Putting the portfolio to work for the client

Kent Parker and Brent Woyat, who own and run a Vancouver-based asset-management firm, say their clients appreciate knowing who’s managing their money.

“Because we’re the ones taking care of investment management, our clients can always meet the people who make the decisions,” Parker says.

Parker Woyat Asset Management is a two-year-old independent firm under the Raymond James Ltd. banner. While a team of specialists at Parker Woyat takes care of clients’ financial, tax and estate planning needs, Parker and Woyat focus on investment management and meeting with clients.

The firm has 151 active, non-discretionary accounts, which are, for the most part, commission-based. Another 33 are discretionary, fee-based accounts. There’s no set minimum for the non-discretionary accounts, but a $250,000 floor applies to the discretionary clients.

The pair offer three basic portfolios: an all-equity portfolio for aggressive clients; an enhanced-income portfolio that focuses on asset protection; and a balanced portfolio they’ve branded as “The Best of Both Worlds,” featuring what Parker and Woyat have identified as top exchange-traded funds and undervalued securities. The bulk of assets under management are in the balanced option.

“Our clients tend to be older and concerned about protecting their assets, so we actively manage the downside risk,” Woyat says.

The two hold weekly portfolio-management meetings to look at big-picture issues in the economy and to develop their “playbook” strategy. After arriving at what they feel is the ideal asset allocation, they use quantitative, fundamental and technical analysis to identify undervalued securities and select ETFs or F-class mutual funds. For their all-equity portfolio, they use a purely quantitative approach.

Although Parker and Woyat share duties at the firm, Parker tends to pay more attention to client relationships, while Woyat, who has a background in technical analysis, focuses on portfolio construction.

“In balanced portfolios, turnover is kept low for tax purposes. Gradual adjustments are made when needed,” Woyat says. “In the equity portfolios, rebalancing is more frequent.”

Parker says that a major attraction of taking a portfolio approach is that it allows the pair to watch out for potential pitfalls. When an ETF owned by their clients was set to make a large balloon payment, which would have triggered a negative tax situation for those in cash accounts, Parker and Woyat sold out the position, buying back in or replacing the investment when appropriate.

The pair say their discretionary clients like the all-encompassing portfolio services the two provide. “[Our clients are] delegators. Many of them run, or ran, their own businesses. They know they can’t do everything,” Parker says.

Although most of their clients are 55 and older, Parker and Woyat, who are both in their early 40s, say they see a “great need” for their services among the 35 to 55 age group. They are looking to recruit a junior associate, who would take care of financial and estate planning for clients in this demographic, while Parker and Woyat take care of the investment management.

“Everybody is chasing the 55-plus, $1-million account,” Parker says. “Nobody wants to step up and take the 35 to 55 group. But that’s when planning is most critical.”

For Peter Bennett, portfolio construction helps investors and, for that matter, advisors cut through the clutter.

“Our clients tend to be fed up with chasing returns,” says Bennett, an advisor at Quadrus Investment Services Ltd. in Toronto, who serves about 350 clients. “Our process eliminates a lot of the emotion that both the advisor and the investor feel when constructing a portfolio.”

The process begins with a thorough analysis of a client’s short-, medium- and long-term goals, as well as his or her risk profile and tax objectives. This is achieved using a 16-query questionnaire that’s designed to extract an accurate picture of the client’s investment profile.

“We want to make sure that, at a gut level and an intellectual level, there’s a match,” Bennett says. “If there’s a disconnect, it manifests itself in the construction and implementation.”

Once Bennett and the client have completed the questionnaire step, a computer program offers a model portfolio from a lineup of nine models made up of eight to 10 mutual funds and segregated funds.

@page_break@The funds are spread across six categories: cash, fixed-income, Canadian equity, Canadian special equity, U.S. and international equity, and U.S. and international special equity.

Although the model will suggest ideal funds in each category, an advisor can substitute another fund in the same category. Quadrus offers both proprietary and third-party funds, and advisors and clients are free to select from each.

If an investor finds the model portfolio of eight to 10 mutual funds too cumbersome, he or she can take a fund-of-funds approach — investing in one product consisting of six to eight funds.

At the $100,000-plus account level, Quadrus’ Fusion program, which offers automatic rebalancing at intervals such as quarterly or annually, is available without extra cost to the client.

Bennett meets with clients quarterly in the first year, when handholding is most often needed. Thereafter, he meets with clients who have more than $100,000 in assets two to four times a year. Unless a client’s financial circumstances or goals have changed, he avoids tweaking the lineup of funds.

“I’m very reluctant to make changes, because I’d be second-guessing in terms of the original analysis,” he says. “I have to be confident in the process and in the research.”

If a client’s circumstances change, however, Bennett can provide new analysis and make changes to the portfolio.

Depending on the size and type of account, Bennett receives an annual fee based on a percentage of the assets and, in some cases, a trailer fee from the fund companies. There usually aren’t commissions.

The biggest advantage of the portfolio construction approach, he says, is that it allows the client access, at the retail level, to the same type of discipline often found in pension funds.

“An investment portfolio isn’t a client’s savings plan; it’s their pension,” he says. “Allowing clients access to portfolio construction has been a big innovation.”

Eliminating risk and instilling investment discipline are the two key goals of portfolio construction, says Peter Guidote, and both of those goals appeal to his roster of high net-worth clients.

“They’ve already taken on risk in their lives building up their assets. They don’t want to take on more,” says the first vice president and investment advisor at Richardson Partners Financial Ltd. in Montreal.

For Guidote, that means investing clients’ money — an ideal account size for him is more than $500,000 — with some of the top institutional managers in the world, as well as offering clients access to alternative investments such as hedge funds and private equity funds.

“We try to bring institutional power to retail high net-worth clients within an established portfolio framework,” he says.

Guidote begins with a careful look at an investor’s needs, both short- and long-term. From there, he designs an asset-allocation model with an eye to smoothing out future returns, “mitigating the emotional urge” to make big changes.

Next, he decides whether to construct the portfolio in-house — usually for accounts under the half-million-dollar threshold — or to invest the client’s assets with third-party institutional portfolio managers.

Richardson Partners, Guidote says, continually searches out and performs due diligence on top institutional managers, whittling down from the several thousand in North America to around 30 by applying screens and meeting with managers.

The final part of the process is regular rebalancing, to move investments back to the ideal allocation percentages. “It’s counterintuitive to sell and rebalance. It’s a hard thing to do emotionally. But the structure of our process gives us the discipline to make that decision,” Guidote says.

The process does require that clients commit to focusing on the big picture. When clients call Guidote to tell him they’ve received a hot stock pick, Guidote advises caution, sometimes even suggesting they open an online brokerage account on the side if they really want to satisfy the urge to speculate.

“That’s for your play money. Your investments here are for your serious money,” he may tell them.

Richardson Partners takes a comprehensive approach to managing its affluent clients’ assets, looking at all aspects of their financial situation, Guidote says. He admits new clients can be reticent to buy in completely to the holistic financial planning and wealth-management approach.

“From our experience, there are some clients who start out slowly. They need the time to get to know you — to see you deliver on promises,” he says. “Eventually, they see the merit in the process.” IE