POSTINGS
Mathew Harrison

The Investment Counsellors’ Corner

At Burgundy, we have two overlapping segments to our business. At our core we are investment managers, investing according to a long-term value philosophy with a goal of achieving superior absolute investment returns for our clients. In addition to acting as investment managers, we are investment counsellors, with a fiduciary duty to counsel clients on their overall portfolios.

When most people think about investment management firms, they think of portfolio managers. They are the dedicated stock-pickers working hard to uncover the next great idea. They are often found pouring over financial statements, visiting companies, inspecting their newest facilities and interviewing senior management about their strategic growth plans. Our job as investment counsellors is not as sexy, but is crucial to your investment success. We are charged with the complex task of matching your savings with your personal goals, taking into account numerous influential factors like your expectations, time horizon and willingness/ability to accept risk. In the words of veteran investor Charlie Ellis, author of The Winners’ Game, “investment counsellors can add far more value to clients’ long-term returns than portfolio managers can hope to produce.” We can’t help but agree (it also makes us feel important).

In a recent View from Burgundy, our President and CIO Richard Rooney defined value added from the portfolio management perspective as, “making more money than an available low-cost indexing strategy, over a reasonable time frame, after all costs including management fees.” When the role of the investment counsellor is added into the equation, the definition becomes more holistic. We define value added as:

Guiding clients towards their investment goals by helping them to understand the associated risk in investing, set attainable investment objectives, be realistic about saving and spending, select an appropriate asset allocation and, most importantly, act rationally at market highs and lows.

Investment performance, while important, is only one piece of the puzzle. It is unidimensional and does not take into account the unique circumstances of an individual investor. A 40-year-old putting away funds for his retirement in 25 years has completely different objectives than a couple who has just retired and will rely on their investments to fund their lifestyle. Their investment portfolios should reflect these differing needs.

Besides, in the absence of good investment counselling advice, individual investors focused solely on maximizing performance have been shown to consistently underperform the stated returns of the funds in which they invest. This, in part, is because individual investors have a tendency to buy last year’s top performer and sell the investment that is just about to do well (more on this in a later post). Don’t be discouraged – we’re hard wired to act in this way (see posts on the psychology of investing). Your investment counsellor should act as the gatekeeper between you and your decisions and can guide you to make rational ones grounded in knowledge and experience rather than emotion.

Our new blog series, The Investment Counsellors’ Corner, will focus on that other side of the value added equation. Future topics include:

  • The importance of setting a long-term strategic asset allocation
  • Matching assets and liabilities with your investment time horizon
  • Sustainable withdrawal rates in retirement
  • Reconciling your ability and willingness to bear investment risk
  • The importance of cash in an investment strategy

More to come!

 

 

 

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