Picking the right product for advisors and brokers is a potential minefield as mutual funds take a reputational battering and a plethora of ETFs flood the market.
But getting the right platform and filling it with the right investment vehicles has been vital for Todd Degelman and his team at Wellington-Altus Private Wealth, which has surged through the $5 billion barrier within two years.
In part two of his interview with WP, he described how he thinks the industry is heading towards more widespread usage of the Unified Managed Account (UMA), an account that can contain multiple types of investments, can be automatically rebalanced and currency hedged.
Degelman opts for a mix of active and passive investments – and hunts out superstar managers for his portfolio.
He said: “My rule of thumb is if we can find the Wayne Gretzky of portfolio managers, we’ll put them in the UMA. If we can’t, we’ll buy the cheaper ETF version for that particular area and geography sector.
“So you have a collection of active and passive managers, which I think is a good hedge anyway. I believe last year active management beat passive management so maybe for the additional cost it was the right choice.
“There will be certain years where passive and active will outperform so to have that balance is great to make sure you are handpicking the Gretzkys or all-star managers inside that portfolio and have a process to make sure you fire the bad ones and pick up the good ones. “
In terms of specific products, Degelman acknowledges that the analysis is not his area of expertise so outsources the job to discretionary portfolio manager strategists at National Bank, which Wellington-Altus works with for its independent network.
The strategists produce a two-page fact chart on every single ETF or mutual fund, streamlining the available products.
Degelman said: “I’m outsourcing something I’m not very good at to specialists to make sure we get the best ideas into the portfolio.
“Advisors spend half their time trying to drum up new business or talking to their existing clients, so how much time do you have for research and due diligence and portfolio management – and then you have holistic wealth, which is a whole other division.
“I just look at the strategists as additional members of my team. The might be outsourced and paid on a variable cost system but I am still employing them to provide a service for me that I don’t think I am as good at as they are.”
From a brokerage standpoint, product selection is very much a case of give and take with advisors, recognizing their needs and tastes. Fighting their individuality and clients’ needs is a waste of time, said Degelman, who believes it is more a case of taking the product platform off their excuse list.
He said: “Our job from a management standpoint is to make sure that we give them the greatest tool belts ever to use and let them use the tools that work for them and their own unique design.
“We’ll tell our advisors to go out and compete for that account, you’ll never lose on product or platform –we’ll make sure we arm you with all the tools, services and platform products that you need to make sure that if you lose it, it's because your pitch wasn’t good enough, your service wasn’t good enough, your confidence wasn’t there – but it won’t be because of your product platform. That’s got to be ironclad.”
The UMA, of course, has to be a robust combination of products and Wellington-Altus’s is a pension-style platform designed to catch about 70-80% of the upside and only about 30% of the downside.
Degelman uses autocall structured notes to provide return with downside protection. It’s a useful tool – especially given the markets' lower earnings expectations for 2019 and beyond.
He said: “I can see us having a high single digit to a low double digit return with the good start we’ve had in January - and that’s all because of the pullback in December.
“If there wasn’t a pullback in December, I probably would have guessed at a 5-7% rate of return for 2019. Again we are just guessing and this is predictions but 2020, from what I’m reading, it could be a little less positive than that.”