The Canadian wealth manager, with some $14 billion client assets, is the largest privately-held firm of its type in the world’s second largest country, and its footprint extends to all of Canada’s major economic centers. “Richardson GMP believes in the future of discretionary management:  approximately 45 per cent of its advisor teams have licensed portfolio managers. And the firm is planning to grow this share,” says Porter.

“As an industry I think the overall share of discretionary managers is much smaller , but I would like to see it in the majority because it’s transparent,” he tells FWR.

However, he concedes it’s not right for all clients, and not all his own clients are discretionary. Some have very specific investment needs – such as a widow who requires a 100 per cent liquid, safe portfolio – and there is also a client minimum at which it makes sense as an investment option.

“I think it makes sense for clients with at least $500,000 in liquid, investible assets and who are looking to grow that to seven figures,” says Porter, although he thinks some firms would call that figure “too low”.

“The service has a minimum cost but that’s tiered, and there’s a critical mass at which it makes sense, and as you grow the assets it makes more and more sense.”

He adds that it is particularly well suited to clients such as CEOs who are extremely busy, or who have accumulated assets over their lifetime and want to focus on personal goals such as family, health, travel and personal projects.

A documented process

Discretionary management works “very much like a pension plan,” says Porter, and at its core is the client’s investment policy statement , documenting their risk tolerance, investment boundaries and goals. These statements are not autonomous across all companies; there’s a regulatory minimum level of information but firms can expand upon that.

“You can make them client friendly. There’s nothing worse than a confusing document,” says Porter.

Based upon this, managers are then audited internally every 90 days and externally annually. His comments on the IPS and the auditing procedure may address some recent criticisms of discretionary management made by the research firm MyPrivateBanking, which claims there are fewer disclosure requirements in place compared to for the mutual fund industry, despite similar powers lying with the manager.

“If you achieve that licensing, which is difficult to get, there’s a great onus on the firm to make sure you’re maintaining these standards,” Porter explains.

This offering used to be limited to institutional and the wealthiest of individual clients but as more managers have become licensed, as awareness has grown, and technology has advanced, client minimums have come down, says Porter. 

Porter describes the IPS as providing “speed limits” and optimal targets for managers to work around, as well as putting clients’ expectations and investment goals in writing. As many clients have been burned and let down by the wider industry in the past, he believes the precedence that documentation and auditing takes in discretionary management means it provides a good alternative.

“It’s all about the client”

However, taking a lot of the day-to-day management off clients’ hands does not mean they should not be aware of what is happening with their wealth. But because the process means transactions can be implemented across portfolios – according to their IPS and the decisions of a manager – without time-consuming calls to each client, Porter says this frees up a lot of time to communicate proactively rather than reactively to clients.

He points out that this is also a great equalizer in terms of the way you treat clients. At Richardson GMP, Porter says the portfolio management platform allows him to execute trades in all client accounts at the same time ensuring all clients get the same price.

“Advisors who have to call various clients to make changes to their portfolios without discretionary management find themselves in a situation where different clients receive different prices, and where you end up spending more time with the ‘squeaky wheel’ clients who demand it.”

“It can provide a scalable process to communicate to clients proactively. And that is so critical – no matter how good your investment strategy, you have to communicate,” he emphasizes.

His opinion on this is broadly backed up. In March a Spectrem Group survey found the number one reason the wealthy fire their advisor is not returning phone calls in a timely manner, and communication featured highly among HNW individuals’ priorities from their advisors.

Porter’s own strategy is to develop an internal client service model which puts “a defined process in place,” to meet and talk with every client on a regular basis and ensuring no client ever “slips through the net.”

When asked whether he thinks discretionary management can help clients avoid the pitfalls of psychologically-driven investing, Porter replies: “I don’t just think it can, I can give you plenty of anecdotes!” This is important as a recent Cass Business School study found that a typical balanced portfolio could forsake 1.2 per cent per year due to emotional decisions.

He says that not only does it provide a buffer between clients and their investments, it gives them an assurance that their affairs are proactively managed, which helps to combat what is known as the “action bias” in behavioral finance – where investors feel compelled to “do something” just to reinstate control in times of stress.

Summing up, Porter says the service is comparable to having your own fund manager, but he adds this doesn’t mean it’s the same as, or a challenge to, the mutual fund industry: “The mutual fund industry is a very strong industry, especially in terms of marketing power and brand, but it has a different focus – my focus is on clients.”