Episode 04 - Banking and Portfolio Management

Uncategorized Sep 30, 2022

Episode Notes

Dr. Dimitre Ranev, one of the co-founders of Physician Empowerment, hosts the show this episode to talk with guest Rod Burylo about financial advice, banking, and fiduciary duty. Rod Burylo is an expert in the industry, Chief Financial Officer of the Empowerment Office, and the author of “The Wealthy Buddhist”, and shares a wealth of insight with listeners.

Rod Burylo defines some of the roles that exist within the financial industry, helping to clear up confusion surrounding the types and quality of advice available to consumers. He breaks down exactly what it is that differentiates a personal banker from an investment advisor from a portfolio manager.

In this episode, Dr. Dimitre Ranev and guest Rod Burylo explore the advisor options that exist in the financial industry for professionals like physicians. Rod defines and explains what fiduciary duty means and who in the industry actually has it. He demystifies the role of portfolio managers and explains how a portfolio manager is empowered to work with finances and investments on behalf of their client through fiduciary duty. The conversation Dimitre and Rod have shines light on how accessible portfolio managers are, and provides important clarity on how roles within the financial industry apply directly to specific services listeners may want.

 

About Rod Burylo:

Rod Burylo is the Manager of IFM & EMD Services at Axcess Capital, providing governance and risk mitigation support to capital raisers and investment managers.

Rod has worked within the financial services industry for over 30 years in a wide range of roles including Director, Chief Compliance Officer, and Director of Marketing. He has extensive experience in the exempt market sector as past CCO and owner of Canada’s largest Exempt Market Dealer.

Rod is a Canadian Advisor of the Year Award winner, 2019 Champion of Financial Literacy Award Finalist, international speaker, and author of three books.



Resources discussed in this episode:

Physician Empowerment: website | facebook | linkedin

Rod Burylo, CIM FCSI: Chief Financial Officer at Empowerment Office: linkedin | book 

 


 

Transcript

Kevin Mailo  

Hi, I'm Dr. Kevin Mailo, and you're listening to the Physician Empowerment Podcast. At Physician Empowerment, we're focused on transforming the lives of Canadian physicians through education and finance, practice transformation, wellness, and leadership. After you've listened to today's episode, I encourage you to visit us at physempowerment.ca - that's P H Y S empowerment.ca - to learn more about the many resources we have to help you make that change in your own life, practice, and personal finances. Now on to today's episode.

 

Dimitre Ranev  

Welcome everyone to the Physician Empowerment Podcast. I'm really honored to have Mr. Rod Burylo today as guest. Rod is a renaissance man in the financial industry. He wears many hats and has many roles, but currently his projects are that he's the manager of Investment Fund Services for Axcess Capital. He's also a consultant to portfolio managers, accountants and professional associations. And, importantly to us, he's the Chief Financial Officer of the Empowerment Office. He's an Advisor of the Year award winner, media contributor for over 30 years including for the CBC Radio and other leading newspapers. He's also an excellent teacher, which I can attest to because when I first met Rod a couple weeks ago actually, he explained a concept to me that I could not understand and it just clicked. And that's how I know that somebody is a good teacher when they can simplify something that's hard to understand. It's not surprising, because you've had over 20 years of international teaching experience, right? In many topics. I think currently, you mostly talk about professional ethics in alternative investment strategies. And finally, I do want to mention that Rod has published a book in 2019 that I find very interesting and I hope we can talk about it in the future. It's called the "Wealthy Buddhist: Buddhist Ethics, Right Livelihood, and the Value of Money". So again, Rod, thank you for joining us. What I do want to talk about today is an issue that I've noticed talking to other professionals, doctors, is there seems to be quite a bit of confusion about the actors who are involved in the financial advice industry. And specifically three things. We don't necessarily understand what the different roles are, what the different skill sets are, but also what is the duty to the client, to us, because I mean, we're seeking their help. For example, to give an analogy with medicine, obviously when you go to a doctor, you can make a couple of assumptions, not always true, unfortunately, but most of the time should be true. First of all, that they have a license to practice medicine in Canada. And secondly, they have a duty of care to their patients. But that's not as clear to me or to other professional, to other people I talk to, when it comes to financial advisors, or people doing financial advice. So Rod, I guess, do you find that that confusion does exist? And what are some reasons you think it does exist within us, within people that are looking for financial advice?

 

Rod Burylo 

Yeah, that's a wonderful question and very important. Definitely confusion exists around that, not only amongst consumers, people that would seek out financial services persons, but honestly, there's confusion amongst the people within the financial services industry, as well. So there are some people that are in different roles that think that they have a greater responsibility than they in fact have. And then there's others that, unfortunately, might miscommunicate to consumers about that level of responsibility, perhaps setting false expectations around that. Why is that confusion there? Well, you know, I think there's a few reasons. One of them certainly is that there's a very, very wide range of participants in the financial services industry, and depending upon their level of licensing, or registration, or the types of organizations they're working for, their responsibility could vary greatly. Another reason for the confusion is that the people participating in the industry might misunderstand what their registration category requires of them under certain circumstances. And the final place that some confusion might come in is around notions of fiduciary duty, for example, where it's generally accepted that it would be up to a court to decide or judge to decide if, in a particular circumstance, a particular financial services person had a fiduciary relationship at that time. So there's a lot of questions that can arise from this.

 

Dimitre Ranev  

Right. And we'll talk about the fiduciary duty a bit later, because that sort of blew my mind. I made some assumptions about what that meant and I think it's important everybody understands what it actually means and that it's not as common as you think it is. So I feel like when there's this risk confusion, it's really important to go back to first principles and just definitions, like defining who does what, that's a good place to start. I've looked at some of the actions that I've encountered in my financial journey and perhaps, Rod, you can discuss about what the role is and what their skills are and how they can be useful to professionals. And the first one that a lot of us encounter, not all of us, are personal bankers. Can you comment on on how they fit in in just the financial team of somebody like a doctor?

 

Rod Burylo  

Yeah, a personal banker - I actually had a role of a personal banking representative with Royal Bank back in about 1990, and so I can speak to that, you know, from actually doing that job - so one of the ways that we categorize responsibility in the financial services industry is one category is often referred to as a guidance role. And as a rule of thumb, people that we typically find in the historical banking type roles, the personal banking representative roles, would have what we call a guidance role, which means that their responsibility is to help guide a consumer make a choice, which is a long way away from more more onerous obligations they might have. And often the people in those basic branch roles have, what I would say in my opinion, very minimal education or licensing requirements around that, often they have something as basic as a mutual fund registration category, which really is just one course. This might surprise a lot of consumers out there, but historically a mutual fund registration category did not even require a structured continuing education requirement, where almost every other category license or registration in the industry required that. Where it didn't not even require that, there was not even a requirement to take ethics classes for most of these people going forward. So it'd be a very basic, introductory, you know, grade one level of education that's required. And they're typically dealing with proprietary products from that institution. And their obligation is to help someone choose amongst a fairly limited range of products and services. And again, this is stereotypes, but this is a very useful way of looking at it for most consumers most of the time.

 

Dimitre Ranev 

So if you do want to get, and correct me if I'm wrong, but if you want to get a line of credit from that bank, you would go to them, or if you want to get a loan, is that where you'd go to, is the personal banker? But specifically to that bank? Or am I misunderstanding this?

 

Rod Burylo  

Well historically, like when I was a personal banker with Royal Bank, there was a mandate to develop relationships with certain market segments. And we used to call them, you know, at Royal Bank, VIP clients, for example. And there was a requirement to build relationships with those people, understand their needs, and present to them a range of possible bank services, including lending services, credit services, but it might also include savings accounts, you know, basic investment accounts, through mutual funds, and those kinds of things. But, you know, I've been a VIP client of Royal Bank for a very long time. And I don't mind saying that, I'm not critical of them, but nobody has reached out and contacted me to build a relationship with me in a very, very, very, very long time. You know, so what I was taught back in the 1990s about trying to have a relation, this know your client philosophy that's a critical part of the financial services obligation, I don't know how that's showing up in the relationships that I have. So I wouldn't, if I was a consumer, I wouldn't expect very much in terms of obligation from these people. And I wouldn't expect very much in terms of true advice and guidance. And I want to say something that might be considered a little off color, and I have to tell you I've never been sued yet, even though I've been a critic of the industry for a very long time, but I don't intend to do it anytime soon. But, you know, here's the one of the ways that we would often look at many of the people in the banking industry is - and this has been really candid for your audience - there's no money in being a personal banker. And I never saw anyone that I thought was excellent at that stay in those roles, because there's not money being made. So they do one of two things. Either they, and again, this is a gross generalization, but they tend to want to work up the bank ladder, so increasingly stepping away from the consumer. So I would see really good people in the banking system not dealing with consumers anymore, because they went a different direction, or they left the banking environment entirely and went on to a different situation where they had a wider range of products and services, or they were in control of their business or their practice. So for example, there was a time in the 1990s, where myself and some of my friends at Royal Bank went to Investors Group. And at Investor's Group we felt we had a wider range of products and services and a different business model. Our compensation was more greatly tied to the successful outcomes of the consumer than they were previous to that. So that would not be the place that I would go to for sophisticated financial advice. You don't tend to have entrepreneurs with multimillion dollar businesses working at the bank. And so as a consumer, if that's you as a physician, you've got to find, in my opinion, you've got to find people who are living a life more like yours in the sense that they are entrepreneurial. They're buying buildings, they have staff, you know, they're creating personal wealth from their efforts, they have advanced education, and so on. They're far more likely to get you and get the kinds of services that you might need in my opinion.

 

Dimitre Ranev  

That makes sense. I laugh because I'm also a VIP client for RBC and I don't remember ever getting a call from anybody there. It's interesting, I guess back in the day they used to do that. Alright, so there's a limited role for personal bankers, in that case, for our audience. So let's move up the ladder, maybe it's not even a ladder here, but what about investment advisors? What's... this is where I started getting confused. What are investment advisors? What is their role? And what is their duty?

 

Rod Burylo  

Yeah, so that's a really good question. And this actually is interesting you should be asking about this now, because we've just come out of a year of some fairly significant developments in that regard. So when we use the word advisor in Canada, historically, one of the reasons there's confusion is there was not what we now call title protection. So - Quebec had title protection, but most of Canada did not - and so there were people out there using the word advisor without it being regulated, you know. So a consumer would go 'Well he's calling himself a financial adviser, or she's calling herself a financial advisor', and I'm not sure at all what that means, and you can understand why the confusion would be there. But historically, a lot of those people would have beyond a basic licensing or registration, and would start to more often see a designation. So when I say the word licensing or registration, I'm referring to someone that is registered to sell mutual funds or licensed to sell life insurance, where a designation in financial services industry tends to refer to some kind of more sophisticated financial planning education. These people tend to be more holistic. And you'll see letters after their names in Canada, like CFP, for example, which is probably the most common in that category. There were some really cool things that happened last year, two of them actually that are really worth noting. One is we had something called Title Protection for the rest of Canada confirmed last year. And what that means going forward, if you find - this is how it's supposed to work - if you find an a financial services person that's referring to themselves as a financial advisor or a title very similar to that, they are supposed to have a recognized credential from an approved credentialing body. And the last we heard in Canada is there was some expectation there would be single digit number of these credentialing bodies approved. So there used to be a whole bunch of them, anybody could open up a business saying 'I'm going to provide a credential to financial services people, charge them a fee to get the credentials, and then charge them an annual fee to keep these things up' and make a business out of it. And sometimes consumers weren't really getting, you know, a sophisticated quality. So there was a movement in Canada that said no, if you're going to call yourself an advisor, you have to have one of a short list of credentials, and the bodies that are providing those credentials have to be approved. So historically, there would be more confusion than I think there will be kind of starting from now. So that was the first thing that happened last year. The second thing that happened last year was something called client focused reforms, or CFR is often the acronym. And there was two stages of the introduction of client focused reforms but the crux of it was last year is that it was supposed to oblige people in the financial services industry, both individuals and the companies in that industry, to have to put the needs of the clients first. And this should be shocking to a lot of people that - and I think you and I talked about this a couple of weeks ago - it's only last year that there was even a nationally recognized requirement to put clients first and manage conflicts of interest around product distribution and those kinds of things that never existed before. So theoretically, for everybody, we should start to see as of this year, some improvement, some clarification, but I do want to stress, nothing and anything that we saw about these client focused reforms uses the word fiduciary duty. And I do want to comment, and I want to say to your audience out there, in the introduction you talked about me consulting to professional associations, one of the roles that I've had in Canada is helping these professional associations draft policies and procedures, as well as codes of ethics and mechanisms for enforcing codes of ethics and those kinds of things. So I'm a weird guy, I actually have a binder in the room behind me, it's got all these codes of ethics from different professional associations like CFAs, and I study them. Because - you didn't mention this - but my specialty in university in the 1980s was applied ethics, my postgraduate research was actually in Biomedical Ethics at the Foothills Hospital here because I thought I was going to go to law school with that and have my kids early and I ended up in this industry. So, you know, the study of ethics as a practical study, but also kind of more academically, is something that means a lot to me. So when I've looked at these codes of ethics for these credential people, they're very careful in there not to say that anybody has a fiduciary duty. And in fact some of them will say things like, you may have, in certain circumstances based upon the relationship with the client, blah, blah, blah, a judge will decide, but there is no confirmation in any of that stuff that someone has a fiduciary duty, even with these client focused reforms. Putting the client first is not the same thing as having a fiduciary duty. Because let's say that I have a very limited range of products and services, because I work for a big company, in everybody's mind is that as long as I'm helping them choose from my products and services with their interests in mind, I'm okay. But it's not obligating me to go out and find the best solutions, just solutions that are okay for the client but not necessarily the best solutions. So that's kind of where we're at today from all of that, so improving, but probably still quite a bit different than most people thought that they were getting from these relationships.

 

Dimitre Ranev  

So a couple of things that surprise me. So the whole title protection... so what you're saying is - this is a metaphor using, again, the medical industry - is last year, a doctor could just say he's a doctor, and then wouldn't have to prove they were a doctor, no licensing would be required, or a dentist would just say 'I'm a dentist', and that the financial industry was doing that until last year. Now there's an - oh I guess Quebec wasn't but Ontario and all the other provinces - that's very surprising to me. But I'm glad it's changed, it's great it's changed. And the other thing you mentioned, and I think maybe we'll move on to fiduciary duty here, but you talked about how if they - what did you say that they have as opposed to fiduciary duty, you have to do the best for the for the client? Well, what is that phrase that they use?

 

Rod Burylo 

Putting the clients first before all other needs.

 

Dimitre Ranev  

But if they can only sell you a specific product, they won't go above and beyond to find other products. So, for example, it's a doctor just giving one pill for depression, because they work for that company. Okay, got it.

 

Rod Burylo  

Yeah, it would be more like that. So we have a standard that applies to most people in the financial services industry, which is one of the standards is called the standard of suitability assessment. And so if you came to me and said, 'Hey, I'm looking at an investment, is this suitable?' It's like saying it's either okay or not okay. And the suitability assessment is based upon things like your risk tolerance and your personal objectives. But nowhere in there is the obligation to ensure that it's the best solution to your problem. It's just an acceptable solution. So if you say, I want a cash flowing investment, and I find a cash flowing investment, we know everybody might say that suitable, but it's not necessarily the best.

 

Dimitre Ranev  

I understand. So maybe we can go back to to the actors, but I think it's a good time to actually talk about fiduciary duty. Talk about that specifically, because that's where.... it's funny that the way I met you, right, is I was talking about fiduciary duty and obviously I didn't know what I was talking about so ou were typing furiously, I need to talk to Dimitri, to Kevin, and then you gave me a twenty minute lecture. And I'm like, okay, now I understand. So thank you very much. No, don't apologize. I really thank you. And I actually, when I did the presentation later on, I talked about that. So I thank you, but can you educate the rest of the audience about what fiduciary duty means? And I guess what percentage of people actually have that in financial industry?

 

Rod Burylo  

Yeah, so the concept of fiduciary duty is, as we've been talking about, is a requirement to put the client's interests ahead of all other interests. It's an interesting principle, but it's sometimes hard to see how that actually plays out in a very specific role or a specific client relationship. So one of the ways I like to talk about this is let's go back to that banker role, when I talked about a traditional role of a banker type investment person as being about guidance. That's often how that category is referred to. The next category up is often what has been referred to as an advisory category, which is not - so guidance is helping someone make a choice, advice is more telling them what their choice should be. The practical application of fiduciary duty now, which is the highest standard, is really the advisor just making the choice for the client. And so let me explain to you how that plays out. In all the various registration categories in Canada in the investment space, one of the ones that is considered to be the highest is what we call a Portfolio Manager Registration Category. And that is a category that's granted by two types of entities in Canada. One is a provincial securities regulator. The other is IROQ, which is where you would find your stockbroker type people as well, because their responsibilities overlap a little bit depending upon where the advisor is actually working. But the concept of the portfolio manager in that space is similar in the following way: a portfolio manager has a discretionary ability to manage money. So let's say I'm your portfolio manager, and I've worked with several of these in Canada, by the way, and these roles, and you decide that you want me to be your portfolio manager. And you're going to allow me to look after $100,000 of your money. Once I determine your risk tolerance and your objectives, and we have that conversation, and I come up with kind of a sample approach to helping you based upon your parameters, I am now just empowered to go ahead and do that. So let's say I'm your portfolio manager, and we decided we're going to allocate some of your funds to buying a publicly traded bank, Royal Bank, I just go buy Royal Bank. I don't ask you. That's the difference. And one of the reasons you have to have a fiduciary duty there is because you are not participating in the process, I'm just going and making the purchase. And if I don't like Royal Bank anymore, in that category, let's say I want to switch you to TD for whatever reason, I don't call and ask you, I just switched you to TD. So you can imagine if I didn't have your best interests at heart, I might be funding some private equity deal that my brother is managing and I've got a back end piece of and, you know, I'm clearly not objective in these matters, I clearly have conflicts of interest that are not being disclosed. So a regulator would come along and say, 'Wow, you're just basically doing whatever you want to do with Dimitre's money.' Of course, you have a fiduciary duty there. Because in that case, it's the nature of the power you have in the relationship. It's hard to say a banker has a fiduciary duty if I say to you, 'Hey, do you want to have the Canadian Equity Fund or a Canadian Balanced Fund?', and you go, 'Well, I'm kind of conservative, blah, blah, blah', you're Balanced Fund, you know, we only got so many of them, and it's huge. And nobody gets too anxious about that, because you're kind of making the decision with my guidance. Where on the other end, I'm just doing it. And so the number of people that that have that registration category in Canada is actually fairly limited. It's surprising. And this is one of the reasons I talk to you about that. So the people that actually have a fiduciary duty, what I would say, as a matter of fact, as a matter of merely having that registration category, it's understood you have one, those numbers of people are fairly small in the grand scheme of things. And to get there, by the way, you have to have advanced education, you have to have certain number of years in training, being supervised by people in that role, you can't just show up and say I want to be a portfolio manager. It is a process. You know, where mutual fund licensing categories and stuff like that are pretty straightforward. You spend a month studying a class, you pass a course, you're up and running. These other things take possibly years and require advanced designations to get there. So I have some advanced designations that were required of me to be in these kinds of supporting roles in that environment. But you can't just automatically do that. So the other way that a person could have a fiduciary duty is if the nature of the relationship is such that you are really reliant upon me, I have a lot of power and influence over you, perhaps a senior or - and I don't mean to say that all seniors are vulnerable, I'm not gonna do that - but there's a concept in Canada that was established as part of those CFR reforms, called the vulnerable client. So a client that's particularly perhaps reliant upon a person's opinion and so on. If there was a problem in that relationship, and this person was not a portfolio manager, they're just a regular advisor, and they went to court, a judge might decide that in that particular circumstance, that person did have a fiduciary duty. But I gotta tell you, I've been at this a long time, and I don't think those kinds of court cases are all that common. You know, we don't hear about that. And there's one more thing I want to say about the portfolio manager stuff that sometimes blows consumers away. And because a lot of this stuff, you might say, well, what does that mean for me, what do I really care if, you know, if they have this duty towards me, or if I'm not going to sue them, what difference does it make? But there's some real practical problems. So I'm going to give you one for example. And I wrote a paper in 2007 called Move It or Lose It, and it was a discussion of why I thought the market was going to drop. I got a little lucky with that topic, because in 2008 the correction started. I got lucky. And the last time I did this speech I was actually in Las Vegas, I was speaking to a conference of advisors, Canadian advisors in Las Vegas, and a lot of the advisors used to push back when I would say things like, I think the markets going to correct and so on. And the very next day after that last speech, Lehman Brothers announced their bankruptcy and the market started to freefall. But here's one of the reasons why advisors get upset about that. If I tell a bunch of mutual fund advisors, for example, or stockbrokers even, that the stock market is going to drop, we think it is, what do they do with that information? Consumers might think their job is to help people buy low and sell high. And if the market is going to drop, maybe suggest that they sell and wait for the market to drop and buy back, and we have these fantasies that this is going to happen or maybe we saw TV shows and stuff like that, but here's the reality of it. If you're a person that's not a portfolio manager, it means you have to talk to every single client about a trade. They have to approve every single trade. I don't get paid to do trades, to move people from one product to another, you're not - that could be churning, right - so most of the time people are moving money from one portfolio of mutual funds to another, trying to change the market, I'm not getting paid. But the mere fact that I'm reaching out to possibly hundreds of clients, which could take months - that's assuming they're in Canada and they're not snowbirds and any other thing that could complicate it, they're not in the hospital - I've got to somehow get to all of these people while the market is doing this, and get signatures and confirmations from everybody. It's a nightmare. The thought that most of the people in the industry could actually effectively help people sell high and buy low in these environments, it's not realistic even in the slightest. So who do they call? They might call their mom and dad, they might do their own account. You know, if Dimitre's their buddy and Dimitre's got a bunch of money sitting over there with the bank, we're trying to get over, Dimitre I got some news, we got to act now, man, because I'm trying to get.... but the reality is most of the clients never get the call. And so what do they teach these people? They teach those types of advisors to tell their clients, don't worry, these are not your numbers, you're gonna retire in 20 years. And they coach them to be complacent, or calm, depending on, these are politically charged expressions, I acknowledge. They encourage them to be calm and try to get them to reframe how they think about this, but it's in part because they can't actually help them buy low and sell high as a scalable activity. It can't be done. And so let me connect the dots for everybody out there. This is one of the reasons why the concept of a portfolio manager is so important. Because if I'm a portfolio manager, I don't have to call everybody. I can trade $10 million worth of Royal Bank in seconds on the computer for hundreds of clients. It's very fast, it's very effective, it's very cheap for the client, because I'm doing it all now. But to do that, I need to have full responsibility for everything that I'm doing, and therefore a fiduciary duty. So here's the takeaway, most of the people can't be an environment where they can have a fiduciary duty, most consumers will not benefit from that environment, we should want those people that are portfolio management have fiduciary duty, not just because they have that duty. But because since they have that duty, they're in an environment where they can do things very quickly and effectively. And that's one of the reasons why I try to teach consumers about what these different categories look like, so that they can not only manage your expectations, but hopefully get better relationships that are more effective for them. Does that make sense? I know that's a lot of information.

 

Dimitre Ranev  

No, it makes sense. And two things I want to sort of expand on. It's funny, because when I used to have a, I guess a portfolio - I didn't have, I never had a portfolio manager - but had an investment advisor, I used to get those emails when the market went down saying oh, you shouldn't shouldn't worry, you're in for the long haul. So that's interesting that it's almost automatic, I guess, because they can't do much. But second, you had a great analogy that I seriously stole, thinking about a surgeon, right? If a surgeon has to call about every cut he makes and ask the family 'Can I cut here?' Okay, sure. 'Can I cut there?' Okay, sure. That's the difference between a portfolio manager and an investment advisor. An actual portfolio manager does not have to call for every single trade. So my question to you then, is how accessible are portfolio managers for, again, for professionals such as doctors? What are the fees like? Does it make sense for people to, I mean, is it accessible? How about this, let's just start with the accessibility question.

 

Rod Burylo  

And actually, there's some irony around this as well. And I'm here not to speak in favor of any particular portfolio manager. I want your audience know I'm not marketing or promoting anybody. But as a general concept, here's one of the cool ironies about the portfolio manager concept, is you might think that because these tend to be the most sophisticated, the most educated, the ones with the greatest responsibility, that that means they're also the hardest to find or the most expensive, right? But here's part of the irony. If I can effectively trade 10s of millions of dollars just by doing this, then that means I can actually scale my service to a wide range of audiences. So most of the portfolio managers that I've dealt with in Canada have minimums, some of them had quite low minimums, and sometimes $50,000 minimums. Which shocks people to think that I can actually get the best, in my mind, the superior category of management for a relatively small account size, in part because of the scalability of it. Now as a practical sense, I tend to see most portfolio managers starting with 100,000 minimum, and then you get up to bigger shops that will do million dollar minimums, but mostly because they can. They just say we're not going to look after retail consumers, we're going to do a hard line at a million dollars. So within this category of Portfolio Manager, what you might find for those that are providing services on what we might call a smaller account, let's call it 100,000, they probably have what we call a very systematized or pooled approach. So you and I, with our 100,000 and a portfolio manager are participating in pools that they've created. They're not buying and selling for you and I specifically, they're buying and selling within the pool. And so we happen to be participating in the pool with small dollars. It's not a unique range of investments for us, it's not a unique portfolio, but it's very effective. As you have more money, some of these portfolio managers will provide what's called a Separately Managed Account or an SMA. An SMA account would be me saying to Dimitre, oh Dimitre, you're gonna give me a million dollars? I'm going to create something especially for you. Now, it might look a lot like the pool funds. They're portfolio managers, they're just human, they can only analyze so many stocks, they can only be good at so many strategies. But there could be some tailoring to the client. So let's say a doctor has a corporate account, the taxation of investments in a corporate account are going to be different than in an RRSP. And so it would make sense that if you're talking to a portfolio manager, you could say, 'Hey, this is corporate money so we should have a slightly different strategy', which makes sense. If it's in an RRSP, it might not matter. But I typically see separately managed accounts starting at around a million dollars. But I've also seen some 800,000, half a million dollars, and it kind of depends upon the portfolio manager. You know, so they can make a choice, if Dimitre says, you know, I've got $5 million but I'm gonna give you half a million dollars to start, I might be inclined to say I'm going to treat you, you know, because I want to get the rest of it, I'm going to really pay attention to your half a million dollars, not my normal minimum, but I'm going to do it for you, because I'm looking at a bigger picture. You know, or Empowerment Office, for example, one of the groups that I'm working with, representing doctors as a collective has some negotiating and bargaining power with portfolio managers to begin to reduce the price or reduce the level that they'll do these tailored approaches. So what's the price of that, that's one of the things you asked. I would say you typically would be looking - and depends upon the services provided by the portfolio manager - if the portfolio manager is just providing security selection, so buying stocks, bonds, private offerings, trading those for you, and they're not doing anything else, they're not doing estate planning or tax planning, you have other resources for those, you might be looking at a price, let's say 1%, 1.5% of assets under management in that range. If they start adding on other pieces like financial planning pieces, then you can start seeing the price go up, and usually I see it start maxing out around 2%. But I gotta say there's a wide range of possibilities in there, because if the portfolio manager is picking other products, those products could have prices in them as well. So I might be charging a fee to help, you know, to buy a fund, a third party fund that's been created, but there could be fees embedded in that fund. And that's one of the things consumers have to be very, very careful of, is sometimes a manager of investments might say, 'Hey, I'm only charging you 1%'. So they walk around thinking that the cost of management is 1% because that manager only has to talk about what they are actually charging themselves, where the other products could also have fees associated with them. But let's say as a walking around concept, somewhere between 1% and 2% would be normal. And again, depending upon the level of other services being provided within that relationship.

 

Dimitre Ranev 

So a couple of points, it already seemed to me, but first of all, it does sound like it's accessible to most professionals. So I think there's a misconception that for a portfolio manager to be actually wanting to take your business we're talking about a million dollars or half a million dollars, but I think that's more coming from the idea of hedge fund managers, which can go up to 25 million, right? So that's good to know it's accessible. Secondly, it's interesting that the fees can start at 1%. Because that's actually lower than a lot of mutual funds. That's surprising to me.

 

Rod Burylo  

Well and isn't it ironic that I'm making a case that buying a bunch of mutual funds, where the mutual fund advisor can't readily buy and sell on their own volition, they have to come to you for everything, meanwhile the portfolio manager is buying and selling and trading, I typically see the performance better, I typically see a lower cost, it makes a bunch of people like us go, why in the world would you not go to a portfolio manager? Why would you not go? And the only reason that I can come up with typically is - well, there's two reasons - is I don't quite have enough money to get started with the portfolio manager, or the person wants to do a lot of the stuff on their own and try to bring down that 1% to, you know, let's say ETF type prices of .1 or .2 or or .3, that kind of thing. But I don't mind telling you that I have the top designation with the Canadian Securities Institute, but I don't buy all my stocks on my own. I buy all my own private offerings through my own analysis and my own contacts. But I have relationships out there that helped me understand public markets. And there's nothing wrong with that, some of the best people I know in our industry still go to other people for help. And I don't mind paying a little bit if it shows up in the performance overall.

 

Dimitre Ranev  

I have so many questions. But you know, we're running out of time. A couple of more here. So, for example, would a portfolio manager have access to alternative investments, such as limited partnerships or things that, for example, as a DIY investor would never be able to invest in?

 

Rod Burylo  

Yes, yeah. In fact, the portfolio managers I've worked with in the past have tended to have a strategy or a skill set, that's not common. And the reason why I've looked for that, not only for employment opportunities as a consultant in that space, but as a consumer of investment services, is I subscribe to a variation of what we call the efficient market hypothesis. Which basically states that information is so available to everybody out there all the time, you know, everybody's sitting there on Bloomberg access and on terminals, that everybody has the same information. And if you don't have information that's available, that means you have insider information. So you're likely in the realm of possibly committing a crime. So if we all have the same information and the same analysis at the same time, why would you think that the prices of securities are not the right prices? That's what we say about being efficient. So what portfolio managers will often do is, because of that efficiency, is they'll apply strategies or approaches that help bring value to the process. So I'll give you an example. You said it already, limited partnerships and private securities, offerings that consumers can't get in on their own, you know, if I got a billion dollars as a portfolio manager, and I'm allocating, you know, 1%, to different offerings, I have millions of dollars to go buy an apartment building. And I can buy it like that, and allocate funds there, and so get these clients participating in something they wouldn't have participated in. So a portfolio manager, in my mind, the best ones, for the best price, given the best value, are doing more than just buying stocks and ETFs. They're doing those things. And I'll give you one more example. And this now sounds more hedge fund-ish. But one of the portfolio managers I worked for in Canada for several years, was an option strategy specialist. And options strategies are hard to scale up for an individual, but they had hundreds of millions of dollars under management, very effective team, so if somebody was interested in the hedging power of option strategies, if they were interested in it, I always said it makes more sense to go to a big group where there's a whole team doing it for hundreds of people in the order of hundreds of millions of dollars, then you trying to figure it out on your own. You know, so they're trying what I would call the secret sauce, what's the secret sauce with that portfolio manager? What are they bringing to the table in terms of value? Can they articulate it? If they can't, that might be a warning sign, you know. Doesn't mean they're bad, but it might not necessarily mean you're getting a special value out of it.

 

Dimitre Ranev  

The robinhood, the trading app, was pushing option strategies for people for $10. But that's not a good idea. Two follow-up questions then. So number one is, you know when you look at the whole active versus passive debate - which  is very cloudy and confused, and quite frankly, on both sides, I think dishonest - because when you look at the passive debate, they always compare returns to just a slew of different things like mutual funds. Is there any actual studies, and I know studies are hard to get in financial industry, looking at specific portfolio managers and how well they do compared to the market? Is there actually anything out there, and I'm talking about portfolio managers, forget about mutual funds or the other definition of active investments.

 

Rod Burylo  

I'd say there's a lot of portfolio managers that don't outperform the market and that have their fees. And fees go up, the more active they are, or they're more they're trying to do unusual things, that generally means that the price is going up. And yeah, as a rule of thumb, they don't tend to outperform the market. And even if they did in one year, you know, there's a lot of studies that suggest that that's not a replicable thing. You know, they had a good year, and maybe, and so one of the things about taking risks with securities, a risk is, by definition, a risk. It could pay off. And it might not. To have an unusual performance relative to a benchmark, it means you've got to take on some unusual level of risk to do that. And by definition, that means sometimes that risk will pay off, and sometimes it won't. What's bad for consumers is to try to follow performance of a portfolio manager and, you know, say oh, they had a really good year, and I didn't like my current portfolio, I'm going to move over there, you know. And there's often really good reasons to move, don't get me wrong, but moving because you're chasing someone's really good year last year, is probably not the way to go. You know, so yeah, I think some of this comes back to that concept of the efficient market hypothesis. If we all have the same information, you know, I don't mind telling you, sometimes I've done my best by just buying a bunch of big blue chips with dividends and sitting on them for, like, 5, 6, 7 years. And then I go back, and I go, you know, Google, you want to have some fun, go out there and Google, 'if I bought Royal Bank 10 years ago and sat on it', you know. Now remember, you paid one fee to buy it, you probably have no ongoing fees, what your return would be... but the thing is, so here's one of the reasons I invite you guys to continue to follow Dimitre's podcast, because you get someone like me, an industry person who calls out the industry, for, you know, it's, I won't call it deception, but let's say some lack of clarity over value proposition. And there's a chapter in my book called Is The Financial Services Industry Trustworthy? And, you know, I generally argue that it's not trustworthy, but I have a very specific meaning when I say that, you'll have to read it to get it. But yeah, I would just be really super careful of a bunch of people who are just saying, I'm going to go buy some stocks for you, and I'm going to be better than the market. This is one of the reasons I focused on portfolio managers that have a secret sauce. Are they doing something that I can't do on my own, because if I can do it on my own, I might as well do it on my own. You know, and this is where I look for private securities or something else in there. I'm a fan of private securities myself, but I don't often get those from portfolio managers, I find that I can source them on my own. But I'm in the industry, I've been at this a long time, so I know that people. If you don't know that people, it might be hard. You got to know the people that know the people and you'll have the best opportunities.

 

Dimitre Ranev  

So to summarize for an investor, the advantages of a portfolio manager is, first of all, there's fiduciary duty.

 

Rod Burylo  

Correct.

 

Dimitre Ranev  

Which is the thing that you really want. Secondly, you have access to different investment vehicles, which most people don't have access to. Thirdly, you save a lot of time, you don't have to worry about rebalancing your portfolio or buying or selling stocks, that's done by the manager. Fourthly, the fees are - and again, obviously, you have to look at different managers - but 1% fee, I'll tell you, it's very reasonable to me. And I'm saying this as a person who does DIY investing, but that's a very reasonable fee. And it's much better than the average of mutual funds in Canada, which is about, say about 2%, I believe.

 

Rod Burylo  

Last I heard.

 

Dimitre Ranev 

The disadvantage is that there is an entry fee. So there's a bit of a barrier, but I guess for professionals, like doctors, it's $50,000. So even, I would say 100,000 isn't necessarily a barrier. Might be a barrier for, unfortunately, some people who are not professionals. Is that a fair summary of what you said, Rod?

 

Rod Burylo 

Yeah, I think you've captured that very, very well.

 

Dimitre Ranev  

So my last question to you - and again, I have actually have a thousand questions, but we have to we have to wrap it up - is if somebody is interested in having a portfolio manager, is there a resource, for example, I know psychologists have a website where you can find a list of psychologists, is there a resource for portfolio managers or do you just have to do it by word of mouth? How does it usually work?

 

Rod Burylo  

Yeah, you could look at a record of registration categories for people. So for example, in the past I've pulled out entire lists, say from a brokerage firm, like a stock brokerage firm, a list of all the dealing representatives there, and which ones have the portfolio manager registration or not. But doing that I don't think is the most useful of exercises, because just because you found a registrant like that, it doesn't mean that they're doing anything special or, you know, have a compelling offering. It'd be like finding a hamburger place. I found one, there's a million of them, is it a good hamburger place or not? So I would go back to, you know, word of mouth is a useful thing. One of the things that we try to do with physicians through Empowerment Office, is provide vetted portfolio managers, ones that we have identified and vetted, either they already have an attractive price or we've worked on the price a little bit, so that it's more attractive to our audience, to physicians, for example. But I would always go with a referral or word of mouth in that space. And, you know, asking your buddies, if they've got some - one of the challenges is that you could go ask your friend who's a physician if you've got a portfolio manager, and they might not know that that has a very technical meaning, they might just think it's managing their investments. But one of the things, let's say you had a short list of these types of people, you can look on regulatory websites to see if they have any complaints against them, any sanctions, that would be a useful thing. But that might just tell you that they haven't gotten themselves into trouble, that doesn't necessarily mean that they're excellent, that's a different thing, right? So I would go with word of mouth. And then there's one other thing that you might contemplate. There are certain associations in Canada where, let's say they have a designation of a particular kind, like a CFP designation, where they'll have lists of these advisors and will also say what registration category they have, like, possibly Portfolio Manager. And I like those kinds of resources, because that starts telling me a little bit more about the overall character quality of the person. And another thing you could do is, if you've got a topic that you're excited, I know, we're going to talk about ESG at some time in the future, but there are associations in Canada where they look, for example, a Responsible Investment Association in Canada, that tends to attract advisors that are interested in ESG topics within this overall realm of responsible investing, that will list off all the advisors in there. And then if they're portfolio managers or not. And so if you've got a topic that you're really interested in, and want to try to find a portfolio manager that specializes in that space, there might be lists out there to do that. I had a company in 2004, you referenced for the audience that I won an Advisor of the Year Award, that Advisor of the Year Award was for a business we created called Canadians Retiring Abroad. And so if you're interested in retiring abroad, you would find us. But it was because not necessarily that we were excellent - I thought we were good - but because we had made sure that that we could clearly communicate what our differentiator, what our special topic was. So if you wanted a special topic, call us, if that's not your topic, you know, go talk to somebody else. So sometimes there's associations out there. But, you know, if you've got friends out there that are really interested and they want to talk one on one, you know, the two of us together on how to select an investment advisor, we could do a whole discussion on that at one point, the things that I would look for. But it's not necessarily as easy as it sounds.

 

Dimitre Ranev  

That was, I had one. I had a question about that, but I feel like that's a whole topic for podcasts. It's not a five minute question. Listen Rod, I really appreciate your time and your wisdom. And I'd love to have you back. There's so many more things I want to ask, but thank you again for coming and for talking about this. And hopefully we'll talk soon. And I have to get that book and give it a read.

 

Rod Burylo 

And very good to talk to you and you provide an excellent, important service to your audience. I really mean that. So thanks a lot for having me on.

 

Dimitre Ranev  

Thank you.

 

Kevin Mailo  

Thank you so much for listening to the Physician Empowerment Podcast. If you're ready to take those next steps in transforming your practice, finances, or personal well being, then come and join us at physempowerment.ca - P H Y S empowerment.ca - to learn more about how we can help. If today's episode resonated with you, I'd really appreciate it if you would share our podcast with a colleague or friend and head over to Apple podcasts to give us a five star rating and review. If you've got feedback, questions, or suggestions for future episode topics, we'd love to hear from you. If you want to join us and be interviewed and share some of your story, we'd absolutely love that as well. Please send me an email at [email protected] Thank you again for listening. Bye.

 

 

 

Close

50% Complete

Sign up for weekly news!