The position I’m talking about are in Canada, but its probably compensated the same way in the US. I can’t wrap around why a PM makes more than an IA, their functions and roles are almost the same.
An Investment Advisor can make recommendations to clients (also known as soliciting trades). However, the client has to agree to each recommendation. The IA cannot act without confirming each trade with each client. A Portfolio Manager, however, can act on a discretionary basis provided that certain other conditions are met. See managed accounts. Basically IAs are based on commissions and PMs are based on managed account fee. I know that an IA usually takes on 0.25% on trailer fees for DFC account, but have no idea how managed account works. If you can depict me how PM salaries are based it would be great! Are Investment Advisor considered stock brokers? I’m a total noob in this industry, please correct me if any of my assumptions are wrong.
^ It depends, if you work for Investor Group you will be constraint by their portfolio’s. At a broker dealer, you can choose any securities or funds you or the client want. I do feel that IA’s are salesmen, but they do their research. They have to respect due dilligence and apply the Know your client rules.
Yeah, have to dig more about the discretionary service. Imma call Nesbitt burn for fun and ask their rate for a managed account. Concerning the fiduciary responsibility, here is the definition from the CSC course:
It’s to always put the client’s interests first. The fiduciary is in a position of trust and must act accordingly.
If that was the case, most of the IAs would be in jail. No duty exists for the glorified salesmen in Canada. Absolutely none (other than select situations, but thats maybe 1% of IAs).
Thats not a matter of opinion, but fact. There is a big movement right now to change that. But of course the banks are resisting… How else can they pawn their 2.75% MER index funds onto uneducated clients? Step one is the new disclosure laws the IAs are up in arms about. Next is making them accountable through legal responsibility.
This is part of my issue with CSC and regulation in this country. People dont even understand the fundamentals despite these licensing exams.
I totally agree with you, IA aren’t required to possess a bachelor degree in finance or any deem appropriate education to operate in the financial industry. Having only the CSC, CPH and even the 90 days are actually not enough to serve properly the client. Banks and Insurrance company needs to be more rigorous instead of curtailing the system.
Out of curiosity are you an IA? I have some question to ask privately if you don’t mind. I’m new to this industry.
I though I’d throw in my 2 cents since I had a misfortune of working as an IA for a short period of time.
I agree with onlysimon - IA is a glorified title for a salesman. Also agree with geo, the said fiduciary duty exists on paper, but is almost nonexistant in the IA business. The company I worked for had reps who built their businesses entirely through leverage. The lawsuits that were filed against them never lead anywhere. I have only met a few IA’s (out of hundreds) who actually do any analysis at all. It’s all sales and comission driven so analysis is kind of a waste of time, they would rather spend their time prospecting for new clients. Again, there are really few people in the business that actually mind clients’ interests and who understand the fundamental principles of investing and portfolio management - unfortunately, the comp structure doesn’t reward that. Most people in these roles are former fine art majors who got their CSC’s and suddently became investment specialist. If you majored in business or finance, or anything related, or if you are working on the CFA designation, you will feel that your brain capacity is severely underused in an IA role.
I’m wondering as to your attempt to compare PM work with IA work: PM’s have quantifiable return objectives, benchmarks that they have to outperform, not to mention fund mandates and policy statements that they have to consider in their work. Beating a benchmark and achieving a return objective involves some serious work and in-depth analysis. IA’s have nothing but KYC requirement to meet, and due to the fact that most average retail investors have very little investment knowledge, KYC is often the subject of how you interpret it to the client. It’s often the case that clients with “aggressive” KYC profile end up being “concervative” when the market takes a hit.
A Portfolio Manager typcailly works for a fund company (i.e. fund manufactuer) while an IA work for themselves and run their own practice. However, you can be a PM and Advisor if you work under the IC/PM platform where there is a fiduciary duty relationship to act with clients (see PMAC in Canada). In this case, you would work with clients who have a minimum of $500k to invest.
IAs have full discretion to use any investment strategy they choose to manage portfolios, whether its EFTs, mutual ufnds, managed portfolios or individual stocks an bonds.
While there is no current regulation in place under MFDA or IIROC for advisors to act as a fiduciary, the general trend in the industry is moving towards the Fee-Based model coupled with more enhanced rules pertaining to cost of service disclosure, investment performance etc which is going to be a game changer for the industry. I think its important as an IA that you demonstrate how you are managing client investments and planning in a clear and concise manner; clients will see too.
To geo point above, yes the big banks have been pushing back on alot of the new regulations because they make lots of revenue and profit off of investors who have MF at the bank (or branch) where fees aren’t being disclosed on client statements and they have no idea what they are actaully paying in fees. This will change by July 2016. (CRM2).
tankuppp feel free to PM me if you have other questions.
^ As Mike correctly indicated, there is nothing under MFDA or IIROC for IAs to have fiduciary duty. Highlight this ten times.
Mike seems to be in the 1% of advisors that actually knows what he is doing and seems to be respectful of his clients. This is not the norm in the Canadian IA space.
The general trend in Canada in the retail advisory business is more enhanced fee transparency and potential for a ban on trailing commissions (like the U.K and Australia). The typical trail on a DSC fund is 0.5% to the dealer/advisor and front-end trail is 1%. In both cases, the dealer takes a cut (based on grid) leaving a net amount to the advisor.
The end result of these rule changes will likely lead to some advisors leaving the industry, potential for fund manufacturer consolidation, manufacturers shortening up their product shelf (leading to job losses as well) and use of lower cost investment solutions (EFTs, DFA etc).
I am currently working for one of the big banks as an IA commision plus base. I have to say that I am in utter shock that most of my clients who are invested in Mutuals funds, or ETFs have no idea what a mutual fund is ? My first question during discovery phase with my clients is tell me what you know about mutal funds and the answer is usually " its something that you invest in the markets" . However I feel there is lot of oppotunity as well for the right pepole to make big $$$ especially if they educate the clients and show them value. I have passed level 3 and agree with most of earlier posts here that 90 % of my knowledge is not utilized in my current role.
For those who have been in this position and moved elsewhere I would apprecaite some advise on exit opportunities to other parts of the bank or companies where I could use my CFA knowledge more given my current work experience is purley retail advisory.I also have the CMA completed this year not sure if that is any added advantage.
Mike, I may be going a little off-topic here, but wouldn’t banning trailing commissions actually be working against the client? At least with the trailing fee it is in IA’s best interest to provide good service to the client to ensure that they stay invested with you. By banning that all IA’s would be after are the initial fron-end commissions. I wonder what their rationale is regarding trailing comissions ban?
just to clarify some things, PMs can manage any household size, not just those over $500,000.
the primary reason why PMs make more on average is because there are minimum book sizes to become a PM. the minimum to become a PM is $30M whereas the minimum to become an IA is zero dollars. this, plus the fact that PMs are generally more highly educated (a minimum requirement of the CFA or CIM designation) and have more experience (minimum 2 years experience as FA) and thus are just better advisors and attract and retain more assets, outlines why PMs make more than IAs. IAs are often hacksaws looking for a quick buck whereas PMs treat it like life’s calling.
tankuppp, PM me if you want to hear it from the horse’s mouth.
Traderanalyst, the unfortunate truth is that you have to find your own exit opportunity from an IA role, as there generally isn’t any available. These roles are looked at as having 0 transferable skills for anything analyst-related, so it all boils down to networking. Sorry, I have no better advice for you. In Canada CFA barely has any weight, so don’t rely on it to get you in the door. Since you have a benefit of working at a big bank, see if you can reach out to people in the bank who do the jobs that you want and do information interviews with them.
i agree. your only escape would be to walk onto a team at your bank’s wealth management firm (nesbitt, ds, etc), become a corporate cog working in private client group or find a job in compliance, likely serving the private client group.
The industry regulators are considering a ban on embedded trailing commissions as part of the effort to provide more enhanced cost transparency, unbundle the cost of investing for investors separating the cost of investment and cost of advice. The consensus here is that it may not happen in the shorter term but is a real possibility once these new rules are in place for a while. (I could go on and on here…)
The benefit to investors is there would be more enhanced cost tranparency and the advisor and client would have to determine (advisor) compensation. The drawback to banning embedded trailing commissions is that the smaller investor would likely be left in the dust as there are few service models that make sense to provide advice profitably. It also restricts choice on the way investors choose to pay for investment advise - which is bad.
@ Matt Likes - I’m pretty sure that you cannot act as as PM with a discretionary relationship under IIROC or MFDA? (This is true a PM under IC/PM can work with clients under PMAC with clients under $500k but most “households” have $500k plus or the Principal / PM has significant total AUM - I think you are referring to?)
(I’m an IA at an IIROC firm and hold the CIM desingation (cough - hacksaw - cough) and I’m not allowed to use the title “Portfolio Manager” or act in a discretionary basis based on my conversations with our compliance dept).
@ Traderanalyst - I agree with others here; your best move would be into the private client group as you have solid credentials. I think you need to determine if you still want to be client facing or more of an analyst role.
sorry. i work for an independent so have freedom to do it all. i’m not really even sure of the distinction between IIROC and PMAC. aren’t they pretty much synonymous? i mean, you have to be IIROC no matter what and you have to get your company to sponsor you for PMAC right? if your firm sponsors you, and you have 2 years FA experience, the CFA or CIM and have $30M in assets (in your name, not the bank’s), then you are licensed and can call yourself a PM. i’d imagine my experience is the same at all of the banks’ wealth arms (ds, nesbitt, wood gundy, McLeod, etc) as IAs own their books and i know a few PMs at these types of places.
EDIT: i just checked and the minimum to become a PM is now $50M and experience as FA is now 5 years.