(Note:  To see the table listing options for investment counsel, click here.)

If you’ve ever suspected that the rich have access to a closely guarded investment secret the rest of us aren’t privy to, you’re right. But it may not be what you think. There’s no magic investing formula that’s revealed after you make your first million, or a network of sophisticated insider trading intelligence that’s hidden from the rest of us. Rather the rich have access to the rarefied world of the private investment counsel. In this world your investments are personally handled by highly qualified and responsive investing experts, who carefully follow your direction and report back regularly. And believe it or not, the fees are often much lower than what you’re paying now.

Hiring an investment counsel is often considered the next logical step after you’ve worked with a broker or financial planner to grow your portfolio to seven figures. But if you haven’t heard of them, we’re not surprised. Most purposely keep a low profile. In their world, business is built on word-of-mouth, performance speaks for itself, and aggressive advertising would be unseemly. “It’s not a service that’s sold,” explains a senior member of one firm. “It’s a service that’s bought.”

Despite their air of exclusivity, if you’re interested in seeing what it feels like to get this financial red carpet treatment, we have good news. You can now gain access to some private investment counsel firms with an investment portfolio of as little as $500,000. That’s still a hefty nest egg, but well within reach of many middle class Canadians approaching retirement age. “It’s a misconception that it’s just for the super-wealthy,” says Warren MacKenzie, president of Weigh House Investor Services of Toronto, which helps investors select private investment counsel. Many firms are willing to take you on for even less than their stated minimums if they see a lot of potential to grow your portfolio.

What sets the counsel apart
Consider the experience of Diane Vezina, an executive coach and organizational consultant from Toronto who’s nearing retirement. She and her husband had the bulk of their life savings invested in mutual funds through a financial planner, but she became increasingly upset with the poor performance of their portfolio during 2007 and 2008. Like many investors, she is not an investment expert herself and works long hours in her job, so she relied heavily on the expertise of her adviser. But whenever she expressed her dissatisfaction to her adviser, she was told “everything’s OK, the world is unfolding as it should.” Her frustration culminated with the market crash in late 2008. “I was devastated at that point, because we were down by 23%. Ten years of investing had been wiped out.”

She became even more upset when she discovered that her adviser was also getting a hidden “trailer fee” from her portfolio of about 1% annually, on top of the 0.4% fee she knew about. When the mutual fund companies’ own fees were also included, she found she was paying close to 3% a year. As she dug deeper, she found out that the proportion of her portfolio invested in equities had gotten as high as 70% at one point, which she considered “too high for a woman who is within a few years of retirement.”

Finally she hired Weigh House to help her find a new adviser. After a thorough search she decided to go with an investment counsel, and in mid-2009 she selected three firms: Connor, Clark & Lunn; Avenue Investment Management; and Cougar Global Investments. She was immediately impressed. As is typical with private investment counsel, each firm assigned her a highly qualified representative with a chartered financial analyst (CFA) designation, the investment industry’s most respected designation for managing money. Also typically, she went through a rigorous process to specify her investment objectives, risk tolerance, financial constraints, and overall guidelines to managing her money (called an “investment policy statement” or IPS). She specified a more comfortable target allocation for her investments: it’s now 60% fixed income, 40% stocks. With her overall direction set, each of the investment counsel firms works behind the scenes to take care of all the day-to-day details of which stocks and bonds to buy and sell.

She finds her new counsel quickly return phone calls, visit in person when needed, and have planned regular follow-up meetings every three to six months. She says the advice she gets is informative and balanced, with no soft-peddling of market risks. “I was so impressed with their candor. I don’t think anyone told me the truth like that before,” she says. For the first time she receives monthly reports which compare the performance of her investments to benchmark indices for the over-all market. Now she can easily and clearly see how her investments perform compared to the market as a whole. For this she pays fees that are competitive with general private investment counsel rates of about 1% to 1.5% of assets per year—more than one percentage point lower than what she was paying before. “The bottom line is they are doing their job and making money and they are making their benchmarks.”

Three different flavours
As Vezina discovered when she started looking at investment counsel seriously, there are three different types to choose from: the bank-owned firms, the large independent firms and the boutiques. Each has its pros and cons, and each could be a good choice for you, depending on what you’re looking for.

Bank-owned investment counsel now comprise the four largest providers in Canada by assets, and six of the largest 10, according to research firm Investor Economics (see table to the right). They provide scores of CFA-credentialed portfolio managers to meet with you in many mid-sized cities across Canada, not just the big financial centres like Toronto and Montreal. They typically offer lots of different pooled funds and segregated account models, and they are backed by huge back-office asset management units which actually do the investing.