Top portfolio managers see inflows of referrals as they navigate risks and challenges for clients
The increasingly inhospitable backdrop for traditional investment portfolios has created a differentiating opportunity for advisors – at least, the ones who can successfully navigate the current headwinds.
In the most recent wave of its Canadian Mutual Fund and Exchange-Traded Fund (ETF) Investor Survey, the Investment Funds Institute of Canada (IFIC) found that 90% of both mutual fund and ETF investors are satisfied with their financial advisors. In the same survey, 80% of mutual fund investors and 70% of ETF investors said they would not want to handle their own investments.
The majority of advised investors surveyed also agreed that they get better returns on investments (80% of mutual investors and 73% of ETF investors) and feel more confident in reaching their goals (84% and 78%, respectively) by working with an advisor.
Another report by Russell Investments this year estimates that by actively rebalancing investment portfolios and engaging in behavioural coaching, advisors add 0.20% and 1.93%, respectively, to the average investor’s returns.
“In a bull market, everyone's a genius,” says Wolfgang Klein, senior portfolio manager at CG Wealth Management (pictured above, left). “In a bear market, you find out pretty quickly how difficult it can be to manage money, and how much your emotions can really end up driving and derailing a good investment strategy.”
As of November, Klein’s portfolios were down about 5% on the year, compared to -7% for the Dow, -27% for the NASDAQ 100, and -15% for the S&P 500 at the time. While he came into this year with a 70% allocation towards U.S. equities in his portfolio, he dialled that down to 40% as market volatility and downturns played out throughout 2022.
“We’re adding huge value to our clients right now by virtue of tax-loss selling and yield-enhancing strategies,” Klein says.
A similar story is playing out for Martin Pelletier, senior portfolio manager at Wellington-Altus Private Counsel (above, right).
“Market volatility differentiates the good from the bad. All boats float in rising tides,” Pelletier says. “When times get tough, you can see who is delivering on what they say they will.”
Aside from market-beating returns, Pelletier says many advisors and fund managers across the industry promoted themselves as having an expertise in risk management. The eye-watering levels of volatility and downturns brought by 2022, he says, has made it the ultimate year to test those claims.
“The traditional 60/40 portfolio has had its worst year since the 1930s,” he says. “So whatever kind of risk management expertise a manager has beyond just owning fixed income in their portfolios would be apparent in their results.”
At Pelletier’s practice, they utilize a strategy of goals-based investing: target returns are derived based on a client’s specific needs, and Pelletier’s team strive to hit those return targets while minimizing risks. For clients with higher target returns, the variability and risks tend to be more pronounced compared to those who are aiming for lower returns.
During the heady years of the pandemic, Pelletier says that his team wasn’t able to track the full upside of market gains, but did well as they hit their clients’ goals-based return targets. For 2022, his practice has achieved positive one-year annual returns for clients, while many of their peers suffered from double-digit negative returns.
“Those managers who were able to provide some of that downside protection are getting more attention, and deservedly so,” he says. “2022 has been a key differentiating year for us … We're getting record inflows of new clients.”
“I can’t say I’m getting more referrals than I was two years or four years ago, but we’re still getting a steady flow of referrals and inquiries into my practice,” Klein says. “Good advisors provide good advice, and good advice is worth its weight in gold.”
