Overview

  • Limit your practice to the number of clients you can get to know well.
  • Prepare clients for market downturns in advance.
  • Recognize that women are generally not more risk averse, but more risk aware.

What are some of the unique characteristics of your practice?

I’m very selective about the clients I take on. I believe I need to know my clients well in order to do an excellent job for them—I can’t have hundreds of clients, which is more typical in this industry. I see myself as my clients’ personal portfolio and wealth manager, and I have a team that I draw on for financial planning, insurance, and tax and estate planning.

My practice is 100 percent fee-based; my compensation model is completely transparent. And I’m a discretionary portfolio manager, so I am a fiduciary, which requires a much higher standard of care.

How do you prepare your clients for downturns in the market?

Historically, we can see that financial crises tend to occur every five to eight years. It’s essential to prepare clients in advance by regularly reinforcing that we’re investing with goals and a time horizon in mind, and that the short term has absolutely no impact on our ability to achieve those goals. But that preparation requires trust—my clients know my history and experience; they know I’ve managed money through these cycles before.

Having good rapport is imperative. It’s one of the reasons I only work with clients I like—I believe that if you don’t have that rapport, you won’t do a great job and neither of you will be happy.

“Women are not so much risk averse they’re more risk aware; they see money as a means to achieving goals for their families.”

Are the financial planning and investment needs of women different than those of men?

Yes. Women still earn less money. On average, they retire with less than two-thirds of the assets that men do, and because they live longer those assets have to last longer. Many women still let the men in their lives deal with their family finances despite the fact that statistics show that 90 percent will be solely responsible for their own financial lives at some point.

Studies find that women are not as confident as men when it comes to their finances, but the good news is that they admit they’re not confident and have a desire to be educated. Women look at money differently than men and tend be less risk oriented—I believe we need to do a better job in communicating and understanding what risk means to our clients versus how we in our industry talk about risk. Women are not so much risk averse they’re more risk aware; they see money as a means to achieving goals for their families.

The demographics are shifting, and women have more assets than ever before. It’s something the financial industry is very aware of, but I believe there still is a disconnect between what women need and what they are getting from our industry.

What were some of the key lessons from your institutional experience that you’ve been able to apply in private practice?

Over many years of watching professional money managers, I’ve found that they tend to make the same behavioural mistakes individual investors do—for example, they make decisions based on fear, greed, overconfidence, loss aversion and confirmation bias.

In addition, through years of working with strategists, economists and analysts, I’ve learned it is critical to remember that the ability of industry experts to forecast is poor.

No one has all the answers. No one can predict the future. Yet we work in an industry filled with people who constantly make predictions. A lot of people listen to this kind of information, which they’re exposed to 24/7, and it often impacts their behaviour.

In my educational presentations I often tell people about the studies that have been done on this subject. For example, a CFA Institute study looked at the recommendations made by Jim Cramer on his “Fast Money” show: his ability to forecast the performance of stocks and the market was 46 per cent. He can’t do it—nobody can.

“If you’re focusing on your clients’ needs, having the tough conversations and providing comprehensive service, your value will be apparent and they’ll be happy to pay your fees.”

An analogy I use is that financial market pundits are as accurate as the daily horoscope in the newspaper. Both are entertaining, but it’s essential that you don’t base your financial or life decisions based on them.

The other problem is fear. The media needs to fill airtime, so there is second-by-second analysis, much of it fear mongering and all of it focused on the very short term.

Successful investing is hard to do alone. Money is an emotional trigger, and we are hardwired to make poor investment decisions. Having the right person to guide you—someone you see as a financial coach and educator—an reduce the stress and dramatically improve your ability to achieve your goals.

What’s your best advice to other advisors in terms of building a successful fee-based practice?

If you’re focusing on your clients’ needs, having the tough conversations and providing comprehensive service, your value will be apparent and they’ll be happy to pay your fees.

Fee-based compensation helps align your interests with the interests of your clients, it’s completely transparent, and it’s the way the industry is moving.

Lori Livingstone

Lori Livingstone, CFA

Portfolio Manager
BMO Nesbitt Burns

In 1989, Lori Livingstone became one of the youngest Certified Financial Analysts in North America and one of the few women with the designation. After gaining a reputation as a successful analyst and portfolio manager, she worked in institutional sales and as a pension fund manager before transitioning to private portfolio management in 2004.

One More Thing

In 2007, someone I met at an event disclosed that his RRSP was invested with a high-risk money manager—his entire life savings.

He agreed to meet with me, and over a series of meetings I was able to convince him that it was essential that he reduce the risk in his portfolio—everything he had was in that RRSP and he was in his 60s. He eventually transferred most of the portfolio to me, but he left 20 per cent with the higher-risk firm. When the crisis hit he lost more than 80 per cent of its value; many of the stocks he held will never come back.

If I hadn’t been able to convince him to reduce the risk in his portfolio, he and his wife would not have been able to retire—those difficult conversations saved their retirement.