Benefits of Working with a Portfolio Manager

Fiduciary Duty

A fiduciary duty is a legal obligation to act solely in another party's best interests. Portfolio Managers are bound by this duty, requiring them to act with care, honesty, and good faith, always prioritizing their clients' interests above their own.

To uphold this fiduciary duty, Portfolio Managers must make investment decisions that are independent and free from biases. This ensures that clients can place a high level of trust in their Portfolio Managers. Additionally, Portfolio Managers must address any conflicts of interest when constructing and managing a client's portfolio.

This fiduciary standard, which also applies to professionals such as lawyers and accountants, does not extend to typical financial advisors.

Education, Experience, and Regulatory Oversight

Portfolio Managers are required by provincial securities commissions to possess the highest levels of education and experience in the investment industry. Both the firms and the individuals managing your investments are monitored by the provincial securities commissions with which they are registered.

Firms are registered under one of the Adviser categories: Portfolio Manager or Restricted Portfolio Manager. Individuals managing investment portfolios are registered as Advising Representatives or Associate Advising Representatives, with the latter working under the supervision of an Advising Representative.

Advising Representatives must meet one of the following criteria:

Be a Chartered Financial Analyst (CFA) charterholder with 12 months of investment management experience.

Hold the Canadian Investment Manager (CIM) designation with 48 months of investment management experience.

The experience requirement is lower for CFA charterholders because one of the CFA requirements is 48 months of qualified investment experience.

In contrast, financial advisors and planners are not registered with provincial securities commissions but with financial industry organizations such as the Canadian Investment Regulatory Organization (CIRO).  The qualifications needed to register with this organization is generally easier to achieve.

Ultimately, Portfolio Management firms are considered the pinnacle of the investment management industry, upholding the highest standards of education, professional experience, capabilities, and duty to clients.

Firm Requirements

Firms that are registered as Portfolio Managers must meet strict financial reporting, capital, and insurance requirements in order to maintain their registration in good standing with the provincial securities commissions.

Portfolio Managers must have their financial statements audited on an annual basis, before filing them with the securities commission. Failure to do so in a timely manner results in penalties, and ultimately revocation of registration.

Failure to maintain adequate insurance and working capital can result in increased reporting requirements and other penalties, including revocation of registration.

Investment Plan and Written Agreement

Each client of a Portfolio Manager has an individual written agreement (called an Investment Management Agreement, or IMA) which defines the working relationship with the Portfolio Manager, including ongoing communication, the types of investments that will be included in your portfolio, the type of reports you will receive including content and reporting frequency, fees, risks and other issues related to your circumstances.

You will also receive an Investment Policy Statement (“IPS”) which outlines how your portfolio will be managed, including your asset allocation, the specific investment strategy that will be used and the types of investments that will be used. Discretionary Portfolio Approach

As the name suggests, Portfolio Managers adopt a portfolio approach when investing their clients’ assets, as opposed to recommending or selling investments on an individual basis. This allows a Portfolio Manager to construct a portfolio of investments that complement each other. As a result, each client can achieve the maximum benefits of diversification and the ability to stay on track with their investment plan over time.

Portfolio Managers provide ongoing management of your investment portfolio, including rebalancing your investments to your specific target asset allocation as needed. This target asset allocation is unique to your objectives, risk tolerance, time horizon, financial situation, and will adhere to any restrictions outlined in your IPS.

Clients of Portfolio Managers typically give their Portfolio Manager authority to make investment decisions on their behalf without requiring approval for each transaction (called “discretionary management”). Financial advisors are generally required to have your approval prior to making trades in your account.

Management Fees

Portfolio Managers typically charge a fee that is a percentage of the value of each client’s account, known as a management fee. This fee is transparent and reported on client account statements.

Unlike most financial advisors, Portfolio Managers generally do not receive fees or commissions from fund companies when selling funds. This means that they have no incentive to push products which may have high commissions, but may not be the best investment for you.

Portfolio management fees are often much lower than typical mutual fund fees, often 1.5% or less. This compares favourably to the average mutual fund expense ratio of 2.10% in Canada. While this difference may seem small, when compounded over many years it can make a big difference in your overall wealth. 

Those are the key things to know about working with a Portfolio Manager.  If you are currently using a financial advisor and have investable assets over $250,000 maybe it’s time to make the switch to a Portfolio Manager.