Choosing the right provider for a portfolio service is one of the most important decisions you can make for your investment strategy.
Not all portfolio management service providers are created equal, and some may meet your needs more effectively than others.
Some factors to consider when choosing a portfolio service provider are their portfolio construction process, investment philosophy, investment manager selection, and investment costs. Here are a series of questions to ask a prospective provider.
The number of “Yes or No” answers you get does not suggest if one approach is better than the other. What matters is that you understand your portfolio manager’s process to know if it fits your preferences.
Portfolio Construction Process
Ask if they:
- Use a systemized process to design, build and monitor portfolios and if they ensure portfolios are well-optimized at all times
- Automatically rebalance portfolios at regular intervals to ensure you maintain your asset allocation strategy and your portfolio stays aligned to your objectives
- Have a static asset allocation strategy (i.e. set at 60% equities and 40% bonds)
- Research market trends continuously and can adjust your asset allocation structure to take advantage of new opportunities or trends in the market
- Build portfolios using a range of investment strategies (e.g. equities, fixed income, alternatives, risk management, etc.)
- Use a range of investment structures (e.g. ETFs, pools, separately managed accounts)
- Use an 'active-only' security selection strategy
- Build portfolios using index-linked strategies only
- Invest using Environmental, Social and Governance (ESG) principles
Investment Philosophy
Ask if they:
- Are impartial in their investment style and philosophy
- Have a specific investment niche or focus to their investment style (e.g. value-biased; growth-biased; hedge funds only; real estate only, etc.)
- Portfolios to specific target range of returns to help you achieve your goals (i.e. do they focus on you and your needs)
- Manage returns to a peer group or category
- Build diversified portfolios with multiple strategies and multiple managers within a single easy to use solution
Investment Manager Selection
Ask if they:
- Have an objective and disciplined process for the selection and appointment of investment managers
- Hire all their investment managers in-house
- Use independent investment managers
- Can terminate a manager from a portfolio if that manager no longer meets the objectives of the portfolio
- Combine investment management talent effectively to ensure no over- or under-exposure to any one asset class, security, geographic market or investment style
Investment Costs
Ask if:
- You will have to use multiple providers to meet your portfolio management needs
- You've received a clear explanation of the cost structure for their portfolio management services
- You understand the value you get for the costs of portfolio management
- There are incentives, quotas or differences in compensation structures (direct or indirect) when an Advisor recommends a solution
Disclaimers:
The views expressed in this commentary are those of Canada Life Investment Management as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances. The content of this material (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.
This material may contain forward-looking information that reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as ofFebruary 24, 2021.
