Industry is not being respectful of clients' needs, says Lee-Chin

Mandeville CEO explains why the democratization of opportunities for wealth creation remains a passion project

Industry is not being respectful of clients' needs, says Lee-Chin

The rise of Mandeville was borne out of the industry’s failure to put clients’ wealth creation first, according to CEO Michael Lee-Chin.

In part two of a three-part podcast series with WP Talk, the renowned advisor and investor explained why the democratization of opportunities for creating wealth for others remains such a passion project despite his own significant net worth.

He said the Mandeville philosophy has its roots in his own upward trajectory from young advisor to industry icon, stressing that his own wealth would not have happened without the support of the clients he had in the early days.

“They gave me that platform, so I'm forever beholden to recognizing where I came from," he said. "And when I look at our industry, it’s not being respectful of clients’ needs.

“I decided when I sold Berkshire and AIC to start a business that is respectful of clients’ needs because there had to be somewhere; we had to start a movement. You have to start by taking a position but building a dealership from scratch with a philosophy like Mandeville's is not easy. Very few people can afford the burn rate before you get to a critical mass - no public company is going to tolerate that.”

Driven on by a sense of responsibility to his clients, Lee-Chin wanted to establish a “beacon” in the industry that would change the narrative and better serve clients. He added: “If I had gone off and retired, who’d have taken up the mantle? Very few people can afford it and would want to suffer through the start-up phase.”

Lee-Chin has been quoted before as labelling the industry as “dysfunctional” and it’s clear that view has not changed. He does not believe enough firms and advisors are sitting down, examining a client’s finance and optimizing this for wealth creation.

In the podcast, he outlines his formula for doing this and how to maximise the different elements. He works on the premise that wealth is created by the equation: future value (FV) = present value (PV) x 1, plus the rate of return you make on your money x the time your money is working for you. To maximize PV he joked you can either: steal the capital, win it, marry into it or borrow it!

The key to this equation is rate of return and the mix of public and private, which is goes to the heart of how Mandeville operates.

Lee-Chin said: “Pension funds get the rate of return not from the public assets, generally speaking, but from the illiquid component of their portfolio, which is the private component of their portfolio. They take advantage of the illiquidity discount. Most securities dealers do not give clients the opportunity to take advantage of this.”

He added: “I hate to sound like a broken record, but asset allocation within only publicly traded liquid securities is wrong because you're not going to create any wealth doing that. It’s good for the firms because the business becomes very scalable quickly and you can buy and sell publicly traded securities instantly. The business is scalable, but it's not the best thing for the clients.”

Another area the charismatic Jamaican addressed with WP Talk is what advisors should look for in a brokerage in 2019. He believes that they must seek out a firm that is differentiated and has a reputation for something, highlighting Mandeville’s honesty in setting out to create wealth for clients through its public-private portfolio approach.

“If you move from one bank-owned firm to another, that's a lateral move because from a client's perspective, there's no difference. In the case of Mandeville, our reputation is that we promise our clients that we will give them a portfolio that's a combination of public and private, and that the private entities we are promoting are of the highest quality that the most erudite knowledgeable institutional investor would salivate to access.”