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A Burgundy asset management investment team at The Cheung Kong Graduate School of Business in Beijing. (Cheung Kong school/Burgundy/Cheung Kong school/Burgundy)
A Burgundy asset management investment team at The Cheung Kong Graduate School of Business in Beijing. (Cheung Kong school/Burgundy/Cheung Kong school/Burgundy)

Wealth Management - Portfolio

Investment options open up to those with a million to spend Add to ...

Despite recent dark times, more Canadians than ever are getting rich. According to Investor Economics, a financial services research and consulting firm, the number of millionaires in Canada is set to double in the next seven years, and the group of individuals with $500,000 to $1-million in investible assets will grow by 91 per cent at the same time.

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With all that money burning a hole in their (Versace) pocket, these freshly affluent people face increasingly complex issues. Now that they’ve grown all that wealth, how do they hang on to it? And what kind of investment possibilities open up that they couldn’t access before?

“There’s a complexity and sophistication regarding taxation and estate planning that arise once one is at a certain level of wealth,” says Katie Walmsley, president of the Portfolio Management Association of Canada. “Trying to do it yourself may be fine for some, but the majority of Canadians, and especially those new to wealth, are looking for expertise to help in preserving that wealth and making the most of that for their future.’

Most critically, high net investors want a customized approach to their portfolio and closer communication with their investment counsellor.

“For the most part, these people are leaving the mass market kind of investments and entering this world of a direct relationship with the people who manage their money, which is one of the things that really describes private investment management,” says Rob Barbara, senior vice-president of Burgundy Asset Management Ltd. and a managing director at Beaujolais Private Investment Management. “There’s no longer a requirement to go through a distribution channel whether it be brokers, financial planners or mutual funds. It allows you to work with the people who work with the money.”

Burgundy caters to private Canadian individuals and families with $3-million or more to invest while entry to Beaujolais is set at $500,000. The average Beaujolais client has about $1-million of investable money available.

“Our job is to build their wealth over time but through a capital-preservation-first strategy,” says Mr. Barbara. “If they’re also on the side of accumulating wealth, that’s great. Through Beaujolais, we have clients at all phases of their lives, but generally we see professionals, as well as small- and medium-sized business owners, who are five to 15 years away from retirement.”

One major change for new high-level investors is that they may suddenly be able to buy into investments that were previously inaccessible – if they can meet the minimum buy-in and become qualified as an accredited investor. To do that, they must pass a combination of tests based on their income, financial or total assets.

“As soon as you do, custom-tailored pooled funds and hedge funds open up to you that are not available to the mass retail market,” says Ms. Walmsley. “Security regulators put limitations in place because these investments are considered more complex and, in some cases more risky, so the regulator feels individuals should have a certain amount of assets to take those risks.”

International investments in emerging markets that would be hard to access as an individual are further options that may open up for high-worth private clients. Burgundy/Beaujolais claim a very strong international capability with a team of investment managers that scours the world for opportunities. While not all clients are the same, Greg Dowdall, a managing director and investment counsellor at Beaujolais, says a client with a decent runway of more than 10 years before retirement would typically have more than 50 per cent of their assets invested internationally in a Burgundy or Beaujolais portfolio.

“When you deal with a private investment management firm willing to do the legwork and actually travel to places like China, Brazil, India and Europe so that they really understand these situations – and not just look at computer screens in their Toronto-based offices – you get access to some of the fastest-growing businesses anywhere on the globe,” says Mr. Barbara. “A good example would be Wal-Mart in Mexico, which is just a fantastic business, expanding at a much more rapid pace than Wal-Mart in the U.S., with management that’s been trained by Wal-Mart U.S., but that’s doing business in a much more rapidly growing country.”

Of course, wealthy individuals with an entrepreneurial bent can always opt to become an angel investor and back a private business at home.

“Like on the CBC television show, Dragon’s Den, there are all sorts of businesses out there that you can’t invest in through the market because they’re not publicly traded companies,” says Ted Rechtshaffen, president of TriDelta Financial Partners, a financial planning firm in Toronto. “But if you have a particular passion, you may come across someone who says, I’ll give you 10 per cent equity in my company, if you invest $250,000.”

Ultimately, the question is how much risk does the investor want to take to achieve all the things they want to do? Investment counsellors need to understand their client’s needs and objectives in order to construct the right asset mix that will help them reach their goals in a way that’s consistent with their comfort zone.

“A lot of the assessment is asking what you want to do with your life,” says Mr. Rechtshaffen. “Build your list and ask how the money can support those things.”

What to do with a windfall

  • Spend some time: “Don’t rush into quick decisions,” advises Ms. Walmsley. “Do some research, talk to people who are current clients and meet with a few firms before determining if it’s the right fit.”
  • Check credentials: Make sure the firm is registered with the Securities Commission to ensure they’re financially sound, have insurance and capital in place, and meet expectations for financial reporting. “There’s a silver lining to the Bernie Madoff and Earl Jones situations,” says Ms. Walmsley. “More investors are doing due diligence. We get calls all the time.”
  • Pay less tax: “If you have a lot of money, there’s a whole other purpose for insurance that has to do with taxes and estates,” says Mr. Rechtshaffen. “Some people take a slice of that wealth and put it into insurance, because in Canada, insurance is tax free.”


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