This is where your finance takes place

It is good for people who like diversification

The important factor about the PIM is that your money is managed by different fund manager specialized and successful in their niche. You have the possibility of selecting the best managers over the past 10 years for each asset class.

Even better, the financial institution offering the product made the research for you. They already took care of selecting from the best performers and they give them mandates to manage additional money according to their philosophy.

It is tax efficient

Most fund managers are trying to be as tax efficient as possible. This means that they do not sell their whole portfolio every year. Every time that a stock is sold within the fund, a capital gain will be triggered (taxed!) and reported to the government. This is why you receive capital gain slips last year even though your funds went down 5%

MER’s fees are not only lower but they are also tax deductible. You will most likely never see a PIM product with MER’s over 2%. Most of them are between 1% and 2%. Don’t we like paying less for getting more?

It is prestigious

Okay, this point has nothing to do with a rational argument. However, wealthy people like terms like “Private Investment Management” or “Wealth Management” or even “Private Banking Services”. Your statement will still show investments and returns, but it will be written in a nice way with a sophisticated presentation.

Clients usually receive more information on what is included in their portfolio. They will get full financial statements with all the stocks and investment products within their portfolio. It is always fun to know what you are holding!

Private Investment Management is obviously not for everybody. I am thinking of independent investors that would hate this kind of product as they have to give away their decision power to someone else. On the other side, how many independent investors are beating the markets? With a PIM, you have more chances of performing well and avoid most of market debacles.

In the end, it is a really good product for those who don’t have the time or the interest in managing their own portfolio and they are wealthy enough to benefit from a well diversified (high class) type of investment product.

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Leave your money into the hand of a professional

The main purpose of private investment management is to give mandates to one or a few fund managers to manage your money according to predetermine guidelines.

However, in order to do so, you must leave all decision powers (buy, sell, hold) in the hand of the managers. You always have the possibility to change the guidelines in order to reflect your investment profile.

You get access to the best of the best

Financial institutions offering this type of product will include some of the best portfolio managers of all time. Even better, they are selected based on their specialty (Canadian/American/International stocks, emerging markets, bonds, etc.).

So you end-up with a fully diversified portfolio managed by the best funds managers in their category. On top of that, management fees are cheaper than mutual funds and they are tax deductible for non-registered account!

More options than regular mutual funds

Another characteristic of the PIM is their accessibility to different asset class. Forget about the classic fixed income, Canadian equity and international equity. Now you have access to high paying yield bonds, privilege shares, emerging markets, real assets (bridges, structures and pipelines), tactical deviation and alternative management.

It may confuse you as an investor but your financial advisor should be in a good position to help you out determining what is best for you.

The main goals of Private Investment Management are usually wealth preservation, long term growth and tax efficiency. This is a really good product for wealthy people who don’t want to manage their money but still hope to get a good return.

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Some of you are probably reading those lines thinking “well I’m a small investor and I made double digits returns more than once, what’s his problem?”. Bear with me for a few more lines and you will understand my thinking.

Small investors are fairly conservative in general. The problem is not that they do not want 10% returns every year. The problem lies within their deepest fear of loosing everything. They are usually not ready to take a -15% hit in order to get three consecutive years of +10% and more.

When you look at the S&P500 or the TSX over the past 50 years, you will find out that it seriously dropped a few times. This is exactly what small investors are afraid about. Since they have limited knowledge of the market, they tend to think that the market will drop down to 0 every time they see market fluctuations.

They will most likely sell everything when the market is at the lowest point or simply invest in more conservative investment solutions. Unfortunately, conservative portfolios will do 5% to 7% at best. On the other side, they should technically never show a negative 10% return.

I am writing this post for small investors that might have a plan done by a financial advisor with 10%,11%,12% projected annual return. If a financial advisor is predicting such high annual returns, ask him to show you the price history of his mutual funds. He is probably not lying to you, but he might not tell you about the market fluctuation within your investment horizon. You can go -20% and then +51% from one year to another and it still makes an average of 10% for two years. However, your heart may not survive the rollercoaster if you are a more conservative investor.

For those who are making good returns without a fortune, it could be related to your good financial knowledge or your high risk tolerance. Unfortunately, small investors usually lack both of them and this is why they turn to financial advisor to advise them.

I think it is actually to good thing to do. However, you should never follow one’s advice blindly. Ask question and be sure that you understand where you invest your money. This is the most important part about investing.

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image source : ifa.com