As an investor, it's important to understand the different types of advisors available to you and the services they offer. In Canada, there are three main types of individuals who can trade in financial products. Mutual Fund advisors, Broker/Dealer advisors who can trade individual securities, and Portfolio Managers who work for Portfolio Management firms registered with a provincial securities regulator such as Ontario Securities Commission.
Let’s take a closer look at the differences between these three types of individuals and why working with a Portfolio Management firm may be the preferred option for investors looking for more customized investment solutions.
Mutual Fund Representatives
Mutual Fund advisors are typically associated with banks, credit unions, and other financial institutions, and they primarily sell mutual funds and other investment products that are approved by their firms and most importantly, their self-regulatory organization. They work for dealer member firms which are registered with the Canadian Investment Regulatory Organization (CIRO).
In general, their offerings to clients are very limited. For instance, most can’t sell ETFs or individual securities, they can only sell mutual funds. Not only are mutual funds typically more expensive than ETFs, many mutual fund advisors are also limited to selling their company’s proprietary mutual funds, creating an inherent conflict of interest between the advice they give and the products they can offer.
While mutual fund advisors can offer some level of investment advice and guidance, their recommendations are typically limited to the products that their firms have approved for sale. This means that their investment solutions may not be as tailored to your specific needs and objectives as those offered by other types of advisors.
Mutual Fund advisors are also not fiduciaries, meaning they do not have a legal requirement to act in the client’s best interest.
Investment Advisors with Broker/Dealer Firms Licensed to Sell Securities
These advisors are are typically associated with full-service brokerage firms and offer a wider range of investment solutions than mutual fund advisors, including stocks, bonds, ETFs and other securities. They work for dealer member firms which are registered with the Canadian Investment Regulatory Organization (CIRO).
These advisors are also subject to more rigorous regulatory requirements than Mutual Fund advisors, and they are required to meet certain education and training standards. However, their investment recommendations may still be influenced by the products and services offered by their firms. Further, if they are not portfolio managers, then they are not fiduciaries.
Portfolio Managers (PMs)
A Portfolio Manager or an Associate Portfolio Manager is an individual registered with the provincial securities regulator as an Advising Representative or an Associate Advising Representative who works for a firm registered as a Portfolio Manager. They can offer a wider range of investment solutions that are tailored to the specific needs and objectives of each client and are typically independent of any specific financial institution.
One key difference between Portfolio Managers working for an independent portfolio management firm and some non-Portfolio Manages is that they are independent. They have the flexibility to offer investment solutions that are best suited to their clients' specific needs, rather than being limited by the products and services of a particular firm.
Another key difference is that PMs are fiduciaries, meaning they have a legal obligation to always act in the best interests of their clients. This is a higher standard of care than the standard that applies to advisors, which only requires them to ensure that their recommendations are suitable for their clients.
In addition, Portfolio Management firms typically offer discretionary management services, which means that they have the authority to make investment decisions on behalf of their clients. This can be particularly beneficial for investors who do not have the time, knowledge, or expertise to manage their own investments.
To sum it up, there are clear limitations to the investment solutions that Mutual Fund and Broker/Dealer firms can offer and the products they can offer may have inherent conflicts of interest. Portfolio Management firms, on the other hand, offer a wider range of investment solutions that are tailored to the specific needs and objectives of each client. As independent fiduciaries, Portfolio Management firms have the flexibility to provide customized investment recommendations and discretionary management services that can help clients achieve their financial goals more effectively. For investors seeking a more tailored and comprehensive investment approach, a Portfolio Management firm may be the preferred choice.
