FOR RAYMOND JAMES advisor Andrew Ellis, being able to generate returns for his clients through the equity markets is a primary focus. In that respect, the past year has been fruitful – the TSX has broken records on a consistent basis, reaching a new high point in February. Ellis does foresee momentum slowing somewhat this year, but he isn’t changing his investment strategy markedly from what worked so well for him in 2016.
“I am a little more cautious now on materials and energy companies,” he says. “I have taken some profits from our small-cap stocks where necessary. The US market looks not too bad, but at the same time, I have taken some profits here and there and have a little bit of cash piling up right now – not a lot; I am probably something like 85% to 90% fully invested.”
In terms of investments, Ellis’ clients tend to favour domestic stocks. There’s sound reasoning for this, he explains, and it has been a productive strategy since he first entered the advisory business in 1993.
“I will always have more exposure to Canada,” he says. “There is a certain comfort level that my clients have with knowing where their investments are. If they have shares of CIBC, they can see that, but Bank of America or Goldman Sachs they only hear about it. They are not as comfortable with things that are far away.”
While both US and Canadian stocks are performing well currently, that could change pretty quickly if outside forces like the
OPEC supply deal or Donald Trump’s trade policies shake up the markets. There are reasons for caution, to be sure, but Ellis is pretty optimistic that equities will remain buoyant this year.
“I think the US and Canada will be pretty similar in 2017,” he says. “I think Canada might even be a little stronger if we start to see some inflationary pressure, either from rising interest rates or currency changes.”
In directing his clients’ financial needs, Ellis eschews the traditional 60-40 split between stocks and bonds, particularly during a time when low interest rates continue to stymie fixed-income returns. In his 24 years in the industry, Ellis has held firm to the idea that a financial advisor should provide returns for clients. Generally, the equity markets are the place to do that – so while fixed income has its uses, it’s not a priority for him.
“When the market is rolling, everyone is happy, but if you are 60-40 at a time like that, you only get 60% of the upside,” he says. “But there are good reasons why some people don’t need 100% exposure. My clients may have some GICs in their account, or some high-interest savings products – those are 100% guaranteed. I’m not playing around trying to improve the yield on that side of the account.”
His reasoning for using safe products like GICs is simple – it’s what his clients want. Conservative investors put a premium on preserving their assets, so Ellis minimizes any chance of losing money on the fixed-income side.
“People don’t care if their account goes up 5% to 6%,” he says. “But if they lose that amount, they are way more concerned. So by using GICs, their money is secure. That’s the foundation of the account.”
Ellis’ practice consists of a mix of fee- and transaction-based accounts, but the majority of his business is still commission-based. This has worked well for him and his clients for decades now, so growing speculation about a commission ban is somewhat worrying to him.
“The compliance issues that have come from the regulators the past few years – I think some of those requests have been absurd,” he says. “We have had a few rotten apples in the barrel, and in order to clean that up, we have to clean everyone.”
He believes the regulators’ aim of greater transparency is the right one, but their method of achieving that goal is wrong-headed and potentially harmful. In particular, he warns that a commission ban could make financial advice too expensive for ordinary Canadians.
“I don’t buy into the reasoning the regulators have given us for a ban on commissions,” he says. “If someone is actively trading, then a fee-based account is probably better for them. If you are primarily a buy-and-hold investor, then a transaction-based account is best. I don’t see a ban as [putting] clients first.”