Clients may assume that advisors manage their own investments. But is it better to have an outside view to avoid tunnel vision?
Is it better for advisors to manage their own investments? Or is it better to have an outside view to avoid tunnel vision?
At 25, Tahnya Kristina (a pseudonym) started as an advisor for a Montreal bank. She managed affluent clients and was rewarded for her sound advice with a six-figure salary. But when it came to her own money, her management skills were abysmal.
Within four years as a CFP she found herself with no savings, zero assets and over $50,000 in debt. When the market tanked in 2008 and commissions dried up, she considered personal bankruptcy.
“For financial advisors, if you are too busy to manage your own money then somebody should be doing it; if you don’t have the time to manage your own money, or you don’t want to do it, you should have an advisor,” said Kristina, who is now debt free.
“I’ve seen financial advisors who have $30,000-$40,000 in cash in a bank account,” she says. “If they saw a client who did that they would never let that happen, but because they are too busy, or they don’t want to make a decision, or who knows what reason, they end up making mistakes with their own money.”
Kristina’s case is extreme, but it opens the question as to whether advisors should themselves seek financial advice. If an advisor is confident enough to manage his or her clients’ money, they should be responsible enough to take control of their own finances. But even a top-performing advisor may have good reasons to seek help: an outside expert perspective may be of benefit, it may free up time to deal with clients, or perhaps ceding control could free an advisor from compliance issues.
Koel Loyer, associate portfolio manager and senior associate with Stonegate Private Counsel in Toronto, tries to have things both ways: he manages his own portfolio but meets regularly with his partner where they reciprocally review each other’s investments.
“I manage my own portfolio, as does [my partner], but we’re fortunate as we’re a two-person team so we review our portfolios with each other so that we’re able to get each other’s take and opinion,” he says. “It’s like the best of both worlds: I’m managing my own but every six months I sit down with Joanne and review my stuff, and on hers we meet on it quarterly.”
But overall, Loyer finds that clients are reassured knowing that he manages his portfolio the same way he does for theirs: “It shows confidence and a lot of our clients will ask if our assets are the same way our client’s assets are, and we can say ‘they are managed 100% the same way’ because we have the same type of portfolio programme.”
Drew McIntosh, an advisor with BMO Nesbitt Burns in Calgary, has his own reasons for managing his own account.
“I believe that if an investor has their own skin in the game it speaks volumes to their clients that they have confidence in their own ability,” says McIntosh. “That being said, I tend to invest in things that are completely different than what I invest in for my clients, taking on a little more risk.”
Another important reason for his choice to self-manage, is that he can avoid regulatory red tape. “If I’m caught in a position where I need to liquidate something, according to IIROC regulations I would have to notify all of my clients that I were liquidating my position, even if I still believe in that position and want to continue holding it for a client.”
McIntosh also avoids investing in securities that BMO doesn’t cover or invest in. “If I’m caught in a position that I want to liquidate just for liquidity or to capitalize on gains, and all of a sudden our research department makes a recommendation, I would be restricted from selling it.
“I just go outside the box and invest for myself in things my firm doesn’t cover and in things that I wouldn’t invest in for my clients, that eliminates any conflict of interest.”
That said, McIntosh believes there could be an advantage to having someone else manage his money: “I think there would be some merit in having another advisor managing your money; It’s like the mechanic that drives the worst car, you’re always taking care of your clients so you fail to take care of yourself.”