This may sound like a very unusual question, are you part of the book or in a family? What I’m referring to is how you may be viewed by your broker, financial advisor, financial planner or investment advisor. If you’ve read my column in the past you know that I started in this business as a retail broker at Tucker Anthony, now known as Royal Bank of Canada. The brokers, including myself, had a black binder with page after page of clients and transactions. This was literally called your “book of business”. It’s a common term used in the insurance business, stock brokerage or financial advisors, even planners and investment advisors.
A short time ago I was at a conference speaking with the insurance producer who had recently passed an exam that allowed him to collect the income for managing a relationship, not the assets, of clients. This insurance guy, now investment advisor representative, was bragging about the size of his book of business. He then asked me how big my book was? I answered; I don’t have a book; however, I manage assets for approximately 85 families. You see, this investment advisor representative has not learned what “working for the client’s best interest” a.k.a. fiduciary actually means! Even though he is licensed to place assets on a fee-based platform and collect fee income, he had not figured out that, that alone does not make a him fiduciary advisor, but putting the clients best interest first means just that!
Another subtlety that you should be aware of are the fees that you may be paying to the advisor, firm and asset manager. I’d stated above that the investment advisor rep was being paid a fee to manage his relationship with his “book”. But he was not managing assets. This advisor rep includes 1% on top of his registered investment advisory firms ½% for a total of 1.5%. Then, the asset managers or mutual funds have fees of possibly another .75%? Total fees and expenses to the client average 2.25%. To make matters worse, in my opinion, is that many of these portfolios are what I call “plug-and-play” portfolios, that are designed in advance and not custom designed for the client’s needs. With the equity markets are good as they have been for quite a while now, the fees do not seem to be that big of an issue. However, when we have a correction in the markets or maybe a period of slow to no growth, then most people start to pay attention.
This is not a case of “you get what you pay for”. In my opinion, it’s more of a situation where the layers of marketing, the firms cut, the advisors cut and the asset managers cut equal a lot of fees.
Many times, when prospective new families meet with me or an advisor with my firm. A member of the potential new family questions how can, and why I charge what I do? My explanation is; that MHP asset management is an asset management firm, we manufacture the portfolio for that specific family’s needs using individual stocks, bonds or low-cost exchange traded or mutual funds. Therefore, the family is getting a custom-designed portfolio at a very reasonable cost without any additional “relationship” fees!
Mark Patterson is Chief investment officer with MHP Asset Management and can be reached at (603) 447-1979 or mark@mhp-asset.com.
