As discretionary portfolio management (DPM) becomes an integral part of doing business at Canada’s brokerages, these firms are increasing the support they provide to their advisors in this area. At the same time, advisors are increasing their efforts to add this specialization to their skill set.
In fact, 30% of advisors surveyed for this year’s Brokerage Report Card say they have a DPM licence. This is up from 24.7% in 2013 and almost double the 15.2% of advisors who reported having that licence in 2010. As well, 37.9% of advisors say they hold the chartered investment manager designation. That’s up from 33.8% in 2013 and 23.2% in 2010.
“I just finished applying for my licence,” says an advisor with Toronto-based TD Wealth Private Investment Advice (TD Wealth PIA). “That’s where 100% of my business is going.”
Although better technological platforms available for DPM and clients looking for more holistic advice are two big reasons for the burgeoning demand for this practice, many advisors spoke about how DPM is the best way to handle increasingly larger books of business.
“Advisors can’t be on the phone all day, getting clearance for the high volume of complex transactions that large portfolios entail,” says an advisor on the Prairies with Toronto-based BMO Nesbitt Burns Inc. “Discretionary [portfolio] management is more efficient. I think that’s the future of what clients want – simplicity.”
And it appears that company executives and advisors are on the same page about what DPM means for handling bigger books of business.
“The larger books get,” says Alex Besharat, managing director and head of Toronto-based ScotiaMcLeod Inc., “and the more and more regulatory changes come up, frankly, necessitates some way of having a broader perspective across the whole book.”
“We’ve always believed that it’s the next evolution of where the most professional advisors will go,” adds Andrew Marsh, president and CEO of Toronto-based Richardson GMP Ltd. “After 10 or 20 years of working with clients, earning their trust and becoming a professional, the old-school sales brokerage approach starts to get a little tired for both advisors and their clients alike.”
Richardson GMP’s continued focus on DPM – and its flexibility in how advisors run their business – are two big reasons why this firm received the highest performance rating in the “support for discretionary portfolio management” category, at 9.6.
“We’re perfectly comfortable [with] alternative [investments], for example,” Marsh says, “whereas I know a lot of other firms limit the amount of hedge fund or alternative [investment] exposure. We’re also the only firm, we think, that offers our advisors the opportunity to charge their clients performance fees, much like a hedge fund would, under the [DPM] platform.”
Meanwhile, advisors with Toronto-based RBC Dominion Securities Inc. (DS), which was rated at 9.1 in the category, laud their firm’s long-term commitment to having a solid DPM platform.
“This isn’t a brand new area for us. We’ve been in this area for many, many years,” says David Agnew, DS’s CEO and national director, who notes that the fee-based DPM program is the fastest-growing component of his firm’s business.
“We have our third-party, A-plus program, which brings in third-party investment expertise that is fee-based and discretionary. And we also have our [private investment management] program, which is fee-based, discretionary management,” says Agnew, adding that DS advisors oversee more than $40 billion in assets under management in this area.
Given the rapid rise of DPM, it should come as no surprise that some firms are beginning to place greater emphasis on this business. In the meantime, advisors surveyed for the Report Card were vocal about wanting better tools and platforms for their clients’ portfolios.
“What we have now is archaic,” says an advisor in Ontario about TD Wealth PIA’s DPM platform. “This new platform that’s soon to launch will fix that.”
Adds Dave Kelly, TD Wealth PIA’s president and national sales manager: “This is a big area – a focus – for us. It’s certainly one that we’re putting a lot of emphasis on, and making sure we’re providing support for advisors who are interested to move their practice into this space.”
Part of that support will be the new DPM and client reporting system that TD Wealth PIA will be rolling out across the firm by yearend. The new platform will offer more tools for portfolio managers, Kelly says, while the firm also will continue to invest in unified account-management capabilities.
But as with any major change in the brokerage industry, not every advisor is convinced that adopting DPM on a greater scale is the right direction for the industry to be headed in.
“The skill level involved to get that licence isn’t there,” says an advisor in Atlantic Canada with Toronto-based Raymond James Ltd., who cautions that unskilled discretionary portfolio managers could lead to costly, sloppy mistakes. “I’m telling you right now, the bottom is going to fall out of this whole thing. It’s a time bomb.”
He isn’t the only advisor with these concerns.
“I’d hate to make a living doing [discretionary] portfolio management,” says an advisor in Ontario with Vancouver-based Canaccord Genuity Wealth Management. “[Let’s say I] make a lickety-split decision on XYZ; if it goes down, I’d have some explaining to do.”
“We’re uncomfortable with the risks involved,” adds an advisor in Ontario with the Toronto-based CIBC Wood Gundy. “It’s odd that the industry is becoming more risk-averse, but it’s OK with advisors buying and selling securities without the client knowing.”
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