Are Traditional Investment Managers Outdated in 2021?
The internet is oversaturated with articles that tout the advantages of robo-advisors. And yet, high net worth Canadians continue to entrust their wealth to traditional investment managers. This article discusses why traditional investment management firms are here to stay, and the benefits of actively managed portfolios.
Traditional Investment Management Firms Are Here To Stay
Robo-advisors are comparably inexpensive, streamline financial decisions through a simple questionnaire, and are extremely appealing to much of the middle market and to those who are getting started with investing. However, the primary reason high net worth investors choose to stick with traditional investment managers is that wealth management is more than just numbers and receiving generic algorithmic-based portfolio management advice.
As discussed in the article Financial Advice for Millennial Entrepreneurs, while robo-advisers are useful in providing general financial advice, current technology is unable to offer sophisticated advice based on individual financial situations, as well as additional, non-financial information. Each person’s financial situation is unique, and traditional investment managers are able to work together with you to deliver the best plan for you based on your goals, timelines, and risk tolerance, even if you have the most complex of financial needs.
Chiefly, proponents of robo-advisors assert that each company’s proprietary algorithm takes the emotion out of investing and grants the investor better returns at a lower cost. A counterargument to this is that financial markets are driven by human decisions and emotions, which are also currently largely unquantifiable by robo-advisors.
Correspondingly, robo-advisors do not have the humanity and support that traditional investment managers have and can provide. For example, adept investment managers are equipped with the experience to deal with major life events. In such circumstances, you would have almost certainly preferred to have invested with an investment manager who you trust and is only a phone call or email away, who already has an understanding of your financial situation, and who can provide both practical and emotional guidance towards your wealth reallocation decisions while drawing on their own experience and professional network for holistic insight.
Aside From The Human Element, What Do Traditional Investment Managers Bring To The Table?
Robo-advisors typically invest in broad portions of the stock market as opposed to selecting individual stocks. They focus on passive investing, and primarily invest in mutual funds or low-cost exchange traded funds, which aim to match a particular market benchmark. On the contrary, most traditional investment managers focus on active investing, in which portfolio managers select investments based on an independent assessment of the security’s worth, or in other words, growth and income potential.
To make these assessments, traditional investment managers have access to qualitative and quantitative research components and the ability to meet and conduct interviews with senior management of companies that they are contemplating investment in, which robo-advisors do not.
In all, as robo-advisors continue to garner media attention, without the personal touch and professional oversight, they cannot replace traditional investment managers. For this reason, it continues to be doubtful that they are suitable for wealthy individuals and those going through major life events with planning complexity.
Bloom Investment Counsel, Inc. is a well-established Toronto-based independent, privately-owned boutique investment management firm providing customized, actively managed, Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.
Founded in 1985, Bloom has experience in managing in excess of $2.5B in assets over the years. We believe that generating independent cash flow is central to the success of our clients’ portfolios because it provides capital for the present day, if needed, while continuing to preserve and build wealth for the future.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.