Before Marco Gil moved to a discretionary platform, he had to know his ABCs.
Gil, a portfolio manager at Eden Valley Partners in Toronto, has been licensed as a discretionary advisor since 2009. Before that, he had to use the alphabet to be fair to clients.
“If you’re not on discretionary, how are you deciding which clients you’re calling first to trade [a given] stock?” he says. “It may take you three or four weeks before you get in touch with everyone [… and] every client ends up at a different price.”
To mitigate this “conflict of interest,” as he calls it, he made calls in alphabetical order by last name – with a twist.
“You can’t go from A to Z and then Z to A, because then the people at L and M would always [be disadvantaged],” he says. “So I did A to Z, and then I would go [from the middle of the alphabet so I was] not giving preferential treatment to certain clients.”
This wasn’t his only source of frustration.
“A lot of clients struggle with the concept of an advisor calling them and making a recommendation, but then [having to be] the one to make the final decision as to whether to proceed,” Gil says. Clients would tell him, “If you feel this is in our best interest, please go ahead.” The conversations felt perfunctory, he says.
“You spend the vast majority of your time placing phone calls where clients were sometimes puzzled [by] why you had to call, because that’s what they thought they were hiring you for.”
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Recognizing that, Gil decided to become a portfolio manager. He spent several years at a bank-owned brokerage working on its discretionary platform, but says his actual “discretion” was limited. “Practically all investment decision-making was by a team at head office,” he says. “There were six buckets you could put clients into, and you as a portfolio manager had virtually no say in what was included in those buckets. […] It was more of a perceived discretion that we had.”
Disenchanted, Gil moved to Manulife Securities in January 2013 and changed his discretionary powers once again. Manulife Securities didn’t yet have a discretionary platform, but Gil joined knowing one was coming. He got to serve on the firm’s focus group as the program developed.
He and other advisors told the firm they wanted an open-architecture framework, says Jason LeDrew, director, managed programs, at Manulife Securities. “That was the biggest piece of input in the early days, and one that we heeded,” LeDrew says.
About 40% of Gil’s clients followed him, which was more than expected. (In mid-2015, he and two childhood friends started Eden Valley Partners, also under Manulife Securities.)
Manulife’s discretionary platform launched in October 2016, meaning Gil had spent more than three years back as a regular advisor, and the clients who followed him from the bank had gone from discretionary, to non-discretionary, and back to discretionary again.
“I did notify them ahead of time that us being non-discretionary was temporary until Manulife launched the program, so they knew that there was going to be [a period of] increased reporting and calls and transactional conversations,” he says. Despite his warnings, he admits “some of them did get frustrated with the bombardment of phone calls.” The experience reaffirmed his decision to become a discretionary advisor in the first place, he says.
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Another adjustment: Gil’s move to Manulife meant he switched from an OSC-registered firm to an IIROC platform, which has greater reporting requirements.
Before, clients had received quarterly statements. Now, Gil says, “Any kind of time there’s a cash transaction, even within an account, a statement has to get sent out.” Further, during his non-discretionary period, “clients were getting a lot more proxy materials in the mail. A lot of clients were like, ‘Do you have to cut down 3,000 trees to send me this stuff?’ ” he jokes.
Challenges aside, Gil’s glad he switched – and ultimately, so are his clients.
“Clients appreciate that they actually get more protection under the [discretionary] platform, because now we have a legal document–the investment policy statement–that protects the client,” he says. “It’s very defined in terms of what we can and can’t do, and any time you go outside of that, you’re held liable.”
Key facts about Manulife’s discretionary platform
- Development start date: late 2013
- Launch date: October 2016
- Number of discretionary advisors at launch: about half a dozen
- Number of advisors, March 2017: 20 (some in the pipeline or onboarding)
“We’re looking to add portfolio managers every three months or so,” says Jason LeDrew, director of managed programs. “The key is keeping it to a reasonable number that we can support as they transition into discretionary management.”