Managed Money: putting specialized expertise to work for you
News
CJEM 2000;2(2):128
Money is a singular thing. It ranks with love as man’s greatest source of joy. And with his death as his greatest source of anxiety.
– John Kenneth Galbraith
Today’s investors face a different world than their parents did. The explosion in information technology has expanded their investment horizons to virtually every corner of the globe. New products vie with old-familiars, fresh investment approaches fill reams of financial journals, and disciples of innovative management techniques expound their views on ubiquitous TV money shows. Financial management became the "plastics" of the nineties.
The breadth and complexity of today’s investment opportunities are staggering, and investing in today’s fast-paced environment requires more specialized knowledge than ever before. Investment portfolios that were reviewed quarterly may now need more constant attention. And Canadian investors are particularly vulnerable.
Canadians are now wondering how to best invest their growing assets. A relationship with a stockbroker, financial consultant or planner solves some of their problems, but not all. Even these professionals have trouble keeping abreast of new financial developments and techniques. That’s why many Canadians are turning to "managed money" for some or all of their portfolio administration.
What is "managed money"?
Managed money is a process that turns investment decisions in your portfolio over to a professional money manager. Generally available through major brokerage firms, it allows individual investors to invest with Canada’s leading money managers. For investors with $100,000 in investable assets, managed money provides access to professionals who normally only service accounts of $1 million or more. Instead of being transaction-oriented, this type of portfolio management is available for a single all-inclusive management fee, calculated as a percentage of assets under administration. These fees generally range from 1% to 3% and are tax deductible.
How does managed money differ from mutual funds?
Mutual funds provide some of the benefits offered by managed money, but there are important differences between the two, and important reasons why managed money is sometimes a better choice. For starters, when you acquire a mutual fund, you buy into the existing tax liability of the fund for the year in which the purchase was made. If they have sold stock for a gain, your pro rata share is allocated to you at year-end — regardless of the date you actually invested.
The fees incurred with each type of investment are about the same, but a money manager will read and comply with a client’s investment policy. Furthermore, money managers can act as fiduciaries (for pension funds and the like) while mutual funds cannot. Money managers also segregate each client’s assets.
But the most important feature of "private label" managers is their superior performance. October’s Stangers Investment Advisor published a study of 70 such equity managers. As a group, they significantly outperformed the average no-load equity fund, even after fees were taken into consideration.
Why are Canadian investors turning to managed money?
- Managed money is straightforward and understandable.
- Investors know what to expect. All costs are clearly and fully disclosed up front.
- Money managers’ performances are quantifiable.
- Major brokerage firms can evaluate and select outside investment managers in an objective, professional manner.
- Brokerage firms are diligent in matching outside investment managers to the needs of individual investors.
Professional money management is no longer just for the investment élite. Now every Canadian with $100,000 to invest can benefit from dedicated, comprehensive investment consulting.
Chris DeRuiter
Financial Consultant
Merrill Lynch Canada Inc.
Ottawa, Ont.
chris_deruiter@ca.ml.com
