Money manager says investors will flock back to good active managers during correction
The exodus of DIY investors to inferior, cheaper products will ultimately drive people back to quality advisors who have been “lost in the noise”.
Sean Harrell, partner and senior advisor at Howe, Harrell and Associates, believes a correction will expose the emotionally driven decisions of those who have opted to go it alone during what is now the longest bull market in history.
He said: “I personally find it more difficult to gather new assets in a bull market because if it isn’t broken, don’t fix it. If you’re making money, why switch from one institution to another or one advisor to another?
“Where we really make hay is when a downturn comes, so we keep track of people, where they are investing, that type of thing, and we have a ton of prospects when the market does make a correction. That’s when you see advisors’ value really coming up.”
Harrell said that an advisor’s worth isn’t just about metrics and talking investments, it’s also about stopping people from shooting themselves in the foot. For example, when the market takes a 30% dip, don’t sell, maybe readjust but don’t go to cash and miss the upturn.
He said: “I do believe that people who are looking at the products being produced right now are the 'do-it-yourselfers' and I think they are going to have a rude awakening when the 30%, 20% correction comes. It’s just natural. If things are going well, why are you going to pay someone else to do it?
“You can throw a dart at a dart board and make money on whatever you land on in a bull market. But this needs to be managed now and active managers do better than non-active managers in down markets. So the trick is to find one that does well on up markets as well with reasonable fees.”
Harrell said his firm’s Canadian equity mandate is 7.7% after fees, with the TSX producing about a 5% return over the past 10 years. He added that this particular portfolio has never been beaten by an ETF.
“The TSX has not touched it,” he said, “and that’s net of fees. So you have good upside and you have protection on the downside. There is so much hype about ETFs and fees that a lot of good portfolio managers are just being lost in the noise.”
The Winnipeg-advisor also said that money managers have a duty to keep pace with industry change and highlighted an example of a broker in his province that he has taken assets from. Harrell said the account was a “dog’s breakfast” of funds featuring poor returns and high fees.
He said: “What is the advisor doing? He’s 67-68 years old and he’s just sitting on his book. He’s not servicing people any more. He doesn’t have the appropriate fee structure in place, and this is a decent size portfolio of a couple of million bucks.
“He’s still thinking old school. It’s coming around and it’s starting to hurt those people.”
