For investors, there’s never been a better time to utilize the expertise of a financial professional. Whether you are investing passively or building a more active portfolio, financial experts can help you achieve your investment goals more quickly and efficiently. However, it’s equally important to know which services are provided by the financial professional, and what you can expect from them.
Portfolio Manager Vs. Investment Advisor
Though commonly used as synonyms, a “portfolio manager” and “investment advisor” do not perform the same function. Portfolio Managers build and maintain investment portfolios, while investment advisors sell a specific product.1 Investment advisors play an important role in the financial markets, but are not in a position to support the needs of a client’s long-range financial objectives. That’s the job of the Portfolio Manager.
A Portfolio Manager differs from an investment advisor in four critical areas:
- Fiduciary duty
- Fees and payments
- Education and experience
- Discretionary management and personalized services
Understanding the legal requirements of the Portfolio Manager will help you see how they differ from advisors, and why they can be trusted with client funds. By law, Portfolio Managers have a fiduciary duty to act in the client’s best interest. This fiduciary standard, which also exists for lawyers and accountants, does not apply to investment advisors. The Ontario Securities Commission (OSC) stipulates that a Portfolio Manager must place the interest of their client ahead of anything else. This legal requirement ensures no conflicts of interest arise when building and administering a client’s portfolio. The investment advisor has no fiduciary duty to the client.
Education and Experience
OSC standards also require the Portfolio Manager to meet rigorous experience and educational standards to be allowed to operate in the province. The investment advisor is only required to be registered as a salesperson with the OSC.
Provincial securities commissions that regulate Portfolio Managers and the firms they represent require that all managers receive formal training and certification from a recognized securities institute. To serve as a Portfolio Manager, individuals must have superior analytical and communication skills and expert knowledge of the markets. According to the Canadian Securities Institute, a prospective Portfolio Manager must have extensive industry experience, with a proven track record managing a multi-million-dollar portfolio on a discretionary basis.
Fees and Payments
The legal structure governing Portfolio Managers ensures they face no conflicts of interest in managing a client’s account. Portfolio Managers offer a fee-only service based on the percentage of assets they manage. They receive no fees, trailers or commissions from any other source, allowing them to invest solely in the client’s interest.
By contrast, financial advisors earn fees and commissions on the products they sell to the client. When recommending a product, investment advisors lead with its benefits rather than with a full view of the client’s financial picture.2
Personalized Services and Discretionary Management
What sets the Portfolio Manager apart from the investment advisor and other financial professionals is the rigorous process they’ve taken to understand the client’s financial goals. Portfolio managers offer clients a personalized business relationship, and act in accordance with the client’s financial goals and risk tolerance.
Since Portfolio Managers do not receive commission, they are not compelled to overtrade a client’s account to boost their earnings. This enables them to buy and sell securities in the best interest of their clien, so long as the securities meet the client’s financial goals and risk tolerance as outlined in the investment policy statement.3 When working with a Portfolio Manager, all assets in your account will be held in your name and insured by the Canadian Investor Protection Fund (CIPF).
Investment advisors operate on a commission structure based on the amount and type of products they sell. In other words, some advisors may promote a product not because it suits the client’s financial goals, but because it generates higher commissions.
These are the main differences between a Portfolio Manager and an investment advisor. Investors looking to generate monthly income, save for retirement or better allocate their capital can trust the expertise of a registered Portfolio Manager.
1 Investopedia (March 31, 2015). What is the difference between portfolio management and financial planning?
2 Russ Alan Prince (April 4, 2016). “The Difference Between Wealth Managers And Investment Advisors.” Forbes.
3 John Heinzl (September 10, 2012). “The difference between advisers and counsellors.” The Globe and Mail.