HighView Financial Group https://www.highviewfin.com Tue, 18 Sep 2018 12:37:54 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.8 The 5 Elements That Determine Whether a Financial Advisor Is a True Fiduciary (According to Canadian Courts) https://www.highviewfin.com/blog/the-5-elements-that-determine-whether-a-financial-advisor-is-a-true-fiduciary-according-to-canadian-courts/ Tue, 18 Sep 2018 12:37:54 +0000 https://www.highviewfin.com/?p=10205 Wealth Management Industry“In a client’s best interests” is a phrase heard often in the financial industry. While many investment advisors simply talk about this concept, fiduciary financial advisors have a moral and ethical duty to live up to it.

So what makes a financial advisor a fiduciary?

The topic of “fiduciary duty” is something the Canadian Securities Administration has delved into and has, as a result, laid out certain criteria that must be met in order for advisors and other broker-dealers to be regarded as fiduciaries. We take a closer look at what a fiduciary is and those five elements that make financial advisors and others true fiduciaries.

What Is a Fiduciary?

The Canadian Securities Administration has defined fiduciary duty as “a duty of a person to act in another person’s best interests.” In the case of an advisor, this means they have a legal and ethical duty to act in the best interests of their client.

There are some wealth management roles in Canada like trustees that are always fiduciaries, but other broker-dealers and advisors, financial planners and investment advisors included, can exist in a grey zone depending on their legal status.

According to Canadian courts, there are five interrelated factors that can be used to determine whether a financial advisor has a fiduciary relationship with their client:

  1. The degree of vulnerability of the client as a result of factors like their age or lack of education, language skills, investment knowledge, or experience with stock markets.
  2. The degree of trust that the client places with the advisor and the extent to which the advisor accepts it.
  3. Whether the client has historically relied on the advisor’s advice and judgement, and if the advisor claims to have special knowledge or skills on which the client can rely.
  4. The extent to which the advisor has discretion or power over the client’s investments or accounts.
  5. Professional rules and codes of conduct that help to establish the advisor’s duties and the standards to which they will be held.

At HighView, we define a fiduciary as someone acting in a position of trust on behalf of, or for the benefit of, a third party. As such, they are required to act in that third party’s best interests. HighView is registered as a Portfolio Manager (through HighView Asset Management Ltd.) in the provinces of Ontario, British Columbia, Alberta, Saskatchewan, and Manitoba, which means we are held to the fiduciary standard both legally and ethically.

The 5 Elements That Make an Financial Advisor a True Fiduciary

In a Consultation Paper (CSA Consultation Paper 33-403), the Canadian Securities Administration outlines five elements (or duties) that determine whether or not an advisor or dealer is acting as a fiduciary:

1.      Client Interests Are Paramount

In other words, a fiduciary is obligated to single-mindedly serve the best interests of their clients in all matters to do with the service they are providing and put a client’s interests above their own.

According to the Canadian Securities Administration, this is the foundational obligation from which the next four duties all emanate.

2.      Conflicts of Interest Are Avoided

A fiduciary must avoid placing themselves in a conflict-of-interest situation with their beneficiaries. If circumstances are genuinely unavoidable, the fiduciary must take the following actions:

  • Provide the client with a full, frank disclosure as to the nature of the conflict.
  • If necessary or relevant, advise the client to seek independent advice.
  • Acquire explicit consent from the client that the fiduciary can place themselves in an actual or potential conflict of interest.

Regardless of disclosure or consent, a fiduciary always needs to stay true to their first duty—ensuring client interests are paramount.

3.      Clients Are Not Exploited

A fiduciary must be careful to avoid any type of personal pursuit that is not consistent with their client’s best interests. If they learn about an opportunity while acting as a fiduciary, they must not take advantage of it even if the client is not able to.

In essence, a fiduciary must not be rewarded for pursuing interests other than single-mindedly serving their client’s best interests in every matter related to the service they provide.

4.      Clients Are Provided with Full Disclosure

A fiduciary is obligated to provide full disclosure of any material that is related to the service they provide. This means a fiduciary must take all reasonable steps to make clients aware of options available to them as well as any associated benefits or risks.

5.      Services Are Performed Reasonably Prudently

A fiduciary must ensure they perform their services with the level of skill, care, and diligence that a reasonably prudent individual would exercise in those circumstances.

Why You Need a Fiduciary Financial Advisor

By choosing a fiduciary financial advisor, you ensure you have an advocate who sits on your side of the table to whom you can turn for objective investment advice and always rely on to put your interests first.

Ultimately, this gives you peace of mind knowing that the wealth you worked so hard to build is being effectively and sustainably managed.


HighView is an experienced portfolio management firm for affluent Canadian families and foundations. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

 You may also be interested in:

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HighView’s Focus on ESG Integration and Social Impact Investing https://www.highviewfin.com/blog/highviews-focus-on-esg-integration-and-social-impact-investing/ Wed, 15 Aug 2018 16:52:19 +0000 https://www.highviewfin.com/?p=10124 Incorporating ESG standards into investmentsIn 2017, HighView proudly became a member of the Responsible Investment Association (RIA). HighView believes there is a fiduciary duty to invest prudently without taking undue risk. Incorporating Environmental, Social and Governance (ESG) standards into investment decisions to better manage risk and generate sustainable long-term returns makes sense. We believe ESG due diligence should be designed to measure how a company does business, to identify potential social and ethical issues, and to quantify the impact on corporate performance for disclosure purposes (i.e. better disclosure by companies should include climate-related financial disclosure).

Large public companies can have a social and environmental impact at every level by way of their networks, supply and distribution chains, labour force, and in the communities where they operate. As investors, we can make an impact by being intentional through our allocation of capital and through shareholder engagement with management. There has been a growing interest in assessing how asset managers are thinking about ESG criteria within their research evaluation. In this regard, ESG metrics are not uniform across investment managers. While the “G” has been a significant part of manager due diligence given the ability to measure corporate governance, “S” is also now becoming better understood as it relates to such things as diversity, pay equality, zero tolerance, and the work environment. “E” still has a ways to go. Corporate disclosure on ESG factors will continue to improve as demand for the information continues to increase. Many public companies are taking initiatives in regards to their carbon footprints and committing to clean energy projects suggesting a shift in mindset towards sustainable business decisions.

The movement towards sustainable investing is growing rapidlyGiven the fast growing movement towards sustainable investing, statistics tell us that 80% of investment managers now practice some form of ESG metrics within their investment research and corporate actions. The integration of ESG considerations within investment processes and across asset classes continues to gain traction among investors and concerned citizens, both from the perspective of social impact, but also in the form of positive financial performance. While we had long known that our chosen managers integrated ESG criteria—particularly governance—into their investment process to varying degrees, we did not focus specifically on such practices.

So in January of this year, we sent out an ESG due diligence questionnaire to our investment managers to determine their current level of ESG integration. We were pleased to confirm that our investment managers have been integrating ESG into their investment research for some time with most having a specific ESG or Responsible Investment Policy in place. Our investment managers seek to invest in quality companies, and an assessment of that quality will include a company’s practices in each of the “E”, “S”, and “G”. A strongly held belief across our platform of managers is that companies that ignore sustainable practices, disregard the effects of their operations on the communities in which they operate, or have improper practices around protecting rights of all stakeholders, will likely be poor long-term investments. As part of our ongoing monitoring and due diligence of our investment managers, ESG integration and discussion is now a part of our formal review.

Next Steps in Impact Investing for HighView

HighView explores the option of a Social Impact FundA recent paper by SVX and MaRS suggests that many Canadian high net worth households are interested in the idea of impact investing, particularly younger, wealthier, and female investors. As Amit Bouri, chief executive of The Global Impact Investing Network (GIIN) says, “Investors have been thinking for decades on how to get harmful things out of their portfolios. Impact investing is about proactively investing in solutions. It is a much more intentional step about investing in things like climate change directly.” Impact investments are made with the intention of generating financial return plus positive social and/or environmental consequences. Examples of impact investment might include clean technology investments in agri-tech, energy, smart cities and water, or food in natural and organic foods, and ethical and sustainable foods, or in affordable housing, or helping people in poverty. There are a number of themes, sectors, geographies, and asset classes available to social impact investments.

Many global family offices are engaged in impact investing, and many more plan on increasing their allocations going forward as more ethically minded clients move in this direction and as advisors educate their clients on the opportunities. At HighView, we are exploring the opportunity of a Social Impact Fund that would be available to our clients as part of our portfolio allocation strategy. Our review will include an examination of asset classes, themes, sectors, geographies, and liquidity, in both public and private investments.

Bill Gates predicted that philanthropy would remain the primary way the wealthy help tackle social and environmental issues. Transitioning from philanthropy to impact investing has the ability to create sustainability over the long term.


HighView is an experienced portfolio management firm for affluent Canadian families and foundations. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

You may also be interested in:

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HighView Family Story: Retirement Plans Uncover Unclear Fee Disclosure by Investment Advisor https://www.highviewfin.com/blog/highview-family-story-retirement-plans-uncover-unclear-fee-disclosure-by-investment-advisor/ Fri, 03 Aug 2018 19:45:43 +0000 https://www.highviewfin.com/?p=10100 This family story is the second of a series in which we discuss some of the common investment challenges families face and what ultimately led them to HighView. Here, we explore the topic of fee transparency. Although recent regulatory changes (CRM2) made strides towards mandating transparency, they unfortunately do not tell the full fee story. This perpetuates an environment of unclear fee disclosure and ultimately leaves families to pay sizable fees that eat away at their returns.

In this story, the parents were approaching retirement and considering how their net worth would carry them through and adapt to changing lifestyle needs. They had approximately $1 million in investable assets and anticipated adding over $1 million after downsizing their home.

They had been working with a financial advisor for over 10 years who had been a personal contact, but were uncomfortable with his abilities to handle their increased wealth. They asked their accountant to recommend alternative wealth managers.

  • When the Fee Isn’t the Fee: The family’s annual statements from their advisor divulged a 1% fee, a required disclosure since CRM2 regulations came into effect at the end of 2016. This 1% fee is the amount of money paid directly to the dealer (or advisor’s office). When HighView dug deeper during our discovery process, however, we needed to disclose that the actual fees were 2.5%. The additional 1.5% fee was embedded in their mutual fund products, compensating the mutual fund company to invest on their behalf. Regrettably, this portion of the fee is not required to be on the annual fee disclosure statement provided by the advisor’s office.
  • Putting a Detailed Wealth Plan into Action: When HighView began working with the family, we produced a goaloriented wealth plan to meet retirement cash flow needs while taking into account the levels of risk and volatility they were willing to tolerate.
  • Performing Regular Reviews: Providing quarterly statements and annual reviews made it easy for the family to track their progress towards achieving their goals. In these reports, we clearly outline all fees (not just fees paid to the ‘dealer’).

Read the full family story here.


HighView is an independent fiduciary portfolio management firm whose sole purpose is to provide our clients with peace of mind by making their wealth sustainable. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

You may also be interested in:

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HighView Family Story: Former Entrepreneur with Multiple Advisors in Need of Integrated Family Wealth and Succession Plan https://www.highviewfin.com/blog/former-entrepreneur-with-multiple-advisors-integrated-family-wealth-and-succession-plan/ Tue, 10 Jul 2018 12:57:52 +0000 https://www.highviewfin.com/?p=10077 Advisors work together to create sustainable wealth plan"This family story is the first of a series in which we discuss some of the common investment challenges families face and what ultimately led them to HighView. Here, we explore the topic of families who have built their wealth through entrepreneurship. Often, the biggest worries in these situations are ‘what ifs’—what if my money isn’t well managed, doesn’t last, or needs to be rebuilt—that can leave families feeling like they don’t have full control over the wealth they have worked so hard to create.

In this story, the family had built a successful business over three decades before selling it to net several million dollars. At the time, in working with the entrepreneur’s accountant, the family’s investable assets were allocated between three financial advisory firms. Three years of operating in this manner left the family feeling financially lost as their portfolios were simply riding the waves of the capital markets with no defined purpose or method of measuring success that was personally relevant for them.

Through their accountant, the family approached HighView to create an integrated wealth plan for the whole family—first generation of Mom and Dad, second generation of adult children, and future generations as well—that would build true multigenerational and sustainable family wealth.

  • Collaborating with the Family’s Advisors to Create a Wealth Plan: By collaborating with the family as well as their accountant and estate lawyer, HighView crafted a tailored wealth plan that illustrated how the family could create a sustainable balance sheet that could be passed down through the generations.
  • Increasing Wealth Security and Decreasing Fees: HighView consolidated the family’s assets with a single, large Canadian financial institution. We were also able to materially lower their investment fees relative to expensive retail-priced investment products in which the family had previously been invested.
  • Providing the Family with Peace of Mind: The family receives quarterly and annual reviews that measure their portfolio’s behaviour against their stated goals. This objective, transparent approach gives the entire family confidence in knowing that their portfolio is supporting their goal of creating multi-generational, sustainable family wealth.

Read the full family story here.


HighView is an experienced fiduciary portfolio management firm whose sole purpose is to provide our clients with peace of mind by making their wealth sustainable. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

You may also be interested in:

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Mitigating Volatility to Create Sustainable Family Wealth https://www.highviewfin.com/blog/mitigating-volatility-to-create-sustainable-family-wealth/ Fri, 18 May 2018 15:21:27 +0000 https://www.highviewfin.com/?p=10024 Mitigating Volatility to Create Sustainable Family WealthFor families who have built their wealth over a lifetime or have experienced a liquidity event such as the sale of a business after decades of hard work, the prospect of being held hostage to the whims of the market can be frightening.

The reality is that markets are inherently volatile, and you need to be able to tolerate short-term volatility in your portfolio. If not, you may react to fluctuations in ways that are detrimental to your long-term returns like, for example, forcing liquidation at inopportune times.

But how much volatility are you willing to tolerate?

To mitigate volatility over the long term, you need a portfolio built and managed based on your goals and risk tolerances, not market performance. Having a portfolio grounded by your tolerance to risk and driven by goals-based benchmarks will help provide long-term wealth sustainability and keep you feeling at ease, even in turbulent times.

Assessing Tolerance for Risk

Gauging Your Own Risk Tolerance

When thinking about how the returns from your investments will support your family’s down-the-road needs, you also need to consider the other side of the coin—your risk tolerance.

Your tolerance to risk is highly personal, which is why there should always be harmony between how you feel comfortable investing and how you actually invest. If you’re a low-risk investor with high-risk investments, you might find yourself ringing alarm bells with every market shift.

Your risk tolerance should always be assessed and balanced with both market conditions and the pursuit of your specific short, medium, and long-term goals.

Measuring Success

Understanding the Importance of Relative vs. Goals-Based Benchmarking

At its core, benchmarking revolves around one question: has your portfolio been successful?

A common approach in our industry is to track success by measuring your portfolio’s behaviour against relative benchmarks like market performance. Since these metrics might not be relevant to your family’s overall needs, this practice often leads to problems like depleted capital, missed funding requirements, and exposure to unnecessary amounts of risk—all of which jeopardise the long-term sustainability of your family’s wealth.

Instead, your portfolio should be structured to determine performance based on your actual needs and goals. Tracking goals-based benchmarks that take into account your individual lifestyle and financial goals and risk tolerances will help you remain committed to your investment strategy even through market ups and downs.

Viewing Prudent Rebalancing as a Risk Management Tool

Rebalancing can be an important risk management tool, but it needs to be done using disciplined processes to be effective. If it’s performed too frequently, you run the risk of driving up costs and not capturing the momentum of well-performing assets. If it’s not done often enough, that could expose you and your portfolio to unsuitable levels of risk.

Also, any rebalancing within the portfolio should be discussed and reflected in the Investment Policy Statement.

Although market volatility isn’t something you can change, it is something you can prepare for with portfolios that are built to reflect your lifestyle ambitions, financial needs, and risk tolerances—helping you achieve your own goals and not arbitrary benchmarks.


HighView is an experienced fiduciary portfolio management firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

You may also be interested in:

 

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Due Diligence Can Distinguish Good from Bad Money Managers https://www.highviewfin.com/blog/due-diligence-can-distinguish-good-from-bad-money-managers/ Wed, 25 Apr 2018 20:32:08 +0000 https://www.highviewfin.com/?p=9996 Securities regulators have recently sanctioned a few mutual fund companies for spending excessively on promotional events and gifts to financial advisors who sell their funds. This is harmful to investors since it really treats the advisor – not the investor – as the most important client. While it’s impossible to know what happens behind closed doors, there are ways to sense whether a firm is more sales-oriented than it is investor-oriented.

The Rule

Securities regulators finalized National Instrument 81-105 in 1998, a result of the many recommendations made by securities lawyer Glorianne Stromberg. NI 81-105 allows mutual fund companies to, for instance, pay commissions to advisors selling their funds; but cannot make those commissions contingent on the level of sales or types of products. It also outlines limitations when fund companies hold marketing events or trips to promote their funds to advisors – the subject of the allegations against Sentry Investments last year and Mackenzie Financial and 1832 Asset Management (Dynamic Funds) this April.

The Role of Advisors and Analysts

Individual financial advisors and their firms have an obligation to understand the structure, features, costs, and risk-return potential (among other aspects) of every product recommended or sold to clients. But the practical reality is that most investment dealers don’t do extensive due diligence on mutual fund companies because they are well known, have long working histories with dealers, and offer highly-regulated products (i.e. mutual funds sold by prospectus).

The bar for deep due diligence that I and my partners at HighView set gets higher each year. As analysts, we are outsiders trying to peer inside of the organizations we cover to make a high conviction assessment – and ultimately decide whether the firm and any of its offerings deserve a spot in our clients’ portfolios. There are signals that we can use as indicators of whether the firm is a good steward of the assets entrusted to them:

1.      Investment Offerings

We tend to take a cynical view of investment management firms that launch gimmicky products that are designed more to sell than to perform. Examples abound from the late 1990s (technology), early 2000s (high-payout structured products), mid-2000s (BRIC, China, Emerging Markets), and 2010s (bank loans, high-payout income funds, Cannabis funds, bitcoin). Retail-oriented firms – like the aforementioned firms cited by regulators – tend to launch more trendy products. More institutional quality firms never launched these trendy products. An investment theme can easily be included in a firm’s existing products or strategies. Launching a bunch of new products can be a legitimate way of exploiting an investment opportunity, but often it’s just a way to attract more money from investors.

2.      Costs and Compensation

Investment AdvisorOver my career, a few standout mutual fund companies offered higher-than-normal compensation across all of their products. Offering more than 1% per year to advisors selling funds, for example, is unjustifiable. If an advisor is providing a higher level of service that can be justified by a higher fee; the advisor can charge it directly. Products offering higher commissions are simply trying to attract more sales. And that almost always leads to higher investor costs and lower returns – not very investor-friendly.

3.      Governance – Policy and Practice

During our due diligence on one of the above firms, we asked for a copy of the firm’s policies and procedures manual. They refused, which lead us to suspect that they had something to hide. We later found out that this firm failed on both its written policy and its implementation.

In 2009 we detected a conflicted trade by a fund manager at another of the above mutual fund companies. We had zero doubt that it was a trade that should have been reviewed (and ultimately rejected) by the funds’ Investment Review Committee (IRC). It wasn’t and the trade went ahead with very few aware of it. When we challenged this firm’s head of compliance at the time, he offered a weak argument. That put a black mark on that firm’s due diligence file.

4.      Communication

Investment management firms communicate through websites, advertisements, and direct communications. Those that are forthcoming and genuine are usually more client-centric. The same firm that refused to give us a copy of its policy manual also had a very sales-driven communications strategy.

Their ads were sometimes misleading – such as the ads I wrote about in 2016. They would reach out to us to brag about superficial things like a performance award/rating or their top ranking in sales (i.e. money flowing into their funds). But when we reached out to ask them questions of substance they were tight-lipped.

Another firm’s older ad promoted its two monthly income funds – one of which I first wrote about in 2001 – as a “Miracle Funds”. Its years of excessive distributions resulted in significant erosion of capital and a distribution that is a fraction of what it once paid.

Most investors and advisors won’t be able to replicate our type of due diligence, but the above factors will help in deciding whether a firm is deserving of your hard-earned investment dollars.


HighView is an experienced fiduciary portfolio management firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

You may also be interested in:

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The Client Dangers of Proprietary Investment Product Overload https://www.highviewfin.com/blog/client-dangers-of-proprietary-investment-overload/ Wed, 28 Mar 2018 17:16:40 +0000 https://www.highviewfin.com/?p=9978 Absolute Objectivity Is Key When Advising Clients

One of the Founding Principles of HighView Financial Group is ‘objectivity’, which from a portfolio construction perspective means that we don’t believe that advisors should be conflicted in the construction of their clients’ portfolios by using investment product from related product manufacturing companies.

For instance, this lack of objectivity has become increasingly common over the past two decades amongst Canadian financial institutions, through both organic and acquisition growth, that now have both extensive client advisory (‘distribution’) businesses as well as large investment management (‘manufacturing’) businesses. This use of advisors’ own corporate investment products in client portfolios is referred to as using ‘Proprietary Product’. The benefit to the overall wealth management business in these situations is obvious as they can make money from clients on both the Advisory Fee as well as the Investment Management/Manufacturing Fee.

We’ve held this view of objectivity for many years having personally experienced during our Bay Street careers the negative consequences for investor clients of having their portfolios dominated by proprietary investment management businesses. Instead, we believe in the independent division of distribution and manufacturing businesses, as it’s the only way to truly ensure that client portfolios are constructed in a conflict-free manner with the clients’ best interest in mind.

Research Results on Proprietary Product Use

Credo Consulting, a reputable research and consulting firm in the Canadian asset management segment, recently completed a two-year research survey (February 2018) on financial advisors loading their clients’ investment portfolios with their affiliated companies’ financial products (‘Proprietary Product Loading’ or PPL). In reading the results of this survey, I found the extent of use of PPL within client portfolios very interesting. Specifically, what Credo Consulting found is that investors who work with advisors associated with distribution business that also have a product manufacturing division are many times more likely than other advised investors (ie: up to 9-12 times more) to have that company’s products in their portfolios.

The Well-Being Effects of Proprietary Product Use

To test the effect of PPL on investor well-being, Credo asked investors with PPL about their feelings of financial well-being (ie: How they feel with respect to their financial expectations—behind, at par, ahead, etc.)  The results from this study show that the practice of PPL does not currently harm investors’ state of well-being. Although I’m not questioning the results of this well-being analysis, I do believe that financial well-being is ‘more than just a feeling’. In other words, it’s not just about a qualitative assessment. It also requires quantitative facts to support those feelings. Unfortunately, investor clients and most Canadian wealth management organizations do not have the applicable client portfolio data to actually answer this question properly.

Quantitative Assessment of Well-Being

From a portfolio management perspective, ‘Meeting My Expectations’ is defined as meeting my financial goals with my required rate of return (after all fees), over my investment time horizon, at my level of desired risk.

In other words, you need the following portfolio information to be calculated:

  1. Financial Goal: What size of portfolio do I need in retirement to fund my required retirement income in ten years’ time?
  2. Required Rate of Return: What rate of return, after all fees, do I need to fund my retirement lifestyle?
  3. Desired Level of Risk: What level of volatility am I prepared to accept on my capital?

The unfortunate reality is that most Canadian Wealth Management firms are not able to calculate all of these above values for clients as they haven’t collected the required portfolio data and/or they don’t have the applicable portfolio/wealth systems to actually calculate this financial information. Although most wealth management firms recently started reporting the ‘actual’ rates of return on their clients’ portfolios due to regulatory requirements, there is no regulatory requirement to calculate the above financial information for clients. Some advisors and firms do calculate this information, but most don’t.

In my personal experience, most investors simply don’t know their number. They don’t know what their quantified financial targets are, they don’t know what their required rates of return are, and they don’t know what level of risk they’re actually prepared to tolerate.

Given this, when an investor is asked ‘Is your advisor meeting your financial expectations?’, the investor is answering on a complete ‘gut feeling’ as they don’t typically have the required financial/portfolio information to actually provide an objective assessment and answer. As business consultant Peter Drucker once said, ‘You can’t manage what you can’t measure’, and this is the exact position in which most Canadian investors unfortunately find themselves today. They just don’t know their actual state of financial well-being.

Why Diversified Wealth Management Firms Don’t Really Want True Objectivity

As an investor, to meet your financial well-being requirements, you need to optimize your risk-adjusted rates of return in meeting your financial goals. In the current low interest rate environment, this is no easy task for investors. As a result, to increase your odds of doing so, I believe it is key for investors to have unbiased, open access to the top investment solutions, globally, which means not being limited by an over-allocated collection of proprietary investment products in their portfolios.

Just like no single sports team can have all of a league’s best athletes, no proprietary wealth management firm can have all of the industry’s best money managers. It’s just impossible. This isn’t to say that there aren’t some good money managers amongst proprietary wealth management firms, but the notion that ‘all’ or even the ‘majority’ of their investment products are top tier is completely flawed. In fact, in our experiences researching and due diligencing money managers for almost three decades, we have found that most proprietary asset management firms excel in one, and at best, maybe two areas. As a result, the only way for clients to truly access top tier money managers across all of the components of their portfolios is to have unbiased, open access to the full range of investment opportunities in the global marketplace.

Despite this reality, in my experience, together with the above Credo research survey results, diversified Canadian financial institutions who have both advisory and manufacturing businesses continue to push their proprietary investment products through their advisory/distribution businesses to distorted levels. Having worked on Bay Street for 16 years (prior to co-founding HighView over 12 years ago) and been involved extensively with two proprietary money management firms, I unfortunately don’t see this changing any time soon.

There are typically five arguments that I’ve been personally presented with over the years by senior executives of diversified Canadian wealth management firms as to why they don’t really want to make their businesses completely objective through an independent and rigorous due diligence process with respect to the distribution of investment product through their advisory channels.

1.      Our Company’s Profitability Will Suffer

If less proprietary investment product is sold through a financial institution’s advisory channels that will mean lower revenue for the overall organization, as it won’t collect the investment management fees on that lost product sale.

2.      We Don’t Need To Be That Good

The brand of the wealth management firm is solid with its client base. It therefore doesn’t warrant the extra cost and effort in seeking external money managers in areas in which the company doesn’t excel to deliver the ‘best solutions’ available to clients. This is because ‘good is good enough’, and there’s no need to be that good.

3.      We Can’t Fire the Whole Team

When financial institutions encounter portfolio performance issues within their investment management teams, the default response is to always try to fix the internal investment management team, even if the institution doesn’t have a competitive advantage in that particular area of portfolio management. Firing the investment team that created the poor investment results and outsourcing to a competent investment management firm is rarely contemplated.

4.      Let’s Be Rational About This

Most financial institutions do not employ the use of open access to investment solutions across ‘all’ of their advisory channels (ie: not just brokerage divisions but also retail and high net worth investment advisory divisions). But when open access does actually occur, it’s not typically ‘fully’ open but more ‘rationally’ open. In other words, financial institutions will ‘rationally’ allocate a portion of their investment products to external managers to give the appearance of being objective without truly living a fully-open approach to money management.

5.      We Need to Promote and Grow Our Corporate Partners

Many employees within large Canadian financial institutions have long-term incentive programs tied to the overall financial growth of their organizations. As a result, this has the potential to create a bias in the use of proprietary investment product and supporting affiliated companies and the continued growth of the overall organization.

As you can see, all of these above reasons are all about “Putting The Company First!” not “Putting The Client First!”.

Conclusion

I applaud Credo Consulting for conducting the survey that they did as it does affirm the extent of PPL occurring within the Canadian Wealth Management industry today. As I’ve outlined above, though, I believe quantitative, not just qualitative, research is required to properly assess investor well-being as I don’t believe that investor well-being is actually best served through the extensive use of proprietary investment product.


HighView is an experienced fiduciary portfolio management firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

You may also be interested in:

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7 Common Hurdles in Creating Sustainable Wealth https://www.highviewfin.com/blog/7-common-hurdles-in-creating-sustainable-wealth/ Wed, 28 Feb 2018 18:56:54 +0000 https://www.highviewfin.com/?p=9912 Your wealth gives you and your family the freedom to pursue your goals; however, accumulating it requires diligence, focus, and patience. For this reason, it isn’t something investors want to do twice!

The global marketplace is currently treading in the precarious waters of a secular bull market. In these changeable conditions, investors are looking for sustainable approaches that will keep their wealth afloat for many years to come.

In our experience managing family wealth over the past few decades, we have noticed seven roadblocks that can get in the way of investors making their wealth sustainable. We review each one below and provide insights about how you can overcome them:

Return on investment1. Relative Return Investing

Often, portfolios are constructed to chase relative index-based benchmarks that measure success according to things like market or peer performance. These approaches can be inherently flawed since the metrics might not have any bearings on your unique goals. This makes it easier to veer off course and can expose you to higher levels of risk.

To navigate around this impediment, focus on goals-based benchmarks centered around what really matters: creating sustainable wealth that empowers you to achieve your goals and fund future commitments.

You need to start from day one with a clear understanding of your objectives (things like financial, lifestyle, and philanthropic aspirations) and the purpose your wealth plays in helping you achieve them—only then can you construct a portfolio that will get you there.

2. Policy Vacuum

An Investment Policy Statement (IPS) plays an incredibly important role in effectively capturing your portfolio’s purpose and how you want it to be managed. Though the content may vary, these core elements should be present in an IPS:

  • Investment objectives specifying the purpose of your portfolio in order to meet your unique financial goals.
  • Risk tolerances, which outline your ability to tolerate risk in terms of capital and income loss.
  • Constraints including liquidity (defining any short-term needs for liquid funds), taxation considerations, and specific legal and regulatory issues to be addressed.

Regardless of where you keep your investments, you should always have an IPS that’s properly tailored to reflect your needs and objectives. Your IPS gives investment professionals specific instructions to follow when managing your money and it gives you an opportunity to reflect on and articulate your own financial and lifestyle goals.

3. Erratic Investing

Erratic FinancingUnfortunately, the minds of many investors are dominated by two emotions—greed and fear. When the market is up, they find themselves obsessed with beating it, and when it is down they become hyper-focused on fleeing to “safer ground”. These attitudes dominated during the technology bubble of the late 1990s and early 2000s, and we’re seeing them again to some extent now with the rise of things like crypto-currencies, tech disruptors, and marijuana stocks.

Although many people assume this is how investments work, the reality is that this type of behaviour is never the best recipe for creating sustainable wealth. Instead look for disciplined processes underpinned by fundamentals and work with investment advisors who will structure a portfolio aligned with both your return goals and risk tolerances. This balanced and stable approach keeps you comfortable and committed to your long-term investment plans regardless of market conditions.

4. Island Investing

Money management is a crucial part of managing wealth, but it does not always stand alone. Families and foundations often have complex wealth management needs and benefit from working with professionals like lawyers, actuaries, and accountants who provide important structural advice to help better manage their assets. In the case of an affluent family, these recommendations could be related to the design and implementation of investment holding companies and trusts.

The key is to coordinate and integrate the structural and investment advice you receive so your investment advisor can architect a tailored plan and create well-informed, holistic solutions that generate sustainable wealth.  You want your network of trusted advisors working collaboratively and in well-defined roles together instead of in silos to manage your wealth and guide you towards your goals.

Conflicted investment solutions5. Conflicted Investment Solutions

One of the most frustrating questions you might grapple with is figuring out if your investment solutions are right for you or for the investment firm.

To assess this, it helps to understand the five main components that make up asset management offerings:

  1. Individual Securities: The specific stocks and bonds themselves.
  2. Investment Management: The people who “pick” stocks and bonds.
  3. Brokerage: The people who trade stocks and bonds on behalf of investment managers.
  4. Custody: The people who hold clients’ securities.
  5. Portfolio Advice: The people who structure a portfolio to match your investment objectives and risk tolerances.

Be wary if a single firm performs more than one of these five functions, and ask the firm questions like “why have you chosen that service provider?” and “how are their services priced compared to other similar competitors?”. The answers you come to will help you discern if the service providers have been chosen for your benefit or the firm’s convenience.

6. Portfolio Monitoring Gaps

Once implemented, investment professionals have an obligation to make sure they’re pursuing your investment intentions by strictly adhering to the objectives, risk tolerances, and constraints outlined in your IPS.

Your portfolio should be reviewed against metrics like:

  • Asset allocation
  • Security quality
  • Diversification of holdings by individual and/or industry allocation
  • Overall assessment of historical returns against portfolio objectives

Keep in mind that it’s natural for discrepancies in things like asset mixes, security quality, and diversification to occur from time to time. By consistently monitoring your portfolio, investment professionals can identify and rectify inconsistencies as soon as possible. If your advisor believes discrepancies with things like risk tolerances are in your best interest, they must obtain an updated and signed IPS from you, the client.

Infrequent Reviews7. Infrequent Reviews

Regular reviews give you valuable opportunities to find out how your investments are doing and discuss changes, ensuring your portfolio continues to meet your ongoing objectives and risk tolerances.

There are three broad types of reviews that should be conducted on a regular basis:

  1. Goals reviews, which allow you and your investment managers to ascertain whether or not your goals have shifted and, if necessary, make adjustments to your portfolio.
  2. Portfolio reviews to make sure your portfolio is behaving as it needs to and is meeting your short, medium, and long-term goals.
  3. Policy reviews to go over any changing circumstances that might require reforms to the portfolio structure or IPS.

Communication between you and your investment advisors needs to be open, objective, and consistent. This transparency will give you confidence that your family’s wealth is being sustainably managed in a way that reflects your unique needs.

How You Can Avoid These Impediments

Creating sustainable wealth takes commitment and perseverance. Working with an investment advisor dedicated to designing a goals-based portfolio, working with a range of professionals to provide comprehensive solutions, and being transparent with you about your portfolio’s performance will help guide you and your family towards the financial freedom and stability you seek.


HighView is an experienced fiduciary portfolio management firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

You may also be interested in:

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Understanding Your Family Office Options https://www.highviewfin.com/blog/your-family-office-options/ Tue, 23 Jan 2018 19:42:14 +0000 https://www.highviewfin.com/?p=9887 Affluent families often face a myriad of challenges that come with wealth, including:

  • Wealth management
  • Tax and estate planning
  • Business succession issues
  • Setting and funding philanthropic goals
  • Finding the time to manage these activities themselves or identifying trusted advisors who can

Rather than managing their affairs on their own, some families hire a group of practicing professionals including lawyers, accountants, investment advisors, family coaches, and other consultants to do it for them.

Other families consolidate their wealth management needs with one organization or person, hiring them to manage everything. Closing the gaps that can be the result of hiring many professionals working in isolation can make life easier. However, the search for consolidation can be fraught with complexity, as many variations on the theme exist.

As you will see below, each of these ‘themes’ present its own challenges.

Your Family Office Options

. Hiring a Person or Team to Fulfill a Financial Control Role1. Hiring a Person or Team to Fulfill a Financial Control Role

This helps to address the need for the consolidation of wealth management-related activities – rather like one-stop shopping.

This approach puts the responsibility for staffing and supervision squarely on the family’s shoulders.

Job performance and the opportunities for a successful outcome are based solely on the individual or organization’s competency and the framework within which they work.

Some families find that the individuals in this role become self-protecting gatekeepers, restricting other professional advisors’ access to their closely held clients.

Creating Your Own Single Family Office (SFO)2. Creating Your Own Single Family Office (SFO)

Many families with significant wealth form their own Single Family Offices to fulfill the majority of their wealth management needs.

These are usually managed and staffed by accountants and/or legal professionals. On rare occasions, they will also include an investment professional.

The success of the Single Family Office is based on the staff’s ability to meet unexpected or complex challenges, which requires experience and technical skills associated with best-in-class advisors.

The overall cost of operating a private family office can be prohibitive, and limits this option to families with a net worth of at least $100 million.

Joining a Multi-Family Office (MFO)3. Joining a Multi-Family Office (MFO)

A Multi-Family Office (MFO) is formed when two or more families share the costs of operating a Family Office, thus reducing the cost borne by each family individually.

This alternative poses the same staffing and remuneration issues associated with maintaining a successful SFO.

Furthermore, getting participating families to agree on costs and staff selection as well as structuring the MFO to reflect the unique needs of each family can be problematic.

 

Employing a Commercial Family Office (CFO)4. Employing a Commercial Family Office (CFO)

The most common option is the Commercial Family Office (CFO). Several professional practitioners join together in one enterprise to serve all the financial needs of several high net worth families.

A CFO maintains the families’ required objectivity. They are competent, capable, and experienced in meeting their clients’ needs.

Employing a CFO reduces costs while providing families with an integrated solution to address their array of complex needs.

The CFO professionals work together in an environment that supports their work on the families’ behalf maintaining their required objectivity.

Families need to ensure in advance that the CFO is not promoting proprietary products with little regard for the family’s specific goals.

Financial groupwork5. Creating a Virtual Family Office (VFO)

The Virtual Family Office (VFO) harnesses the experience, dedication, and loyalty of a family’s established group of independent advisors.

The VFO professionals become the family’s trusted wealth stewards and look after their wealth management needs in a cohesive and consistent manner.

This is the option we recommend for most families due to its key benefits, including:

  • Experience and competency: Families continue to harness the experience and competencies of the proven professionals who serve them.
  • Variable cost structure: Families avoid the costs of setting up their own Family Office or sharing in the funding of an MFO. Instead, they pay each professional participating in the Family Stewardship Council based on their respective fee schedules.
  • Objective advice: Families avoid any conflicts that might arise from using the services of a CFO and obtain a purely objective set of solutions to address their needs.
  • Integrated advice: Families eliminate planning gaps or oversights through the collaborative efforts of their advisors.
  • Confidence and comfort: Families achieve the peace of mind that only comes from knowing that there is a formal governance structure and set of processes in place to ensure that all the family’s stewardship needs are being met in the appropriate manner.

At HighView, we create a Family Stewardship Council for our clients, which is an entity that constitutes a VFO in its established structure and disciplined processes.


HighView is an experienced fiduciary investment counselling firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

Watch our videos about a variety of asset management topics.

You may also be interested in:

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Happy Holidays to Our Valued Clients and Their Families https://www.highviewfin.com/blog/happy-holidays-to-our-valued-clients-and-their-families/ Sun, 17 Dec 2017 08:00:24 +0000 https://www.highviewfin.com/?p=9839 As the holiday season approaches, we want to thank our clients and their other professionals for their continued support of HighView Financial Group over the past year.

2017 was not only the 12th anniversary of HighView, but also a year of ongoing positive change and growth in our firm.

Some of our key business accomplishments that will continue to increase our investment fiduciary and service commitments to our clients are highlighted below:

• After 11 years, we recently moved our Oakville office to a new location, which will allow us to continue to provide our clients with the level of service you are accustomed to, while accommodating our growing firm.

• We continued to invest in new technologies that enable us to increase the effectiveness our services to our clients. For instance, in 2018, we’ll be launching a HighView Client Portal which will provide a secure method for clients to receive and store their HighView quarterly portfolio statements as well as other client materials over time.

• To ensure high quality support and service to our clients, we made additional investments in the HighView Team with the addition of both Priya Tak as our Client Service Coordinator and Compliance Officer, and Phil Marynowicz as our Investment Administrator.

We’re grateful for the team of quality professionals who we’ve attracted to our firm, as they all share our common passion for building an investment firm where clients’ interests are placed first, and where words like objectivity, transparency, and accountability of advice mean something.

Holiday Giving

At HighView, we believe in the importance of family and of philanthropic giving.

In the spirit of the season, we are donating to an organization in the community that supports grieving children, youth, and families: Lighthouse for Grieving Children.

Lighthouse provides bereavement support groups, training for caregivers, and other resources for children, teens, and families following a death in the immediate family. They are based in Oakville and rely on volunteers and donations to continue their day-to-day efforts in supporting grieving families.

As you are considering your own holiday giving this year, we encourage you to visit Lighthouse’s website and learn about the good work they are doing.

Our 2017 Holiday Hours

  • December 22nd: Closed at noon.
  • December 25th: Closed.
  • December 26th: Closed.
  • December 29th: Closed at noon.
  • January 1st: Closed.

Highview Holiday

We wish the best of the holiday season to you and your family, and we look forward to an exciting 2018.


HighView is an experienced fiduciary investment counselling firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

You may also be interested in:

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