Family partners serve select HNW families

  • Restrict your practice to the segment of the client market you know best.
  • Provide clients with immediate, direct access.
  • Build a team with complementary skills and experience.

What is your unique value proposition?

Tim: Our colleagues typically have several hundred clients, but our client roster consists of 30 select Canadian families and foundations. We’ve restricted ourselves to the area of the market we can best assist.

Our colleagues typically have several hundred clients, but our client roster consists of 30 select Canadian families and foundations.

James: Our average client account size tends to be in the $20-million range, whether individual, trust or endowment. With such a small relationship base, we come to know our clients well and they know us well. They can get in direct contact with us, their money managers, anytime they like.

As family members who are also partners in a business, how have you built your practice, constructed your team and divided roles?

Daniel: We all tend to complement each other really well. I don’t know if it would work for every family, but James has very strong quantitative skills and runs our ETF models. I manage our social media, with active LinkedIn, Twitter and Facebook accounts.

Tim: You really want different strengths to come to bear. My strength comes from my longevity in the business and my CFA background. Before James and Daniel joined me, my business was more traditional and more fundamentally based. We hired external money managers and worked to get the asset allocation correct.

James and Daniel brought quantitative analysis to the equation. We’re almost totally non-subjective now – it’s a very automated system, and it’s added a lot to the performance of our models.

You mention on your website that cash reserves are an important element of your asset allocation. Can you give me an example of a situation in which this is an important advantage?

Tim: We believe cash is a valid asset class.

Our models tend to fall about one-third less than the market. That’s principally because we hold larger cash positions when we go into market setbacks such as the late spring and early summer of 2011, when Spain, Portugal and Greece were heading into financial crisis and the stock market sold off quite substantially.

When they talk to us, they’re talking to the investment managers.

Our threshold for pain is a 12 per cent to 15 per cent correction in the portfolio, so we’re prepared to give up some of the upside. In fact, when our clients sign up with us, one of the risks we identify is that we may hold too much cash in a rising market. It’s been a very useful component of our money management – so far, we’ve been achieving most of the upside of the market with about one-third less on the downside.

We maximize returns by controlling the level of risk. Many money managers look at return as the primary objective, but we look at it a different way. If we can control destructive risk in the portfolio, we’ll win in the end.

What are some of the practices that you’ve found most effective in building strong relationships with the families that you serve?

Tim: Our clients know that we’re exclusive to a very small number of families, and I think they respect that. They know it gives us time to customize our approach. Secondly, we manage the majority of the money ourselves. When they talk to us, they’re talking to the investment managers.

As a family, we also invest in the same products that we invest in for our clients, which I think is comforting to them. The system that we’re allowed to transact within the bank allows the client to get filled first and us to get filled second, of course, but we’re virtually simultaneously buying the same positions.

How have you proactively managed or segmented your practice to deliver higher value to clients?

Tim: At one time we had about 300 families and I had a large team of about 10 people, with other investment advisors working for me. I split the group, with several people becoming independent investment advisors at the bank. They took 200 of those 300 clients while I kept 100, and then I further pared down the group to about 25 families over several years.

When we’re selecting ETFs, we want a strong issuer with good liquidity and funds with tight spreads and reasonable cost.

It was just a question of the level of focus we wanted to bring to each of our clients, and the process created some very successful new investment advisors for CIBC Wood Gundy.

What role do ETFs play in your portfolios?

Tim: Probably 90 per cent of our time is spent in the ETF world. It gets us away from the risk and reward of single security purchases and gives us instant diversification. We’re asset allocators and risk managers, and ETFs lend themselves particularly well to that. When we’re selecting ETFs, we want a strong issuer and funds with good liquidity, tight spreads and reasonable cost.

The Morton Group, CIBC Wood Gundy

The Morton Group

CIBC Wood Gundy

Tim, James and Daniel Morton are partners in The Morton Group at CIBC Wood Gundy. Tim Morton has served as a chief portfolio manager for 38 years; his sons James and Daniel Morton are investment advisors who joined the practice in 2008 and 2013, respectively. Based in Toronto, they recently participated in a roundtable discussion on the nature of their practice and their investment philosophy.

One More Thing

James: We have two discretionary model portfolios: one is a balanced income portfolio with a little bit of growth and the other is a global equity for growth.

We use a quantitative screening system in which we’re looking at every ETF listed in North America, either on the TSX or in the U.S. We get fantastic exposure, basically anywhere in the world, and we can choose if we want to be currency hedged or take currency risk.

Being very math and rules based, we rank by risk-adjusted returns. We have strict guidelines as to how much we can allocate to each region or sector, so once we’ve maxed out a given sector or region we then move on to the next-best performance while maintaining a Canadian and U.S. core. We’re always very globally diversified.

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