Investment Management
As your portfolio manager, we work with you to determine the investment portfolio that is best suited to meet your needs, balancing your return objectives with your risk tolerance. We then take care of the day-to-day investment management on your behalf – buying and selling securities, managing cash flows, and keeping your portfolio invested according to your guidelines.
Our Approach
While many portfolio managers construct portfolios that they hope will outperform the market (a strategy called active management), we offer investment portfolios that seek to track the performance of well-established market indices (a strategy called passive management).
Our approach is supported by historical evidence and academic research that conclude it is very difficult for an active manager to consistently outperform the market. In fact, research shows that the return of well-established market indices outperforms the majority of active managers, especially over the long-term.
Our investment management service is best explained in three parts:
Suitability assessment
Portfolio allocation
Investment policy statement
Account opening at custodian
Portfolio management and automatic rebalancing
Cash management and dividend reinvestment
Monthly account statements
Performance and fee reporting
Regular review meetings
Adjustments to investment policy statement
Assessment
The investment management process begins with us learning about your financial situation, determining an appropriate investment portfolio for your circumstances, and developing an investment policy statement which guides us when managing investments on your behalf.
Before making investment recommendations, we must first understand a client’s financial circumstances, return objectives, time horizon, and risk tolerance. To accomplish this, we work with each client to develop a comprehensive financial plan and an investment risk profile.
Financial plan:
A financial plan is a projection of your income, expenses, income taxes, and investment returns over the course of your life. We encourage you to learn more about our financial planning service.
Investment risk profile:
An investment risk profile is an evaluation of an individual’s willingness and ability to take investment risks, measured across three factors:
- Risk Need: the rate of return required to grow (or preserve) current assets in order to fund future goals.
- Risk-Taking Ability: the amount of investment risk a client can assume irrespective of the client’s attitude toward investment risk. Risk-taking ability is affected by time horizon, the need for liquidity, and risk capacity (i.e. the client’s capacity to deal with a financial loss).
- Loss Tolerance: the client’s emotional and behavioural tendencies around investment loss and investing discipline. Loss tolerance is affected by a variety of factors including risk tolerance (the maximum amount of uncertainty a client is willing to accept when making a financial decision), financial knowledge, investment experience, and risk composure (the likelihood that in a perceived or actual crisis, a client will exhibit behavior in line with their past actions/decisions).
After preparing a financial plan and investment risk profile, we have the information needed to recommend an appropriate investment portfolio allocation for the client. We offer a range of model portfolios designed to accommodate a wide range of client circumstances and risk tolerances, with each model portfolio constructed in line with our investment philosophy.
Our investment philosophy:
We believe in passive investment management, a strategy that attempts to track the returns of established market indices rather than attempting to beat the market by selecting individual securities, moving in and out of financial markets, or switching between asset classes. We believe that a passive management strategy provides the best opportunity to maximize long-term results while simultaneously reducing complexity and costs. To implement this strategy, our model portfolios invest in low-cost exchange-traded funds (ETFs) that provide broadly diversified exposure to a variety of asset classes including cash, fixed income (bonds), and equity (stocks). Certain models can also include a small allocation to gold. We also believe that a client’s portfolio allocation should not be influenced by temporary market fluctuations, but by long-term capital market assumptions, their investment objectives, risk tolerance, investment constraints, and personal circumstances.
Asset classes:
Accounts are invested in a variety of asset classes, with the amount invested in each asset class determined by the model portfolio assigned an account. We currently invest in the following asset classes, although not every asset class is included in every portfolio:
| Equity (Stocks) | Fixed Income (Bonds) | Alternatives |
|---|---|---|
| Canada | Canada – Universe | Gold (optional) |
| United States | Canada – Short-term | |
| International – Developed | ||
| International – Emerging | ||
| Global – Low Volatility |
Model portfolios:
Our model portfolios are constructed based on long-term capital market assumptions (which are typically revised annually) and our professional judgement. Model portfolios are ranked on a 10-point risk scale, representing each portfolio’s allocation to equity. For example, a portfolio with a 30% allocation to equity is assigned a risk level of 3 while a portfolio with a 60% allocation to equity is assigned a risk level of 6. The holdings within a model portfolio are further customized based on the client’s account type (e.g. RRSP vs. TFSA vs. non-registered) in order to improve tax-efficiency where possible. For illustrative purposes, the asset allocations for three of our model portfolios are presented in the charts below (hover your cursor over a chart to reveal asset class and allocation detail):
Risk Level 3 | Risk Level 6 | Risk Level 8 |
|---|
Risk Level 3 |
Risk Level 6 |
Risk Level 8 |
To learn more about our model portfolios, we encourage you to book a free introductory appointment.
An investment policy statement outlines our management approach and a summary of principal terms that we will abide by in managing client accounts. It is developed collaboratively with each client, incorporating aspects of their financial plan and investment risk profile. An investment policy statement outlines the model portfolio allocated to each account and the target allocation for each asset class within the portfolio.
Client-specific guidelines will also be listed, including the client’s:
- time horizon,
- liquidity needs,
- tax considerations,
- legal or regulatory considerations, and
- special circumstances.
When first engaging High Level Wealth Management, a client may have a need to retain certain investments (referred to as “legacy assets”) in their accounts that fall outside of our model portfolios. We can typically accommodate these requests, and the client’s investment policy statement will make note of the legacy assets.
Management
Once an initial assessment is complete, this phase involves opening accounts at a custodian and managing investments on your behalf according to your investment policy statement.
Once a client’s investment policy statement has been approved, it is time to open the investment accounts that will be managed by High Level Wealth Management. As a portfolio manager, we are authorized to manage investment portfolios but we are not the entity directly responsible for the creation/maintenance of the accounts or the safekeeping of securities within them. That responsibility falls to a registered investment dealer, also know as a custodian.
A custodian is responsible for:
- Opening new accounts and processing account transfers from other institutions.
- Safekeeping of securities within accounts.
- Processing cash transfers to/from accounts.
- Execution and settlement of trades within accounts.
- Providing online access to clients via an investor portal.
- Preparing monthly account statements.
- Preparing annual tax statements.
The custodian of our clients’ accounts is Fidelity Clearing Canada, with whom we have an agreement enabling us to efficiently open new accounts, add/update beneficiary designations, and execute trades. As a client of High Level Wealth Management, you will also become a client of Fidelity Clearing Canada when you open an investment account.
About Fidelity Clearing Canada
- Investment dealer registered in all Canadian provinces and territories.
- Member of the Investment Industry Regulatory Organization of Canada (IIROC).
- Member of the Canadian Investor Protection Fund (CIPF).
- Administrator of accounts totalling more than $25 billion on behalf of portfolio managers and brokerage firms.
- More than 180 employees in Canada.
Once an account is open and funded, we take care of day-to-day investment management on the client’s behalf in accordance with their investment policy statement. Over time, as securities fluctuate in value it may be necessary to sell a portion of one security to buy another security in order to keep the portfolio weightings in line with their target allocations – a process known as rebalancing.
The importance of rebalancing:
Rebalancing is important to ensure that your portfolio’s risk characteristics stay relatively constant over time. Without rebalancing, a portfolio that starts out with a 50% equity allocation and 50% fixed income allocation could drift over time and become more heavily weighted to the riskier equity asset class. If a market correction subsequently occurs, the client’s portfolio would then have a higher risk exposure and potentially experience larger losses than expected for a 50%/50% portfolio.
We are continuously monitoring portfolios and will rebalance accounts when the allocation to any asset class exceeds its rebalancing threshold, as specified in the client’s investment policy statement.
An important part of the investment management process is managing cash flows into and out of investment accounts. Cash flows can result from:
- automatic contributions into an RRSP or TFSA account,
- automatic withdrawals from an RRIF account,
- one-time contributions/withdrawals initiated by the client,
- distributions made by exchange-traded funds (ETFs),
- cash generated by sale transactions, and
- cash required for purchase transactions.
If left unattended, cash can accumulate in an account and potentially reduce long-term returns (a situation known as cash drag). On the other hand, an account could go into overdraft, becoming subject to interest charges or the forced liquidation of holdings by the custodian to clear up the shortfall. We continuously monitor client accounts to ensure that cash balances are maintained at a reasonable level.
When an account holds excess cash, we will invest it according to the client’s investment policy statement and target asset allocation. Similarly, if cash is needed for an upcoming withdrawal, we will sell securities so as to maintain the client’s target asset allocation.
Reporting
The last component of our investment management process includes reporting on your investment accounts, holding periodic review meetings, and making changes to your investment policy statement as needed.
As we have engaged the custodian of our clients’ accounts to prepare and deliver monthly statements of holdings and activity, we do not provide our own monthly statements. Nevertheless, both High Level Wealth Management and the custodian are responsible for ensuring the accuracy and completeness of the statements to the best of their abilities, and we have processes in place to review a sampling of client statements each month.
Clients are granted access to the custodian’s investor portal where they can review their account holdings, activity, performance, monthly statements, and tax documents.
As required by securities regulation, clients will receive the following reports on an annual basis:
Investment performance report
A report detailing the investment performance for each account during the report period, including the value of the account at the start and end of the period, any deposits/withdrawals during the period, the change in value of the account, and total percentage return (net of fees).
Report on charges and other compensation
A report disclosing the management fees and other relevant charges paid by the client during the report period.
We hold regular review meetings at least once a year (or sooner if your life circumstances change). At each review meeting we will compare expected vs. actual outcomes, update your financial plan for any necessary changes, discuss your investment performance, and track your progress toward achieving your financial goals.
We’re also available for informal check-ins or to answer questions you might have between review meetings.
Life is complicated and we realize even the best plans can sometimes be disrupted by the unexpected. That’s why we believe in building long-term relationships with our clients instead of focusing on one-time engagements. Whether life changes for the better or worse, clients can contact us at any time to arrange an appointment to adjust their financial plan and investment policy statement.
It should be noted that a client’s investment policy statement and portfolio allocation should not be adjusted based solely on temporary market fluctuations, but by changes to long-term capital market assumptions, the client’s investment objectives, risk tolerance, investment constraints, or personal circumstances.