So What’s The Job?

I started the next stage of my career this past Monday as Senior Vice President with Pro-Financial Asset Management. Pro-Financial Asset Management (PFAM for short) has a number of divisions: 1) Index Mutual Funds, 2) Hedge Funds, 3) Closed-End Funds, and 4) a Private Client Division.

I mentioned that the move might seem paradoxical but there is a method to my madness. When we first started talking, I made it clear that the only way that I would consider giving up my license to advise individual clients would be if certain conditions were met. Essentially, I decided to write a wish list of what I would think would be an ideal job for me.

I Asked For The Following

1. To write a blog for the company that educates investors about personal finance, discusses the active versus passive management debate, and explains how the industry works (including explaining the exact nature of commissions). While the blog for investors will have copious amounts of information about fundamental indexing as well, I will do my best not to ram it down people’s throats as I think it has appeal without having to “sell” it, rather the focus will be on educating the consumer. If they choose to do it themselves with ETFs, I have no problem with that. If they choose to use an advisor they may then want to consider the Fundamental Index funds. There may be duplicate content between this blog and that blog, and hopefully I can get some of the personal finance bloggers to contribute as well.

2. To write a second blog for advisors. This blog will provide advisors with support materials, more detailed information (i.e. more technical) and I will strive to keep most of the content available to non-advisors who may also be interested in the information. This site will hopefully serve as a reference for advisors who are open to learning more about promoting transparency, openly and objectively discussing the merits of both passive and active management, and are looking to for ideas on how to potentially transition their practices to follow this approach if they agree with it.

3. To re-do the company’s website – and to fully incorporate the blogs prominently.

4. To retain the ability to keep writing this blog and to speak my mind as I wish without restriction or worry.

5. Assist in product development. They are considering launching a closed end fund based on the post I wrote about the Reverse Dispersion Equity Collar which essentially combines indexing with buying put options and selling call options to create a low cost equity index investment with capped downside performance. That article was recently published in Advisor’s Edge Report – an industry trade magazine. I have also discussed the idea of mutual funds that drop the MERs after the service fee has paid off upfront commissions for DSC funds – in order to reduce fees for the investor.

They Asked For The Following

1. Traditional Wholesaling – to speak to advisors directly to introduce the Fundamental Indexation methodology. I will be working with advisors in Ontario (Scarborough eastwards), Quebec and British Columbia. The bonus for me is that my parents live in Vancouver so I may be travelling to BC as much as one week per month in perpetuity. I can’t tell you how deaf my mother made me when I told her… :)

2. Engaging the media and further promoting the dissemination of the merits of passive investing.

3. Thinking outside of the box and stirring the pot – no problem, boss!

Conclusion

To address the points I made in Part I:

1. Most Investors Will Need An Advisor – given that most advisors cannot sell or advise on ETFs, having an indexing product available in a mutual fund form will allow for many more advisors to provide competitive indexation products.

2. Active Management / Passive Management –  as mentioned, I’m not going to tell advisors what they should do – their role is to figure out what is best for their individual clients. I will, however, promote the message of considering that “active and passive” may be more prudent than looking at is as “active versus passive”. My guess is that this will be a more of an olive branch and once more people start indexing, perhaps it will further gain traction in the advisor channels…

3. Financial Advice Delivery Models – We will openly discuss the various types of advisors and compensation structures that exist in the industry to further educate investors on the choices available to them. Changing the predominant delivery model is no small task, but for now I can certainly intensify the discussion and raise awareness.

4. Education – addressed by the proposed blogs for the most part, but I would like to further raise awareness of all the great educational resources available to investors today – like Ken Kivenko’s Canadian Fund Watch and Warren MacKenzie’s Second Opinion Investor Services, in addition to all the great personal finance blogs out there.

So in the end, as as corny as it may sound, I really do want to make a difference to the financial services landscape in Canada and I think this new role will accomplish the most amount of change for who and what I am. The gap between what I think is best and where the industry stands now is huge, and there are many steps and stages we will need to go through before we bridge that gap (if ever) – hopefully this transition is a step in the right direction at the very least… Wish me luck!

Preet