Month: December 2016

Strengthening Client Relationships With Technology

Many advisors are finding that robo advisors and internet technology are disrupting the investment industry but technology can also be used to strengthen client relationships and help make better decisions. It is important that traditional advisors know that robo advisors have their weaknesses and the appropriate use of existing technology can help with finding and retaining clients.

It is true that some robos offer a compelling client interface and lower costs thanks to efficient distribution channels and lower production costs compared to traditional advisors but they don’t have a competitive edge when it comes to portfolio construction so they often lag the performance of the market. Furthermore robos can’t solve behavioral issues that clients face when setting up their accounts and how investors tend to react in a falling market.

The investment underperformance of robo advisors relative to the market is dominated by two significant factors; costs that the market does not incur and client behavior. While costs are coming down, there are still transaction costs, management fees, distribution fees and other costs. On the behavioral side, clients may overly focus on minimizing risk as a primary objective when setting up their risk profile if they are not able to discuss the long term performance risk that entails with a qualified advisor. More importantly, while the robos’ rebalancing and cost average techniques are helping investors to apply some self-discipline, it remains to be seen if they would be able to hold investors back from overruling these techniques in times of turmoil when investors often have a tendency to sell and wait for an improving outlook.

Given that clients will often still want a human to help, another problem that technology brings to the table for both advisors and clients is dealing with an overwhelming deluge of information. This is where both advisors and clients would be helped by an effective online presence. A properly designed client oriented website should focus on key moments when potential clients have the greatest need for information and insight such as when they are making a significant Asset Allocation change decision. These key moments are incurred at various new life cycle stages such as starting a family, changing careers or retiring. Therefore an effective website should involve potential clients in answering these types of questions and provide information about how you and your investment process will solve the problems they are looking to solve.

The first step in initiating an effective online presence is to find a technology partner that understands your business and can help navigate the wide variety of options in order to make the right choices. An effective web presence then needs a well thought out plan which focuses on what clients need and then constructing the technology to meet those needs. It is important that it be designed for all clients and avoids the tendency to focus on the tech oriented millennials. Clients often prefer online access for news and insights into financial market and in this respect a website works best when it gives investors not more but better information which is valuable to them.

Keep in mind that it is not necessary to take on the whole project at once. An effective technology provider will understand that and help you build your tech presence at a pace that you can work with while managing your business.

At the end of the day, robo advisors are simply taking advantage of new technology to reduce costs by bypassing intermediaries and taking client facing advisors out of the equation but they still face client behavioral issues and utilize conventional portfolio construction so they end up providing essentially the same services as older, established players. They are simply an evolution but there is still a need for client facing advisors so advisors also need to embrace new technology as the investment industry evolves.

Is Passive Now Passé?

Time after time the story seems to be the same, active investment management on average does not beat its benchmark. This is generally true, especially in instances where the impact of fees is severe or a host of other reasons that have been well documented. However, leaving the issue of fees aside for the moment, active management success comes down to the skill of the investment manager, and like most things, superior performance comes in waves or cycles. Right now it appears Canada is entering a new cycle where larger than normal numbers of active managers are adding value beyond their benchmarks.

The tide appears to be turning for active managers, as volatility has crept back into the stock market. Since the global financial crisis of 2008 many active managers have been hard hit, because volatility has been low and the dispersion of returns from one stock to the next has been very narrow, reducing the opportunity to isolate winning stocks and increasing the likelihood of poor relative performance.

Now however, there is a lot of uncertainty as to how the economy, monetary policies and fiscal policies will evolve as it appears we are coming into a different era. While there is not yet a tidal wave of movement toward active management, there is definitely an early sense that investors are becoming more open to the idea. Given that the dispersion amongst Canadian stocks is close to its highest levels since the crisis, the case for performance opportunities is allowing active managers to set themselves apart from passive strategies.

History shows this is exactly what happens. Active investment managers tend to hold more equal weighted portfolios than the market cap weighted indices, such as the S&P/TSX Composite Index. So there is a structural advantage for managers to outperform when the equal weighted stock index outperforms its cap weighted index sibling. Since 2008, when the equal weighted S&P/TSX index has outperformed or underperformed the cap weighted version on a quarterly basis; the median active Canadian equity manager has produced winning or losing relative performance which matched the benchmark’s results 84% of the time. Or in other word, when the equally weighted index outperformed then so did investment managers and vice-a-versa. These results closely match the 86% correlation experience by U.S. stocks since 1980.

The chart above and the data to the left shows that when the equal weighted Canadian stock index outperforms the cap weighted Canadian stock index (by 2.6% on average), the median Canadian equity investment manager beats the S&P/TSX Composite index by 1.2% on average. So this means that more than 50% of Canadian equity managers beat their benchmark before fees. Conversely, when the equal weighted Canadian stock index underperforms the cap weighted index (by -1.6% on average), the median Canadian equity investment managers undershoots the S&P/TSX Composite index by -2.4% on average.

If history does repeat itself, then active managers should do very well this year and next, since the equal weighted index is outpacing the cap weighted index by 6.51% (25.6% versus 19.1%) year to date. It is little wonder that there is heightened interest in active stock picking as recent events are creating an environment that gives skill a chance to shine. While passive investing is never going to be truly passé, active management will always have its place in investors’ portfolios if it is done correctly.



This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only.

2016, the year of the Canadian equity investor

When we look back at 2016, we see a year that baffled our expectations in many ways. Political events surprised nations and new market volatility setting back health care and financial sectors and propping up energy and material companies that show great growth and potential.

Here is a recap of the year that was:


The first part of the year underscored the importance of long-term investing, as markets were significantly volatile reflective of the January recession scare. Dropping oil prices caused concern for many businesses but bounce back mostly due to political manipulation throughout the Middle East.

The collapse in energy prices forced higher-priced manufacturers to get their act together, cutting jobs, expenses and building capacity where possible.


We all remember Brexit; initially it was shocking and the markets suffered This historic event will have a detrimental impact on the UK, but due to our minor economic ties, the Canadian market will not endure a major effect.

In fact, the Canadian stock market continued to be one of the best performing in this second quarter.


The US is finally coming to the end of a 30-year cycle of reduced interest rates. The question is, how high and how quickly will they bounce up? Canada typically follows a US lead, but our interest rates will likely stay lower for longer.

This quarter proved rewarding for investors, with equity volatility and bond yields near historic lows. The question is whether there is enough conviction to push markets even higher.


After an arousing Q3, Q4 is looking to be tamer in stock market performance (slightly negative so far), as U.S. political uncertainty has dampened investor enthusiasm. When energy prices rebounded, as they have the past three to four months, the marginal increase in prices will have a dramatic impact on the share prices of these companies. This trend won’t rebound anywhere near its previous highs, but will increase marginally and this means good news for Canadian energy stocks.

Markets are built for certainty and stability. The recent US election was everything but, causing investors everywhere to feel the panic. But, the election doesn’t end with the elected, it just begins a new chapter with many possibilities and opportunities.

Despite many unexpected events across the glove this past year, our markets rose by over 16%. We haven’t yet hit our record high, so we still have the opportunity to appreciate moving forward.
From where we sit today, we are in line with market recovery if we look back to historic norms. Valuations are still very reasonable and there is little reason for concern- not now, nor for our financial markets next year. With recent political shock and change, it’s best that everyone-advisors and investors alike, take a deep breath and let events play out. Who knows what a new political administration could bring to our Canadian markets.