure of a daunting line of credit, O’Brien worked tirelessly to build her business from scratch. It took five years before she felt able to relax, knowing the decision to go it alone had paid off. In the decades since, her practice, the Susan O’Brien Group at BMO Nesbitt Burns,
has evolved from cold-calling and picking stocks and bonds to embracing the growing emphasis on holistic financial planning. It’s an area O’Brien revels in, but she says the direction of the practice has been led by clients wanting what’s best for their children – so family meetings, conflict resolution, estate planning, and advanced retirement and tax planning have all become cornerstone services. “The rate of change we are seeing in today’s environment is huge, and we need to change with it,” she says. “Doing stocks, bonds and mutual funds morphed into clients who didn’t really care what stock they had but cared about their wealth and the impact of it on their children. I think we are always honing our skills – you’ve got to be one step ahead of your clients.” With the support of her family and a willingness and determination to put in the hard yards, O’Brien has forged an enviable career and is proof that working hard early on means you can reap the rewards later. There have been many obstacles, including overt gender discrimination, but O’Brien believes that now that clients are more interested in building stronger relationships with their advisors, the landscape has never been better for ambitious young female professionals. “This industry is great for women now because it’s so much based on relationships,” she says. “You don’t need finance; you need an understanding. We have analysts who are looking at balance sheets and income statements of companies, so it’s really about building relationships and securing someone’s financial future and the future of their children and grandchildren. It’s moving into a business that will be absolutely fabulous for a lot of women.”
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FEATURES
LEADERSHIP
Five things you must have to lead a team People often fail when they ascend to leadership roles because they haven’t cultivated the qualities necessary to lead a team. John Eades highlights five attributes that are critical for new leaders
IF YOU KNOW about your industry, perform your job well and show ‘potential,’ there’s a good chance your organization will consider promoting you to a management role. Unfortunately, as a manager, you’ll only use a small percentage of the skills that got you the promotion in the first place, and according to the latest statistics, you have a greater chance of failing than being successful. Sadly, I’m qualified to write on this topic because soon after I was promoted into a role leading other people, I quickly figured out that I had no clue what I was doing. I did everything wrong, and unfortunately, my people bore the brunt of the pain associated with my lack of leadership skills. At the end of the day, leadership is a journey and not a destination. To improve your odds of success on your leadership journey, there are skills and behaviours you need before and while you lead a team.
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1. Have servant mindset I’ve written about this many times, but the best definition of leadership comes from John Quincy Adams: “If your actions inspire others to dream more, learn more, do more and become more, you are a leader.” Leadership is about serving and empowering other people. No longer do you come to work for yourself or for your own self-interest. You now come to work to serve other people and help them become the best version of themselves in order to achieve more as a team. Serving others doesn’t mean being a pushover or not holding others accountable. It’s actually the opposite. In truth, you can’t effectively lead in today’s environment without it.
2. Know the qualities you want to see in people One of the biggest mistakes I’ve made
in my leadership career was not knowing what I was looking for in people. We now teach something called the Leadership Compound Theory, which shows the four characteristics we look for in people – confidence, drive, selflessness, and character – and what we expect each team member to bring to work every single day. You might be looking for different things based on your role or position, but the important thing is that you define them, communicate them and live them yourself.
3. Find an excellent mentor Leading a team is hard work. I tell my team all the time, “If it were easy, everyone would do it.” Because of the difficulty, having someone in your corner is extremely important. Sir Richard Branson said, “If you ask any successful businessperson, they always will have had a great mentor at some point
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Leadership is about serving and empowering other people. No longer do you come to work for yourself or for your own self-interest along the road.” The same goes for leadership – if you ask any successful leader, they always will have had a great mentor to ask questions and learn from.
4. Discover a love of learning The best leaders are learners. PJ Fleck, the current head football coach at the University of Minnesota, became the youngest head coach in college football in 2012. By that time, he had built out a book of lessons he learned during the seven years he spent as an assistant coach. The lessons were things he did or didn’t do when he became a head
coach. That book continues to evolve and grow, years later. The minute you think you have it all figured out or you forget to be curious is the minute your skills start to diminish.
5. Understand the importance of culture When I first started leading a team, I thought it was all about strategy and execution. I had no idea how important the culture was to the results of the team. On my Follow My Lead podcast, Step Up Leadership founder Jason Barger told me, “Culture is everything.” Culture is really all about the beliefs and behaviours that
produce the results of any team or organization. The word ‘culture’ actually comes from the Latin word cultus, which means ‘to grow.’ In today’s modern business environment, that really means ‘to grow people.’ Put an emphasis on and define the culture you want to create for your new team. Before you accept your first leadership position and the responsibility that comes with managing other people, consider these five skills and behaviours. If you’re already leading a team, it’s never too late to start. John Eades is the CEO of LearnLoft, a fullservice organizational health company whose mission is to turn managers into leaders and create healthier places to work. He is a speaker, host of the Follow My Lead podcast, and author of F.M.L.: Standing Out & Being a Leader and the upcoming book The Welder Leader. For more, visit learnloft.com
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FEATURES
CULTURE
Transform your culture in three steps Anna O’Dea offers three ways to make your workplace a more supportive environment
CLIENTS OFTEN ask me how they can introduce initiatives in their workplace to make it a more supportive environment for their team. Being in the business of marketing, advertising and digital, I know that written content helps to develop relationships and build trust. In fact, I spent $50,000 on content to learn about what issues were really important to people at work in a bid to help develop that trust. But developing a culture that champions and rewards transparency is not as easy as writing a few blog posts on diversity. It’s about the actions you take as a business and putting your money where your mouth is in terms of reflecting how your team feels. Genuine connection comes down to how vulnerable we are willing to be with others. It is the act of sharing stories, vulnerabilities and even fears that helps bring us together. When you reveal something about yourself that is not widely known to others, you’re showing that person or audience who you really are. You’re demonstrating that you trust them. This, supported by consistent behaviour
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that demonstrates integrity, builds trust. So many impressive leaders in my network have faced adversity in different forms and balanced this with growing a business and, more often than not, significant personal challenges going on behind the scenes: sickness, loss of a loved one, trauma, and financial and emotional setbacks. These experiences, which have shaped who they are as individuals, have gone on to influence the type of leaders they are and the team they attract. I believe any business can be transformed by listening and leading by example. Here are the lessons I’ve learned since spending $50,000 to find out what’s important to my community and team.
Never make assumptions about people’s lives I’ve learned from tech entrepreneurs that one of the most common mistakes is investing in a solution without asking customers what they want. For example, when we started the #LeadingLadies series, instead of dictating the content we thought would be relevant, we asked interviewees to share their
own stories that they hadn’t had a chance to share before. We told them they had access to a blank canvas and nothing was off limits. The floodgates opened. We discovered that issues such as bullying in the workplace, racism, homophobia, sexism, parental leave and negotiating a pay raise were affecting many workplaces, and these brave individuals wanted a platform to address them. I realized that perhaps many workplaces still create initiatives without actually asking their team what’s important to them. It’s tricky for many employees to verbalize what they need without fear of consequence. I think the bravest question any leader can ask themselves is, “Have you asked your team what they need, or are you making assumptions based on your own point of view in a position of privilege?” Does your team feel they can tell you what they need, or are
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changing people’s perceptions of themselves. It made me realize that perhaps we could all do a better job of showing our team that it’s OK to be human at work. That it’s possible to be yourself, open, honest, and transparent and still be liked, respected, and rewarded. Workplaces with greater diversity deliver higher returns. Could you do a better job of more accurately reflecting the diverse range of opinions and influences that no doubt exist in your business? Are decisions reflective of what’s important to the wider team or just a select few?
When it gets uncomfortable, think of what others will learn from you
Perhaps we could all do a better job of showing our team that it’s OK to be human at work. That it’s possible to be yourself, open, honest, and transparent and still be liked, respected, and rewarded there opportunities to create an anonymous feedback loop so you can better learn how to support them?
Realize that people can’t be what they can’t see After months of research, writing, profiling senior women in leadership positions, transcribing interviews, commissioning countless photo shoots and developing content, some interesting things started to happen.
I started to receive emails from people, saying our stories had helped to shine a light on an issue that was pertinent to them. I received phone calls from people in tears, saying they’d faced similar adversity and for the first time they didn’t feel alone. People told me they felt heard and that the series showed them what was possible. I realized countless men and women, from junior professionals to executives, were seeing themselves in these stories, and that was
When I told people I was going to invest so heavily in content, not everyone loved the idea. I was told I was nuts. It wouldn’t generate ROI. Interestingly, and perhaps more reflective of my industry, I was also told to be careful about what I had to say. When you do something new, you bend, you grow and sometimes you fall over. You might even fail. But if you don’t do that new, scary thing, you’ll be exactly what other people expect of you and no further away from those doing the same things. If you really want to be competitive and attract and keep the best talent, ask yourself this: Are we communicating our initiatives internally and externally to let people know there are great workplaces like ours out there? And if we aren’t, is there a reason for that? A recruitment expert and the founder and director of Agency Iceberg, Anna O’Dea has placed thousands of employees in the best workplaces. O’Dea is also the founder of #LeadingLadies, an award-winning interview series featuring C-suite professionals’ career journeys. Follow her on LinkedIn at linkedin.com/ in/annaodea.
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FEATURES
WORK-LIFE BALANCE
Stop that 80-hour hustle Starting your own business isn’t easy – but it also doesn’t have to involve endless hours of work. Aytekin Tank explains how and why to cut back
“ENTREPRENEURS ARE willing to work 80 hours a week to avoid working 40 hours a week.” Maybe you’ve already seen this quote from serial entrepreneur and Shark Tank star Lori Greiner. If not, I bet you’ve heard a version of it. Entrepreneurs are infamous for busybragging. Sometimes it even feels like a competition: Who can work the longest? Who can sacrifice the most? Who will sleep at the office and go a full week without natural light? Yes, starting a business is hard work, and Greiner’s dedication has clearly paid off (she’s created over 700 products and holds 120 patents). But the willingness she describes is really about freedom. Whether they’re chasing a big idea or solving a real problem, most founders also want to call the shots, to make their own money, set their own hours and create something they care about. So why are we all trying to outwork each other? I don’t believe in the 24/7 hustle and grind. It’s not productive. And it’s starting to kill us. I also know firsthand that starting a business is not easy. I’ve been on a 12-year entrepreneurial journey, slowly building JotForm
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into a global company with four million users and 110 employees. So where is the balance? How can you fulfill your vision without sacrificing yourself? Instead of logging more hours, the answer is to make the most of the hours you work.
management. Controlling your work is a matter of focus, not creating a crazy-strict schedule. When you focus your attention, you maximize your time, which increases your motivation. It’s a productive cycle that feels really, really good.
Instead of logging more hours, the answer is to make the most of the hours you work. If you’re smart about time management, you might be amazed by how much you can achieve in a sane, focused week If you’re smart about time management, you might be amazed by how much you can achieve in a sane, focused week. Here are five strategies that help me to avoid overworking – even when there’s always more to do.
1. Minimize your active projects Time management is attention
At any given time, I have no more than three core goals or active projects. That’s it. I say no to everything else. I delegate or save any outside tasks for later. You can also try a more sophisticated approach. In a Fast Company article, Google for Work director Thomas Davies described the problem with most time management strategies: “Managing time starts from the
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2. Mono-task, don’t multi-task Establishing core priorities will narrow your focus. You also need to perform just one task at a time. That’s because, as Phyllis Korkki wrote in The New York Times, multi-tasking is a biological impossibility: “Your brain may delude itself into thinking that it has more capacity than it really does, but it’s really working extra hard to handle multiple thoughts at once when you are switching back and forth between tasks. Your ability to get things done depends on how well you can focus on one task at a time, whether it’s for five minutes or an hour.” To create a mono-tasking environment, Korkki suggests that you remove all temptations – even if that means installing anti-distraction programs like Freedom or FocusMe. Also, use just one screen. Work in set chunks of time, and if you lose focus, get up and walk around. You can also try the popular Pomodoro technique, which breaks the day into highly focused 25-minute intervals, followed by a five-minute break. After four intervals, you take a 15-minute break – ideally away from all screens and mobile devices. premise that your workload is going to be what it’s going to be, and the best you can do is keep it ‘manageable.’ But what if you could design your workday instead?” Davies decided to create a new strategy. He divided his work responsibilities into four quadrants: people development, business operations, transactional tasks and representative tasks. Then he slotted every task into one of the four quadrants.
Once he had a high-level view of what actually occupied his time, he could decide what mattered most – and what made him feel most energized. Now he tries to maximize his work in those high-value quadrants. If this method speaks to you, give it a try. As Davies explains, you’ll soon realize that not all tasks are created equal. Armed with that knowledge, you can be mindful of where to dedicate your attention.
3. Cut back on meetings Meetings have become a contentious topic in entrepreneurial circles. Tesla founder Elon Musk told his staff to “walk out of a meeting or drop off a call as soon as it’s obvious you aren’t adding value.” And Basecamp’s Jason Fried says “it’s hard to come up with a bigger waste of money, time or attention than status meetings.” Some meetings are critical, but many are
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FEATURES
WORK-LIFE BALANCE
not. Unless the meeting can remove a roadblock or it’s essential for team cohesion, find another way. Send an email and follow up later. Say no and protect your time. You’ll be helping colleagues and co-workers to regain their focus, too. I’m honoured to receive a lot of requests for coffee and casual get-to-know-you meetings. I mentor some young entrepreneurs, but I politely decline everything from speaking invitations to networking events. I wish I had time to accommodate everyone, but I just don’t. I have to draw a firm boundary – and you should as well.
will rebel, too. You’ll be less analytical, way less creative, and your emotions will eventually overrule all logical thoughts. I spent a summer in Izmir, Turkey, where JotForm has a small office. It’s a beautiful city by the sparkling Aegean Sea. So I worked
took three months off to travel across Europe. It’s a matter of planning and sticking to your priorities. For example, if you’re working in your business, it doesn’t function without you. When you work on your business, you can
Imagine your brain is a whiteboard. Every time you make a decision, you’re wiping off more scribbles. Soon, it’s clear and ready for creative thought
4. Make quick decisions Hoarding decisions creates stress. When your mind is buzzing with many different choices – from what to eat for lunch to which job candidate to hire – it’s almost impossible to have a productive workday. Now imagine your brain is a whiteboard. Every time you make a decision, you’re wiping off more scribbles. Soon, it’s clear and ready for creative thought. When it comes to decision-making, speed is the goal here. There are very few decisions that can’t be made quickly. I know that goes against conventional wisdom, but give it a try. If you’ve already gathered enough information, combine that data with your personal instincts and make a choice – now. Don’t have enough data? Then forget the decision and gather what you need. Once you have the right information, make your choice and move on. Repeat as needed.
5. Make the most of your work time – then step away Vacations and downtime are essential for success. There’s just no way around it. You can hustle with the best of them, but at some point, your body is going to say no. The mind
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four-day weeks and explored the nearby beach towns with my family. I realize this is a great privilege – and I know you might have a few more questions. Don’t you feel pressure to show your face in the office? Do you worry that your team will lose morale and slack off if you’re not there? Honestly, I’m just not concerned about it. I guess some employees might slip into ‘relaxation’ mode if I’m not in the office, but I also know that our teams love their work. They’re knee-deep in meaningful projects, and I have great respect for what they contribute to JotForm. I encourage our employees to take time off, too. If you don’t take vacations, you’ll burn out and eventually produce less. As CEO, my job is to ensure our teams are motivated and they don’t hit roadblocks. Our employees won’t function well if they don’t take care of themselves. How on earth can I ease up when I’m just launching or growing my business? I promise it’s not impossible. Even during the early days of my company, my wife and I
develop systems and processes that let you step away. You build a company that doesn’t break if you’re not answering every email or performing every single task. Even as a solopreneur, you can plan to hit pause – if it matters to you. I know the details can be tricky, and this is a far easier proposition with an online business. But ultimately, life isn’t all about work. I don’t know about you, but I don’t to want to work, work, work and then retire for a couple years before I die. I want to enjoy my life and my freedom. Be strategic. Ask for help. Develop systems and safety nets that allow you to step away, even for a short time. You and your business will be so much better for it. Soon, you won’t even dream about using the word ‘hustle.’ Aytekin Tank is the founder and CEO of JotForm, an online form creation software with four million users worldwide and more than 100 employees. A developer by trade but writer by heart, Tank shares stories about how he exponentially grew his company without any outside funding. For more information, visit jotform.com.
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PEOPLE
CAREER PATH
THE POWER OF LISTENING Some tumultuous times have taught Jamie Suprun the importance of hearing what his clients have to say
Suprun took his first steps into wealth management while still in high school. During Grade 11, he spent four months working three days a week at Midland Walwyn, which also happened to be his father’s workplace. “I compiled data for the advisors in the office to make decisions – it was difficult to get info on stocks and funds without Google. I loved watching how money can grow and dealing with people. After that, I knew exactly what I wanted to do.”
1995
DISCOVERS WEALTH MANAGEMENT
1997
2001 ESTABLISHES HIMSELF IN A BEAR MARKET Suprun’s first professional position as an investment advisor came at a tumultuous time. “That year, we lived through the tech wreck and then 9/11, and people were feeling ignored – their current advisors were just not picking up the phone. What I did was as simple as listening to clients. It was a great learning experience; you don’t learn when the markets go up.”
2012 CHANGES CULTURE After a decade with one firm, a shift in ownership and culture prompted Suprun to make a change of his own, moving his practice to HollisWealth. “It wasn’t a change in location; it was a change in operating environment. We have an independent platform with the perceived strength of a bank. We are more holistic advisors; we look at the whole picture. There’s an appreciation at a root level of the client’s needs and wants.”
2019 GETS INDUSTRY RECOGNITION Earlier this year, Suprun not only made a repeat appearance on WPC ’s Top 50 Advisors list, but was also named as a finalist for Canadian Advisor of the Year at the Wealth Professional Awards. “I’m happy to be recognized in the company that’s in that award. Being at the top of any occupation is great; the fact that it’s a highly competitive business with high barriers to entry makes it extra special.”
SOAKS IT ALL UP When the time came for university, Suprun examined his options and settled on the University of Guelph, where he earned an honours commerce degree in industry and finance. “I felt that would help me in my future endeavours in finance because I knew that I would come into the business. I worked summers full-time in my dad’s office, mailing out marketing material for him. I was soaking it all up.”
2008
GRAPPLES WITH ANOTHER MARKET SHOCK The global financial crisis provided Suprun with another chance to test his mettle as an advisor.
“People were looking for answers. They wanted ideas; they were tired of the bloodbath. That year cemented for me the importance of explaining the investment process, of under-promising and over-delivering, and giving people better advice than they’re going to get at a bank or brokerage” 2017
BECOMES PART OF IA SECURITIES HollisWealth’s acquisition by iA Securities brought new challenges for Suprun. “Change is inevitable, and in this business, you’d better be prepared for it. An extra level of service had to be provided to the clients to make sure they were happy – I didn’t sleep for six months. I live in a small town; if you do something great, word gets out. It started out quite bumpy two years ago, but now I’m very happy.”
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PEOPLE
OTHER LIFE
TELL US ABOUT YOUR OTHER LIFE Email editor@wealthprofessional.ca
Haakensen has now completed several Sparta n races, including a couple of Sprints, a Super a nd a Beast
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Number of burpees required for failing an obstacle
BEAST MODE The financial markets are full of unexpected challenges, but portfolio manager and Spartan racer Kevin Haakensen is no stranger to obstacles
KEVIN HAAKENSEN had already run several marathons when he happened to see a Spartan obstacle race on TV. “It looked like a ton of fun,” says the Saskatoon-based portfolio manager, “and like it would be a good mental and physical challenge.” Never one to hold back on a goal, Haakensen ran his first Spartan Sprint – a 5k race with 20 obstacles – later that year. Other Spartan races include the Beast, which involves traversing steep inclines and 30-plus obstacles on a course that covers more than 21km, and the Super, a middle-distance race that combines
100 lbs.
Weight of the pail competitors are required to carry in the bucket brigade obstacle
2:13:14
Haakensen’s time on the Whistler Super in September 2019
endurance and speed across more than 13km and 25-plus obstacles. Over the course of several Spartan races, Haakensen has failed only a couple obstacles, including the hurdle of ropes, rings, bars and frames known as the Spartan Multi-Rig – when he jumped to ring the bell indicating that he’d completed the obstacle, he missed by an inch. Undeterred, Haakensen’s plans for 2020 include what’s known as the Trifecta Weekend, in which competitors run a Sprint, Super and Beast over the course of a few days.
Kevin Haakensen is a portfolio manager with PWM Private Wealth Counsel at HollisWealth. HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
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