Month: April 2017

Delegating for Success

Transcend President Chris Ambridge, CFA explains how advisors can lessen their workload but boost profits at the same time

If an advisor were to rank their key responsibilities, keeping clients satisfied surely figures at the top of that list. It’s a priority that does not receive enough attention according to many in the profession, as regulatory pressure has meant their focus is often diverted elsewhere. Provisus Wealth Management’s new investment platform Transcend, seeks to ease that burden, allowing advisors to concentrate on adding value for clients through financial planning and tax assistance.

“We can help advisors transition from their existing business structure and focus on financial planning as opposed to compliance, administration or trading,” explains Chris Ambridge, President of Transcend. “It is outsourcing the portfolio management to focus on additional planning services and client retention.”

Transcend’s research shows that a financial advisor’s workload usually breaks down to a 60-40 split between servicing clients and portfolio management/compliance. Using this program means that 60% can increase to 100%.

“If an advisor wants to slow down, but still wants to keep all their clients, we are offering an alternative to the current structure,” says Ambridge. “Essentially it is 40% less work, 40% more pay and they can focus on what makes them better advisors.”

In these fee-conscious times, clients are asking a lot more of advisors and those unable to meet increased demands will be left behind, Ambridge points out.

“Advisors need to adapt or become irrelevant,” he says. “Advisors that fail to react will face severe challenges to their future profitability and growth. Competition will force their hands. To compete successfully advisors must differentiate themselves, otherwise they will have to compete on price to win or retain clients.”

Catering to a wide range of retail investors, it now has $440 million in assets under management and has been selected as one of Profit 500’s Fastest Growing Companies in each of the last three years. Transcend is an offshoot of the Transcend Separately Managed Accounts Program that has proven to be a real success for Provisus. The new entity is especially noteworthy as it offers a pay-for-performance model within its equity pooled fund suite. It’s a novel approach, and one the company’s president believes really sets it apart from its competitors.

“With the advent of CRM2 and more of an onus on cost and performance, we need to put our money where our mouth is,” he says. “If we don’t beat the benchmark, then we won’t get paid. Ask any other money manager out there if they are willing to issue the same edict – I don’t think you’ll find many.”

Under this structure, clients pay a base fee of 0.25%, which covers administrative costs for the equity funds used in a client’s portfolio. If a fund performs better than the benchmark, a performance fee equal to 20% of the fund’s performance above the benchmark. Of course, it will be tougher than others to achieve that target, 2016 being a case in point.

“We were essentially around the benchmark for most of the year, and a little under at the end,” Ambridge says. “We can take hiccups like this though because over a long-term basis we add value.”

Randy T. – ADVISORS STORY: STREAMLINE, SLOWDOWN, DECIDE

The Start:

Growing up in Alberta, Randy calls himself a “refuge of the oil patch.” His job in the oil sector, took him to most small towns in Alberta.

In 1996, he transitioned out of the big oil company with a payout. At first, he wasn’t sure what he wanted to do. Randy had taken the CMA course at the University of Alberta Continuing Education Program, and thought it would also be useful to be a Mutual Fund Representative.

He started working with friends and family as a financial planner and by the late 1990’s and early 2000s, had bought a few books of business. His venture was off the ground.

 

The Challenge:

 By 2011, Randy wanted to begin the transition of downsizing his business from nearly 250 clients, to allow for more free time. He began to think of a succession plan, and considered questions like, “what happens in an accident and I can’t service my clients anymore?”  He began to look at options.

Randy had traditionally used mutual funds as a means to build client portfolios. As he began the transition, he questioned if this was the best route for maximizing returns for client investments. He put the mutual fund vs. 1:1 management debate on the table as he began conversations with Chris Ambridge at Transcend.

 

The Transition:

Randy says he quickly learned there were better options with individual managers. Chris explained the benefits, including customized management, tax deductions for fees on registered accounts, lower fees in general and just greater flexibility.

Through his conversations with Transcend, Randy says he had to abandon his old thought process. “Am I missing something?” he thought to himself. But Chris was able to answer all his questions, and finally “the light came on” and he thought, this is “really excellent.”

 

The Result:

Randy started his transition in May 2012 and by the end of September had sold about 90 per cent of his business, while retaining top clients. Now, Randy is back to wilderness, hiking, biking, and organizing trips across the world. He doesn’t need an assistant and taking a three week vacation isn’t a problem.

His says the returns are excellent, especially with the lower fees. “With Provisus, I get managers that aren’t available for retail. They have greater autonomy. These money managers are top notch and if they don’t meet the Transcend standard, they fix it quickly.”

Randy says he feels like he picked the right time to transition and slow down his business. With regulations more stringent, the work was becoming cumbersome. But now that he has Transcend, he doesn’t worry. “My life is so much simpler.”

Stocks Decline All the Time; So What?

Stock markets have been getting a little choppy lately. Is it time to panic? Investors understand that market  fluctuations are part of stock market investing but they are nevertheless scary.  Investing in stocks is hard and to earn superior rewards you need to take  risks. Unfortunately, returns never come smoothly, there are ups and downs.  Thankfully the ups are much more prevalent.

Investing is never a one way street and investors have to ride out the market  slumps. Performance can vary wildly from day to day and year to year so it  should not come as a surprise to learn that market declines occur in each and  every year. But they also provide a perspective about what investors can do to  be successful. Corrections occur even during periods where the equity  markets experience winning returns for long consecutive periods.

The Intra-year drops are the largest stock market drops from a peak to a  trough during the calendar year. The chart shows that market fluctuations are  a normal part of stock market investing. The grey dots show the largest peak to trough percentage drop during the year and the bars show the year’s eventual total calendar return for the S&P/TSX Index. The annual returns and intra-year decline figures for the years from 1980 to 2016 are shown above or below the bars or dots. Despite average intra-year drops of -15.4%, the average calendar return was 10.2%; with positive returns occurring in 27 of the 37 years or 73% of the time.

7 out of the last 10 years have seen intra-year drops of -10% or more at some point in the year, but only 3 years ended in negative territory. Sometimes these big intra-year drops obscure the end result even during years when the markets are surging. For example in 2009 there was a -18% drop but the market ended up 35% for the year. It is amazing to consider that only 10 of the past 37 years ended with a loss, yet every single year had a large loss at some point. In fact, 22 years had double digit losses at some point during the year.

Obviously selloffs happen; sometimes they are big, sometimes not. But they are normal and there is no reason to panic. This is especially true in a bad year since it is likely that there is a rebound on the horizon. The true secret is to make these market fluctuations work for you instead of against you by following a few simple steps: never selling during a market correction; rebalance and add to stocks during market corrections if possible; keep some of your portfolio in more conservative investments that will not fluctuate as much during market downturns (i.e. bonds); take a long term perspective; and simply learn to expect and embrace market volatility.

During periods of volatility, short term thinking becomes very risky and market timing can be even more dangerous. Overreacting becomes the real enemy. Every year has its rough patches. It is hard to predict these pullbacks, but despite them, the equity markets have gone on to deliver positive returns in most years. Double digit pullbacks in the markets are normal and part of life. Investors should expect them and not pay overly close attention to the everyday gyrations in the market.

MARKET DATA

 

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.

The Highs and Lows of Do-It-Yourself Investing

In the age we’re in now, when you can DIY everything from your bathroom to your finances, DIY investing is on the rise. Like anything, without professional guidance, investing and self-managing wealth can be quite risky, especially when your future is at stake. Do-it-yourself mistakes are all too common, so we sat down with Transcend CEO Chris Ambridge to learn the pros and pitfalls of this financial trend. Keep reading to find out the red flags to independent investing:

 

1. What are some of the signs your DIY investing needs professional support?

If investments start to lose steam and performance starts to lag relative to the benchmark, that’s a big red flag. Also, not maximizing tax advantages and carrying investments below $10 in share and stock price (i.e. risky penny stocks) are easy mistakes for a DIY investor to make.

 

2. What are things a DIY investor cannot typically do on his/her own?

A DIY investor can often lack perspective in managing their financial choices, whereas having a professional around helps with adding diversification and objectivity. People fall in love with things they buy, but being objective is key in realizing if value becomes impaired. Optimization for tax advantages, including tax codes or changes in regulation, is a huge opportunity that is often missed, causing DIY investors financial losses. It’s also common for self-investors to be victim to narrow focus, with strong investing in one particular area.  Without a professional, investors often lack the time, and tools, needed to really maximize investments. It’s human nature to remember big successes and losses, but not the “in-betweens” that can make you big money in the long run.

 

3. What does a DIY investor often miss out on, beyond the obvious?

Independent investors often have their valuation targets wrongly based on rumours and here say, rather than facts. They also typically underperform cash because they try to time the market and are notorious for selling out and not getting back in. The biggest miss is having someone professional to bounce ideas off of. Having a professional to provide objective advice on current goals for different life stages is extremely beneficial for maximizing investments and growing wealth.

 

4. What are the different types of DIY investors?

There are many different styles of independent DIY investors, and understanding which you relate to may help you to understand your financial flaws with more objectivity.

 

  • Day traders (full time job trying to make money)
  • Frugal financers (refuse to pay fees and often forego performance as a cost)
  • Inheritors (Inherit stocks and investments and they sit there with no action)
  • Social investors (hear a rumour, buy a stock without any real strategy)
  • Learners (investing learned by trial and error)

 

5. Do you have to choose between DIY investing and having a professional advisor?

If you can’t drop your love for DIY, no need to worry. Some independent advising with a hired advisor can work quite well. Many people have successful finances this way, but the key is to keep your advisor in the know. The way to make this work is to invest with your own money, but use a financial planner to structure it correctly and stay on target for long-term goals.