We find out who our clients really are, says PM

Portfolio manager says putting their personality and needs first gives him an edge over bank-owned competitors

We find out who our clients really are, says PM

Chad Larson spends time getting to know his clients, seeking to create a feeling of comfort, clarity and trust. It’s a fundamental approach he believes gives his practice an edge over bank-owned competitors.

The Calgary-based advisor, portfolio manager and senior vice president at MLD Wealth Group, Canaccord Genuity, argues that putting a suitable investment strategy in place for someone is virtually impossible unless you get to know their personality, situation and desired lifestyle.

A recent phone conversation illuminated this point. Seeking a second opinion, the caller told Larson a bank-owned firm had been “all over him” because of his sizable checking account balance and wanted to refer him to its wealth management arm and into a "safe" monthly dividend fund.

Larson said: ““I told me, I know nothing about you. [That scenario] is like someone calling me up and saying, ‘you probably need a shirt’. I heard you have two arms and a torso; I'd like to sell you this great shirt. And by the way, we've been making shirts since 1805 and consistently been ranked ‘best shirt’.

“They do this without finding out who the client is and what they need. The ‘secret sauce’ that goes into the development of our investment strategy and philosophy really starts with identifying who are clients are and what they truly need.”

The industry, he added, is cursed by leading with products, prices and performance, something Larson refers to as the "three bad P’s". Instead, he told WP the people process should come first, setting out exactly what the client wants to achieve.

At MLD, this is done through a process called My Wealth Defined, which includes an element called F.O.R.M., where the advisor and client talk through family, occupation, recreation and money.

Larson said clients enjoy this process because it emphasizes how money is, in reality, simply a tool that enables and solves the first three parts of the equation. Risk scoring and profiling, and approaching these questions through verbal and visual means, has proved an effective way for the firm and client to discover how they want to move forward.

Larson explained: “They’re great learning moments for us and for the client to say, well, you’ve tolerated risk and you'd like growth in your portfolio but everything that you've done here tells me you're really resistant to the opportunity or possibility of losing money, and you're very conservative.

“It’s a psychological phenomenon. There's always a gap between our ideal self and our actual self.”

Once Larson and Co. have a better impression of their client’s hopes and dreams, investment philosophy takes centre stage. This begins with a macro view of the world, quickly deciding where “there are clouds and where there is sunshine”, where there is potential risk for natural disasters and, from an equity and fixed income perspective, which geographies they are overweight or underweight.

Larson told WP this is often relatively generic and easy to access, which does not necessarily mean it’s bad. However, the portfolio is elevated by other parts of the recipe, namely high liquidity and low cost.

He said: “Building a core in and around highly liquid low-cost ETFs allows us to gain market exposure and take market exposure off very quickly, cheaply and tactically. I like to create a portfolio with blocks of market exposure that way.

“Then, through the selection of individual managers, individual products and individual securities, that gives us the ability to add a tactical layer or tilt to different styles, whether its value or growth or momentum, or mezz debt or distressed debt. Whatever cycle the economy is in, these different styles of investments perform differently.”

Sector rotation is also an important element, while a cornerstone philosophy of MLD is a large weighting on real assets, infrastructure and private equity, asset classes that remain under-represented to retail investors.

Larson said it’s vital to keep a handle on liquidity but that these assets add alpha and, crucially, bring down volatility. It helps keep control on client behaviour and imprudent reactions to the gyrations of the economic cycle.

Typically, when clients feel like they're doing well, and they've got lots of money, it's at the time of peak financial risk. At that time, they feel smarter than they are and start to do “stupid” things. The inverse is true: at the bottom of the market, where there's peak financial opportunity, they shepherd their cash.

Larson said: “It comes back to having a deep understanding of who the client is, what they can do, what they can't do, and making them comfortable with the process. We all know over time, academically, markets go up and the facts remain that 90% of people underperform the markets.

“It's not just because of high fees and people like myself, it's because emotionally, they're getting on and off the roller coaster all the time.”