For Canadian investors with modest portfolios, the old adage “it takes money to make money” rings especially true when the fee model for high-end financial advice is broken down. Advisors’ compensation is generally based on a set percentage of the amount their clients invest. The bigger the portfolio, the smaller the percentage.
Under those terms, it doesn’t take a math whiz to figure out that the best advisors will devote the most time to the biggest portfolios – and the wealthiest investors will pay proportionally less for that advice. But three high-end advisors say smart advisors should recognize the mutual long-term benefit from taking on the right clients, regardless of the size of their portfolios, and those modest investors could get the best advisors if they commit to growing their portfolios.
David Baskin, president, Baskin Wealth Management
With $1.6-billion in assets under management for some of Canada’s wealthiest families, Toronto-based Baskin Wealth Management can pick and choose its clients. The standard annual fee starts at 1.35 per cent on the first $2-million invested, 1 per cent on the next $3-million and clients with more than $5-million can negotiate a smaller rate.
Mr. Baskin couldn’t always be so choosey in his 25-year career as an advisor, but came to the conclusion that the best clients are those who understand market basics, recognize advisors’ expertise and are willing to learn.
“We want our clients to understand why we’re doing what we’re doing and how we’re doing it,” he says.
The types of clients he turns away are those who have trouble dealing with the inherent risk that comes with investing in the markets.
“When the coronavirus hit, or when the [global financial crisis] hit in 2008, [those investors] panic and sell everything near the bottom,” Mr. Baskin says.
He also avoids clients at the opposite end of the risk spectrum – gamblers looking for quick returns.
“We don’t want to be the bookie behind the butcher shop. We want clients who have a well-reasoned investment plan and are prepared to stick with it,” he says.
Mr. Baskin says his strategy is to invest in businesses with the potential to increase their earnings over the long term, which could seem boring to a client who would rather chase popular stocks.
“Their biggest enemy is their emotions. They get excited about things like Tesla or Shopify or Amazon and they inevitably buy it at the top of the market and ride it down when it corrects,” he says.
Kathryn Del Greco, vice-president and investment advisor, Del Greco Wealth Management, TD Wealth Private Investment Advice
Kathryn Del Greco’s basic fee on a $1-million minimum portfolio is 1 per cent, but like other high-end advisors, she cuts a break for bigger clients.
Over her 33 years as an investment advisor, she has found the best client relationships go beyond just investing and include every aspect of their finances, including tax strategies, estate planning and insurance.
“The more open clients are with their circumstances, their willingness to share their story, work with you and let you inside their world, the more we can help them,” she says, adding that it requires advisors to work extra hard to gain a client’s trust.
Ms. Del Greco says a trusting relationship comes in handy during times of market volatility, when cooler heads need to prevail.
“There’s a strong temptation to time the market, and clients have a very strong bias to take action when the market is moving in one direction or the other. Quite often, you’re better off to stay the course,” she says.
A good, long-term client/advisor relationship allows clients to focus on their own lives and lets advisors do their jobs.
“The client who calls every day has a low tolerance for risk,” she says, “and that tells me the investments the client owns aren’t in line with what they need.”
John Zechner, chairman and lead equity manager, J. Zechner Associates Inc.
John Zechner also puts a strong emphasis on having a trust-based relationship with clients.
“Trust has to build up over periods of time,” he says.
Mr. Zechner has been advising clients for 37 years. J. Zechner Associates currently manages more than $1-billion in client accounts. Fees are scaled at 1 per cent annually, starting with a minimum of $500,000.
He says the key to building trust is creating discretionary accounts, which are tailor-made for individual clients.
“They hand over the management and they have to be comfortable with that. If they’re back-checking you too much, it’s to nobody’s advantage. It’s up to the manager to give them a level of comfort so they don’t have to be looking over their shoulder all the time,” Mr. Zechner says.
He also suggests advisors and clients should be compatible on a personal level.
“Sometimes, it’s a level of familiarity or compatibility with your clients,” Mr. Zechner says. “When I was in my thirties, it was harder to relate to people who were retired and what their needs were.”