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Investment Ideas Want to be a better investor? Think of yourself as the CEO

Tom Bradley is president of Steadyhand Investment Funds Inc.

Much has been written about the flaws of the investment industry. Recently Michael Lewis stirred the pot with his book about high-frequency trading called Flash Boys. In this space, I've talked often about high fees, complex products, unattainable promises, and an emphasis on sales over advice. The industry is so focused on asset gathering, compensation and corporate profitability that client returns are often a secondary consideration.

But for every few columns I write about poor business practices, I need to write at least one about another impediment to better returns: the client. It's not politically correct to talk about it, but too many investors in Canada are letting the side down. They've abdicated all the control and decision making to their adviser or portfolio manager. They're going along for the ride as a passive, only slightly interested passenger, and are quick to blame someone else when their returns are suboptimal.

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Indeed, not enough attention, and blame, is focused on: Who hired the adviser? Who invested without an overall plan? Who didn't ask what they were paying? Who approved, or even encouraged, the move to "get out of the market," go "all precious metals" or "never own anything in the U.S."?

In a report on investor behaviour that my firm published last year (Five Essential Elements to Being a Better Investor), we tried to draw attention to this shortcoming by titling the last section, You are the CEO.

Yes, when it comes to your retirement portfolio, you are the boss, whether you like it or not. It's up to you to set reasonable objectives and hold your team accountable for reaching them. You're responsible for hiring, monitoring and occasionally firing the people you're working with.

A good CEO watches revenue (returns) and expenses. She knows that if her manager can't clearly explain what he's doing, then he doesn't know what he's doing. When her calls aren't returned right away, she's knows she's not an important client. And a good CEO is sensitive enough to know that if her suppliers hesitate or obfuscate when asked about fees, then there's a problem with the value proposition.

What's interesting is that most CEOs have limited choices when it comes to staff and suppliers. Canadian investors have a never-ending list of options.

Being the CEO of your portfolio means asking your adviser the hard questions. At least a portion of your review meetings should sound like a budget meeting, or a division manager reporting to head office. How have my returns been? How do they compare to my long-term target and the competition? What's on track and what needs to be improved? What did it cost me to produce the returns, and are there opportunities for savings? Are you recommending any changes?

From one CEO to another, let me suggest that a minimum commitment to managing your retirement assets should look something like this:

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  • Spend time up front to determine what your long-term asset mix is going to be. You have to have a plan.
  • Do a thorough review of your entire portfolio once a year.
  • At least one other time, go through your account statement(s) thoroughly, and read your provider’s quarterly report.
  • Meet your adviser/manager once a year, or attend a group presentation.
  • And most important, ask lots of questions. The more you ask, the more revealing the answers will be.

Keep in mind, I'm throwing you a lob ball here – this is a bare minimum.

So yes, the investment industry deserves a scolding, but so do individual investors. They need to get with the program and realize this is one of the more important things they do. It's time they knew more about their portfolio than their cellphone plan or workout schedule. It's time they demanded better value for their time and money, and stopped tolerating mediocre results.

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