April 30, 2008, 6:00 am

My Thoughts on Private Investment Management

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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The other day, I explained this new trend called “Private Investment Management”. Is it another complex financial product created only to confuse investors? Or is it the new revelation in term of investment and wealth management? I would say that it is something in between the 2 extremes 😉 In fact, I truly believe that this kind of product has its place on the investment market.


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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Comments

You have a better chance at beating the market with PIM? I don’t think so…

Mike

“how many independent investors are beating the markets?”

How many private investment managers are? Try asking them and they won’t tell you. I’ve asked two who tried to get me as a client one question: net of fees, what kind of returns have you obtained compared to the benchmarks. One even had the nerve to answer, “I can’t answer this question”.

“MER’s fees are not only lower but they are also tax deductible”

Only in a taxable account. Fees on RRSP accounts are NOT tax deductible.

“You have the possibility of selecting the best managers over the past 10 years for each asset class”.

And that tells you what? That they have performed well in the past 10 years. It tells you nothing about how they will perform in the future and it is for future performance that you are hiring them in the first place.

There is only one reason for hiring an investment advisor of any kind: you don’t have the inclination to do it yourself and need some hand holding. Other reasons are totally bogus.

by: The Financial Blogger | April 30th, 2008 (6:39 pm)

CC;

Eric Sprott (CAN), Helen Bond (CAN) and Mclean Budden (US) beat their respective market over the past 10-12 years. According to statistics, independent investors are averaging a small 4% over the past decade, I think there are ways to improve this.

MER’s fees are tax deductible in non-registered account only, I should have added it in my post. Thank you for the precision.

Past performance is probably the only thing you can base yourself when you choose a fund manager OR A STOCK. Looking to predict future perspectives of a company is like gambling, don’t you think?

In the end, you are right when you say that it is for people who don’t wan to manage their money, however, the benefits are larger as most people that handle their portfolio end-up with a total disaster.

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