High net worth investing

Back in 1985, you had to have $10 million dollars to invest directly with a portfolio manager. Ten years later, that amount dropped to about $1 million dollars. The big driver of this change is how technology has impacted the investment world. Because of computers, trading and market efficiency, managing money has become much more efficient than ever and as a result, professional portfolio management has become more accessible than ever.

In fact, the most common ways to access professional money management is through mutual funds with as little a $50 in some cases. A mutual fund is simply a pool of money where investors buy shares of the pool. A professional manager who theoretically has more knowledge, expertise, resources and tools to make good investment decisions then manages the pool.

Nowadays, mutual funds get a lot of criticism for their fees and the fact that everyone who invests in the pool is treated the same as anyone else. Investors with higher balances are demanding more and looking beyond the world of mutual funds for more options.

Investment Counsel Portfolio Management (ICPM)

According to John Davis, Financial Advisor for Blackburn Davis Financial, “An Investment Counselor, Portfolio Manager, Intuitional Investment Manager or Private Client Money Manager makes discretionary investment decisions for your assets based on established goals and constraints. Typically, an investment counselor provides more personalized, better quality advice than is available through a broker, bank, or mutual fund, at a much lower cost.”

Davis helped me understand some important differences between ICPM and mutual funds:

  1. Ownership. With ICPM, you typically have a segregated account. As a result, your money is managed differently than anyone else allowing for greater customization. With mutual funds, you own units of one large account and your money is being managed just like everyone elses. By having a segregated account, you can fire the manager without liquidating the assets.
  2. Transparency. With mutual funds, the fees are all bundles into one figure called the MER. The MER is kind of like a closed box that includes commissions, marketing and operating costs. With ICPM, all fees are an open book. Everything is disclosed and you will know exactly how much the advisor gets paid.
  3. Lower Fees. In my mind, one of the biggest benefits of ICPM is the cost savings to the investor. The average MER for all mutual funds is 2.5%. In most cases, an ICPM account starts at 1.5% and goes down, the more money you have. On a $500,000 account, that’s a $5000 per year savings in fees. That’s a lot of money. Compound that savings over time and you are talking about big bucks
  4. Tax deductibility of fees. In the mutual funds world, you might pay on average 2.5% per year for fees but that fee is not deductible. With the ICPM platform, not only are you going to pay a lower fee but that fee is also tax deductible
  5. Tax efficiency. Tax efficiency only applies to accounts outside the RRSP. With the ICPM platform, all gains and losses are personal and individual. If you need some losses in a year, you can talk to the portfolio manager to see if there are specific tax strategies within your portfolio. In the case of a mutual fund, there is no room for personalized strategy because everyone shares in the same losses and gains
  6. Liquidity of holdings. In large mutual funds, liquidity of holdings can become an issue. In some cases mutual funds have taken 130 days to sell off a specific holding. With an ICPM account, selling off positions can be instantaneous bcause they do not have the same constraints.

The bottom line is higher levels of money management are more accessible than ever and there are some benefits to these forms of management. If you have $250,000 or more, you may want to explore the benefits of an ICPM platform.

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