Do you know what your fund manager or adviser’s portfolio looks like?

Financial planners: Practice what you preach

Do you know what your fund manager or adviser’s portfolio looks like?


Here’s an interesting question to chew on: Do you know what your fund manager or adviser’s portfolio looks like?

Well, the men and women behind Steadyhand—one of Canada’s no-load, non-commissioned mutual fund companies—want you to know that if you’re a client, they’re eating what you’re eating. As of June 30, the employees at this firm had $25.4 million invested in their own funds, which represents 84% of the company’s assets on average.

David Toyne, director of business development at Steadyhand, says disclosing this type of information is critical because it demonstrates to clients that everyone’s interests are united—put it another way, if the ship goes down, everyone goes with it. Unfortunately, he notes, “information about a fund manager or adviser’s own portfolio is rarely made public, let alone discussed.”

He’s right. Indeed, I’d wager that if you did pose the question it would be uncomfortably sidestepped. But if a fund manager or adviser were completely forthcoming in their response, more likely than not they would tell you their own portfolio looks absolutely nothing like yours.

Why? Unfortunately, Canada’s mutual funds boast some of the highest management expense ratios (MERs) in the world: on average, actively managed portfolio cost investors about 2.5% of their assets every year. Most of that goes toward investment management and operating expenses for the funds, while about 1% goes toward undisclosed trailer commissions—the fees paid directly to an adviser by the fund company.

Quite often as a result, small investors are being placed in funds that aren’t necessarily in their best interests; rather, they serve to line the pockets of the fund managers who design these funds and the advisers who sell them to clients. Doubtless, fund managers and advisers wouldn’t want to pay the same types of inflated fees with which many investors get saddled.

Such potential conflicts of interest, Toyne aptly notes, is exactly why “the issue of co-investment is fundamentally important in ensuring an adviser or manager’s interests are aligned with their clients.” It’s a great point. Putting possible differences in risk tolerance and asset allocation aside, if the person providing you with funds wouldn’t hold the same types of investments for themselves, what is that saying about your portfolio?

It’s telling you you need to take your business elsewhere.

If the people you’re trusting to do right with your hard-earned income aren’t practicing what they preach it means they’re not looking out for your best interests. So go ahead and start asking questions. You may not like what you hear.