Frequently Asked Questions
Typical investment management firms manage money in a standardized, style-specific manner. They rarely communicate directly with their clients, and they don't customize portfolios to meet the client's individual needs.
At Canterbury, each portfolio is customized to meet the specific needs of each client. The principles of modern portfolio theory are followed, which creates efficient portfolios that maintain low correlation among securities and the highest return versus risk. Each portfolio contains a mix of growth, value, and international stocks and bonds. With input from Canterbury's Investment Policy Committee, Canterbury's chief investment officer actively manages portfolios and chooses the styles and market sectors of stocks that are best positioned to perform in the given market conditions. He determines the asset allocation based on each client's risk parameters and current market volatility. As market conditions change, he makes appropriate adjustments to the portfolio.
Investment management consultants are generally associated with brokerage firms or are financial planners. They utilize several investment managers or mutual funds of varying styles in order to develop a portfolio for each of their clients. They have limited interaction and contact with these style-specific managers, and over time they switch managers to maintain an optimal blend of different styles.
The problems with such an approach are many:
- Few investment management consultants have ever acted as portfolio managers, so they're making recommendations in a discipline they've never practiced.
- They typically base their recommendations on past performance and correlation among the managers over too short a period of time. Unfortunately, today's best-performing style-specific managers are often the worst-performing managers in the future (because their specific styles go in and out of favor).
- They choose style-specific institutional money managers who tend to carry many stocks. The result: The client ends up with hundreds (and in the case of mutual funds, thousands) of individual stock positions. The managers do not communicate with each other, so the client gets cross-ownership (three different managers buying IBM for example) and uncoordinated changes in asset allocation and weighting.
- Because they own so many stocks, the managers' stock-picking ability is watered down. Their performance tends to be highly correlated with the style or index they use as a benchmark (such as large-cap growth, mid-cap value, contrarian, etc.)
- When a consultant changes an investment manager, it's usually due to underperformance—which normally results not from the manager's decision-making process but because his style has gone out of favor. Many times, by the time the manager is changed, his style comes back into favor.
- Buying and selling style-specific managers can be very expensive. Liquidating your entire portfolio and buying new securities from a new manager can lead to significant tax consequences and shifts in allocation.
- When you add all the transaction costs, the impact costs of trades in the market, the consultant's fee, and the manager's fee, you can see why it becomes difficult for the client to receive true value.
Tom Hardin, Canterbury's Chief Investment Officer, has more than 30 years of experience and one of the top designations in investment consulting from the firm that originated the concept. "I've been through all of this," he says. "I know many of the top investment management consultants, and only a handful have focused a great deal of energy and training in this area. They're very competent from a quantitative standpoint. In most cases, however, the stockbrokers or financial planners who offer such services have very little training and no meaningful credentials. With them, " managing the managers' has more to do with generating an additional fee than adding real value. Either way—whether you're talking about the best in the field or the least trained professionals—academic studies strongly question the value added by such approaches, based on their over diversification, layers of fees, taxes, impact costs, soft dollars and commissions."
At Canterbury, there's no middleman and no unnecessary fees—only excellent service and clear communication. You work directly with Tom Hardin, who manages your portfolio based on your objectives and risk tolerance. He knows and cares about you, your financial goals and objectives, and how your assets affect your future life vision.
Typically, investment management and financial planning are treated as two stand-alone disciplines. Financial planners focus on gathering financial data and producing a one-time written plan with future projections. They rarely act as portfolio managers. Instead, they refer those duties to an investment management firm or mutual fund manager. With rare exception, the referred firm or fund manager is not apprised of the client's personal objectives, tax concerns or financial plan, resulting in a lack of coordination between the plan and the actual investment management.
At Canterbury, we view financial planning and personal financial coaching as components of personal wealth management. Our Wealth Management Benchmark® (WMB) looks at over 60 specific issues within six key categories, and then it produces a customized action plan for each client. This revolutionary tool lets the client decide which issues to address, to what degree and when to complete them. With the WMB, Canterbury's clients measure their progress against their personal benchmarks, based on their objectives, goals and personal life vision. It's a big step up from traditional financial planning.
Investor education doesn't directly impact the way we manage portfolios, but it does impact the biggest risk of all—the client circumventing the process. Circumventing the process is the number one reason people lose money in their investments. They often make decisions based on life events, while forgetting that those decisions can impact their finances and their future life. The more clients know about the fundamentals of investing, the more likely they are to stick with a system. The more they understand investment and risk management, the less likely they are to fall victim to the pitfalls.
We teach prospective clients how to avoid the common mistakes that often cost them money. Our Investor Education Program is delivered in the privacy of one of our offices, at the client's home, or during a telephone conference. In one to two sessions lasting about an hour each, we cover topics such as how to determine risk parameters, the fundamentals of portfolio management, and everything a client needs to know to be a good steward of his or her portfolio. Client and adviser get to know each other, develop a common understanding, and create an Custom Investment Strategy outlining the procedures to be used when managing the portfolio.
Financial planning firms typically charge a flat fee or a fee based on the client's net worth. This fee covers the cost of a written report plus some counseling. Since financial planners and investment management consultants rarely act as portfolio managers, they also charge a quarterly or annual fee for allocating your funds among different mutual funds or investment managers, who also charge fees of their own. In other words, you end up paying at least three layers of fees.
At Canterbury, the only fee we charge is based on the total assets we manage. Because our entire compensation comes from our quarterly management fee, we have no conflicts of interests and only the client's long-term objectives in mind. There aren't multiple layers of fees. Increasing the size of the client's portfolio through excellent customized investment management is the key to both the client's and Canterbury's success.
Here are just some of the benefits Canterbury's quarterly fee provides:
- Wealth Management Benchmark
- Customized portfolio management
- Personal wealth coaching
- Investor Education Program
- Custom Investment Strategy
- Reporting and ongoing counseling