Too rich for funds? CI argues otherwise

Conventional wisdom dictates that above a certain asset base, your client is ill-served in mutual funds. Of course, conventional wisdom once told us the world was flat.

Derek Green, president of CI Investments says it is preposterous that high-net-worth investors shouldn’t own mutual funds. He just thinks they should own them through his company’s new Private Investment Management (PIM) program.

“I don’t think there’s any question that we’re in a mature environment,” he says of the mutual fund industry. “For us to grow our business, we need to have a better mousetrap.”

PIM is not a new product, he explains, but is the next evolutionary stage in the company’s Private Managed Assets program. PIM also lowers the bar on who qualifies as a HNW client.

“PMA was solely a pricing platform, where at $500,000 we would discount our fees,” he says. “This is much different, in that the threshold is much lower—we lowered it to $250,000—but it’s also at the household level.”

The PIM platform simplifies household reporting for advisors as well, by aggregating all accounts held by various members of the household.

The program is available exclusively through financial advisors, and allows access to CI’s full range of investment products. SunWise Essential Series seg funds will be added to the platform in 2012.

Clients can access PIM with a minimum asset base of $100,000, which is also the minimum investment per mandate under the program.

The first discount kicks in at $250,000, with F-class fees on a balanced mandate dropping from 120bps to 110bps—an 8% reduction. The fee falls to 77.5bps at $2 million, and 70bps at $5 million. These are similar, if not lower, than the fees charged by investment counsels for discretionary management.

Apart from the cost, he says mutual funds in general offer investors liquidity advantages that may not exist if they are invested in individual securities. A $2 million withdrawal from a segregated account risks moving the market if invested in small caps, or would require multiple trades to maintain the asset mix.

“You can have liquidity, at NAV at 4 o’clock every afternoon. If you own an SMA or a segregated account, you don’t have that liquidity. They have the work the positions to get out,” says Green. “If you own mid- and small-cap stocks, and we go through another period of extreme volatility, good luck. If you have a multi-million dollar account, that becomes very problematic.”

And, he says, CI doesn’t need to take a backseat to anyone when it comes to investment managers.

“When you take into account the line-up of portfolio managers we have, we’ve never in the history of the company—I would say the industry—had a better lineup of portfolio managers,” Green says. “We like to say we have a confederation of investment boutiques under one banner, and all available on our corporate-class platform.”

He points out NI 31-103, which recently closed for comment, will require better performance reporting and could pave the way for the unbundling of fees. The PIM platform allows advisors to transition their business to these potential new requirements, because of its household aggregation and potential for fee-transparency.

“The advisor can use it with an embedded management fee, or use it as a fee-based account. The advisor can customize their own trailer or service fee, or they can default to the standard 1% on equities and 50bps on income.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.