乌鸦传媒

Managed and fee-based accounts continue to grow in popularity. In fact, they are the fastest-growing wealth management option amongst most Canadians. During our many conversations with most people, it is very apparent that some are still confused about what managed and fee-based accounts are all about.

A managed account is a broad term that has been used in the financial services industry to describe an investment account in which the Portfolio Manager has the authorization to use discretion to make trades in your portfolio on your behalf without your verbal confirmation.

A fee-based account means that you pay one single transparent fee, based upon a percentage of the assets you have entrusted to your Portfolio Manager, which includes all your portfolio management services that you receive as well as various financial planning services that are performed by a network of specialists.

These services consider multiple financial needs and can include tax, trust, retirement and estate planning, insurance strategies, and more. Additionally, Investment counsel fees in fee-based non-registered accounts are tax deductible in the year they are paid.

There are various programs offered under the managed accounts umbrella, and this is where the confusion begins.

Regulators – IIROC and MFDA

To understand managed accounts, we must first look at the regulatory environment. The Investment Industry Regulatory Organization of 乌鸦传媒 (IIROC) and Mutual Fund Dealers Association (MFDA) are 乌鸦传媒’s two main national regulators.

Registered Representative

An advisor who is IIROC licenced, and acting as a Registered Representative (RR), must confirm each trade with each of their clients, either in person or over the phone.

Unfortunately, the title Registered Representative does not appear on anyone’s business card. What appears on a financial advisor’s business card is an internal title approved by their firm that reflects the IIROC licencing. Over the years, these titles have evolved from Broker to Financial Advisor, Financial Planner, Investment Executive and Investment Advisor.

Today, RR-licenced professionals at Scotia Wealth Management are referred to as Wealth Advisors. These licenced professionals operating under these titles are authorized to buy and sell stocks, bonds, mutual funds, and most other securities that trade on a stock exchange, e.g., exchange traded funds (ETFs). Again, a RR must confirm each trade with the client in person or verbally.

Mutual Fund Dealers Association

The MFDA is a self-regulatory organization that has 90 members. A member is essentially a dealer that is authorized to distribute Canadian mutual funds. In order for an individual to be licenced under the MFDA, they must be sponsored by one of these 90 mutual fund dealer members.

There are approximately 83,000 mutual fund advisors licensed in 乌鸦传媒. A mutual fund advisor can only offer and buy or sell securities that are approved by their employer/sponsoring mutual fund dealer, and these underlying investments are primarily mutual funds. An MFDA-licenced advisor must also directly confirm each trade with you verbally or in person.

Portfolio Manager

The designation Portfolio Manager is typically granted to individuals who have obtained the required proficiency, such as the Chartered Financial Analyst (CFA®) and/or the Chartered Investment Manager (CIM) designations, and have met the minimum required work experience under the guidance of a senior Portfolio Manager.

A Portfolio Manager is qualified to provide discretionary wealth advice and services. In addition to fulfilling regulatory requirements, financial firms may also stipulate certain criteria prior to allowing their employees to provide discretionary advice or portfolio management services to retail clients.

Examples of these criteria include a clean compliance record, a minimum amount of assets under management and significant investment industry experience (above and beyond the minimum required by regulators). Only a small fraction of financial professionals have obtained the Portfolio Manager designation.

Provided you have opened the appropriate managed accounts, a Portfolio Manager can do trades on your behalf on a discretionary basis. This means that they do not need to confirm each trade in person or verbally like an RR or MFDA-licensed advisor is required to do.

Third-party manager

Although a Wealth Advisor is not able to offer individually managed accounts, as a Portfolio Manager can, in which they select their own securities to create and manage their own model portfolios, Wealth Advisors can offer other types of managed investments through a third party.

Typically, the more individuals who are involved in your account, the higher the fees you will pay. Above, I outlined a simple example of a third-party-managed investment: a mutual fund. All mutual funds are managed by a Portfolio Manager. Your mutual fund-licenced advisor or Wealth Advisor may recommend a mutual fund, but they are not the Portfolio Manager who is actually managing the underlying investments. You would typically not meet with this Portfolio Manager.

Your mutual fund-licenced advisor or Wealth Advisor would provide recommendations on which funds you should initially purchase based on your risk tolerance and investment objectives. After the initial purchase, the role of an MFDA-licenced advisor or Wealth Advisor is to monitor the Portfolio Manager of the fund and, during meetings with the client, recommend whether you should hold, sell or switch out of the fund.

More complex examples of a third-party manager are the various fee-based and managed accounts offered by financial institutions. Third-party managers are often a component of these accounts and can be internally or externally selected.

Different types of managed accounts

Every financial firm has different types of fee-based and managed accounts, which may confuse investors trying to compare options between financial firms. Over the years, I have reviewed the various fee-based and managed accounts at each firm. Even for a Portfolio Manager, it can be confusing to keep track of all the different names of the fee-based and managed accounts!

Below, I have noted some of the account types that I have come across over the years. This is certainly not a comprehensive list and does not include managed accounts from independent investment advisory and investment counsel firms.

To help you understand your options, I will illustrate the different types of fee-based managed accounts and fee-based non-discretionary accounts offered by Scotia Wealth Management. Each of the following programs is subject to minimum investible asset requirements that are specific to each program.

ScotiaMcLeod Investment Portfolios® (SIP)

With a ScotiaMcLeod Investment Portfolio (SIP), your assets are managed on a discretionary basis by 1832 Asset Management L.P., an affiliate of Scotiabank. With 1832 Asset Management L.P., you benefit from experienced investment management with deeply rooted and rigorous risk management and compliance infrastructure. The SIP program has five segregated mandates: Canadian Dividend, North American Dividend, North American Fixed Income, Total Equity, and U.S. Core. In addition to these individual mandates, pooled portfolios are also available. To obtain a SIP portfolio, you must open a specific SIP account. After your account is opened, you would meet with your Wealth Advisor to select the ideal mandate or pool to suit your risk tolerance, growth objectives, time horizon, and other factors.

The Summit Program®

Assets are managed on a discretionary basis, featuring highly skilled third-party money managers managing a wide variety of investment mandates. Each money manager is selected and monitored by Northern Trust Asset Management, a leading investment management consultant firm that conducts ongoing due diligence and monitoring of money managers, investment mandates and funds.

With the Summit Program, you must open a distinct Summit Program Account. The program is a Separately Managed Account and allows you to directly own the underlying securities, which can enable you to mitigate your tax burden. The Summit Program features 20 different portfolios that were constructed to feature different asset classes, market capitalizations, geographies, and investment styles.

Managed Portfolio Program (MPP)

This is a discretionary program that offers you a personally customized investment portfolio managed by an advisor with portfolio management credentials, including academic achievement, industry accreditation and extensive experience serving clients. Y

our Portfolio Manager works directly with you to deliver sophisticated advice and services. He or she will complete a personalized Investment Policy Statement (IPS) for you that clearly outlines the investment objectives of your portfolio and establishes an optimal asset mix to ensure that the balance of cash, fixed income, and equities are suitable for your risk tolerance, growth targets, time horizon and investment objectives.

The Managed Portfolio Program is available to investors with at least $500,000 in investible assets, or less if you are linked to an existing household. Refer to our article “Linking family accounts has many benefits.”

The Pinnacle Program® and Pinnacle Portfolios

This is a family of Scotia Private Pool Funds managed by leading names in institutional and pension fund management from around the world, with the added benefit of institutional insights from one of the top investment consulting firms. Each money manager is selected and monitored by Northern Trust Global Asset Management (NTGAM).

There are 24 portfolios to choose from. In the industry, this is often referred to as a “fund of funds” portfolio. The Pinnacle Portfolio provides exposure to multiple money managers, asset classes and investment styles through a single investment pool. NTGAM designs and monitors your Pinnacle Portfolio on an ongoing basis. Portfolios are rebalanced regularly to offset market fluctuations that may cause asset mix drift.

The benefit of this program is that your Wealth Advisor or Portfolio Manager can meet with you and establish the appropriate funds to invest in. Going forward, NTGAM will manage your investments, not your Wealth Advisor or Portfolio Manager. Your statements will show the various Pinnacle funds. To make changes to the underlying fund, your Wealth Advisor must meet with you to obtain your verbal authorization.

The Pinnacle Program also offers Pinnacle Portfolios. This is a family of fund-of-fund portfolios that invests in units of underlying Pinnacle Program Funds. It provides multi-level diversification in a single investment solution. The underlying money managers are selected and monitored by NTGAM. Regular rebalancing is a key feature of the Pinnacle Portfolios.

Partnership Plus Program

This non-discretionary fee-based program is geared towards clients who primarily value the services of a Wealth Advisor but want to remain somewhat involved in the day-to-day investment decision-making process. Your Wealth Advisor offers relevant, strategic advice that reflects your personal situation and helps you craft your personalized investment strategy and manage your portfolio. However, you ultimately must make the final decision regarding purchases and dispositions.

As you can see, there is an overwhelming array of options for you as an investor. If you’re busy or have limited time to dedicate to your investment portfolio, a solution may be to work with an experienced, dedicated Portfolio Manager so you can spend less time on investment matters and more time on your family, career, or other meaningful pursuits. If you have the time and interest to follow the markets, you can consider a more hands-on approach. I hope this overview has clarified the industry terminology and the various options available to help you find the right investment account for your needs.

Kevin Greenard, CPA CA, FMA, CFP®, CIM®, is a Portfolio Manager and Director, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timecolonist.com Call 250-389-2138 and visit m