#5 Discretion Is The Better Part Of Value
Consumers can be forgiven for being confused about the roles of various service providers within the financial services industry. Indeed, the Canadian financial services industry has done a poor job of communicating with investors regarding the differences between Investment Counsellors, Financial Planners, Mutual Fund Dealers, Stock Brokers and Insurance Brokers/Agents.
An Investment Counsellor provides discretionary portfolio management services in order to meet the unique needs of individual and institutional investors. An Investment Counsellor's only business is to manage portfolios and advise clients on a fee-for-service basis. While the investor's assets are managed by the Investment Counsellor, the securities are actually held under a separate trust agreement, usually with an independent trust company licensed to conduct business in Canada.
Discretionary management is a distinguishing feature of an Investment Counsellor because only registered Investment Counsellors have the education and experience required to obtain this level of licensing under the various provincial Securities Acts across Canada. Other types of service providers within the Canadian financial services industry are licensed and governed by self-regulating bodies (SROs), such as the Investment Industry Regulatory Organization of Canada (Stock Broker/Dealers) and Mutual Fund Dealers Association (Mutual Fund Dealers, Financial Planners) and Investment Funds Institute of Canada (Mutual Fund Companies).
Another attribute that differentiates Investment Counsellors from other providers is membership of the majority, if not all, of their portfolio managers in the CFA Institute, a highly respected international organization that supervises the strict ethical conduct and professional standards of its members. This organization also bestows the Chartered Financial Analyst (CFA) designation.
As mentioned above, Investment Counsellors charge for their services on a fee-for-service basis. Compensation is never contingent upon the number or value of transactions within the portfolio or account. This approach often leads investors to believe that Investment Counsellors are more expensive to retain than other types of investment service providers. Usually, the opposite is true. In fact, sales commissions (front-end, deferred sales charges), high mutual fund MERs (management expense ratios), hidden or explicit trading commissions, and other "administration" charges usually result in investment management costs that are higher than the fees charged by Investment Counsellors.
Need proof? Contact a Portfolio Manager at Mawer to learn why Discretion is the Better Part of Value.
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