Steele Investment Management’s father-son advisor team, Clarke and Morgan Steele, discuss how investment management has evolved in recent years
It’s not uncommon to see people follow their parents into the advisory business. The right mentorship is crucial for a young advisor’s development, but that isn’t always so easy to come by. Joining the family business reduces the pressure to build a book of business right away, thus allowing an advisor the chance to really learn their trade.
One of Wealth Professional Canada’s 2018 Young Guns, Morgan Steele joined his father, Clarke, at Steele Investment Management Group in 2014. In doing so, he had immediate access to a wealth of experience. Clarke Steele started his career 38 years ago with Moss Lawson, in what was a very different time for the advisory business.
“It was transactional and a lot of coldcalling,” he says. “The way the business has evolved in terms of a whole financial plan and holistic solutions – that’s a big difference. I was early to fee-based; I started switching my business in 2000, and by 2001 I was 99% fee-based.”
The shift away from embedded commissions continues to be a hot-button issue in the advisory space. The fee-based model is often criticized as being particularly unforgiving to those starting out. Clarke Steele was already well established in his practice when he decided to change his compensation model, having joined Richardson Greenshields from Dean Witter Canada in 1991. For him, a fee-based model made conversations with clients much easier.
“We didn’t want anyone thinking we were trading just to have the commission, so we decided to have a fee, which was tax-deductible in a regular account,” he says. “It eliminates conflicts of interest and makes sure our advice is looked at for what it is, which is good advice.”
Although Morgan would ultimately join his father’s firm, he didn’t do so right away. A commerce graduate of Dalhousie University, he wanted to learn other aspects of the investment industry before putting down roots. He worked with both Radin Capital Partners and IA Clarington Investments before arriving at Richardson GMP four years ago. Despite having an impressive resume, Morgan recognizes the difficulties young advisors face in trying to establish themselves.
“There is a big gap between the savers in the economy,” he says. “You have the baby boomers, who have most of the money, and then there are the millennials, who haven’t really been saving. When you are 30 years old trying to get a new client, it’s tough to find someone your own age with money to invest. So you’re going after guys who are 55 or 60, but there’s a stigma about giving money to a younger advisor.”
It’s a stigma Morgan is doing his best to overcome. A CFA charterholder, he became a portfolio manager this year. Responsible for asset allocation at Steele Investment Management, he also oversees due diligence on alternative assets, credit and equities, as well as option strategies.
Alternative products are an important part of Morgan’s investment strategy, and depending on the client, he likes to use a number of different products, including international equity hedge funds, life insurance settlements, specialized mortgage lending and real estate. His investment strategy is always evolving, as he believes the old way of doing things is becoming obsolete.
“A lot of clients are stuck to that 60-40 aspect, and that was great when we had 30 years of declining interest rates,” Morgan says. “If you look at the CPP, it had 73% in bonds in 2001, and that’s about 16% today. There is no way you can have 40% in bonds, especially when a client is asking for low volatility. In a rising-rate environment, you are going to have huge swings in bond prices.”
Those three decades of declining interest rates played a significant part in the growth of Steele Investment Management. After Black Friday in 1987, Clarke Steele decided to concentrate on fixed-income strategies, specifically Government of Canada bonds that proved highly tax-efficient for his clients. That strategy served him well in the ’90s and 2000s, but everything changed with the financial crisis.
“What Markowitz and Sharpe found with the efficient frontier and modern portfolio theory, all of a sudden some of those things weren’t working anymore,” Clarke says. “They looked at one standard deviation or maybe two, and then we had 2008-09 happen, which went further than they ever imagined.”
That crash required advisors and investors to change tack. Achieving returns remains the central point of investing, but not at the cost of loading on risk.
“It was a pretty scary time in terms of the financial system almost failing, and that hasn’t happened since the Depression,” Clarke says. “Out of that, the business is better and stronger, and there are a lot of good things that have happened for clients, for advisors, for firms.”
In early February, investors had a little taste of the dark days of 2008 as the markets took a dive. Equities have largely bounced back since then, but it was a useful reminder of the value of sound financial advice.
“You see ads for Wealthsimple and roboadvice, but investing is not simple,” Clarke says. “The access to information is everywhere, so it can get confusing, especially if you turn up the volume. There’s a lot of noise out there, so if you can find an advisor who can help cut out the noise and keep you focused on a clearer path, that’s where there is value in advice.”