When I started in this business, I thought my job was to find the best stocks. Stocks that performed better than other peoples stock picks. After all that was the role of a stock broker. That was the role played out in movies like “Wall Street”. The role of picking stocks is old and reminds me of the role of a Neanderthal knuckle dragging mammal trying to build fire and find food. Almost 20 years later, I find I am surrounded by stock brokers that still try and find the best stocks. There are knuckle marks all over the hallways of the tallest buildings in finance.
Change has taken place in many areas we deal with on a daily basis, yet for many, there has not been significant change in their investment portfolio or philosophy.
Owning a portfolio heavily weighted to Canadian dividend paying stocks is not accepted as a well-diversified portfolio anymore. Actively trading a few stocks with highly concentrated positions is not accepted as good portfolio management anymore. Having an advisor trade stocks because their “spidey sense is tingling” is not accepted as efficient security selection anymore. Times have changed and if your broker is still acting in this way then you should really question the advice that you are receiving.
A broker that tells her clients that her “spidey sense is tingling” is a stretch. They are actually looking for revenue trades. Trades that could be completed not to benefit any clients but to bolster her revenue or income. Now the industry has changed a lot and continues to change, fees are becoming more and more transparent and there is a general push towards fee based arrangements rather than traditional transactional arrangements. A fee of 1% is acceptable, a fee of 2% is not.
To focus on picking stocks is to live life as that knuckle dragging Neanderthal trying to build fire. Just as there has been evolution of many areas of our society there has been an enormous evolution in investment advice and portfolio management.
Investors have a right to be offered proper planning, planning not focused on selling a product but instead focused on what is important to you that requires planning, money and time that you want to accomplish in your life time. Planning has evolved, previous planning was probably being done to offer some perceived value or sell a product based on creating a need. Investors should have access to proper planning.
Investors should demand efficient portfolio management. The days of “buying” a few Canadian bank stocks, pipelines, and utilities should be replaced with the days of focusing on asset allocation, being properly diversified and if your broker ever uses the term “spidey sense”, you should run!
Investors should demand reasonable fees. “Revenue trades” are not good for investors. Working in a fee based arrangement with negotiated reasonable fees is what should happen. There has a been a great deal of evolution in fees and fee disclosure. If investors think that they are not paying fees then they might want to question how the broker they work with pays the rent?
By our definition broker refers to Neanderthal-like stock trading. Wealth management refers to modern and efficient planning and execution.
Happy investing!
Colin Andrews, The CM Group