Certified financial planner and president of De Thomas Wealth Management Tony DeThomasis explains the difference between a financial planner and a money manager and why understanding the difference is key to financial wellness.
In early April, MoneySense conducted a Q&A with Tony DeThomasis, president of De Thomas Wealth Management. De Thomasis, author Finding the right financial advisor believes it’s important for Canadians to take a holistic approach to their finances. Sure, investment returns are important, but other issues like estate planning, insurance reviews and understanding your personal tax situation are just as important. MoneySense writer Julie Cazzin asked De Thomasis a few questions and here’s what he had to say:
Money sense: What has changed since you started working in the financial planning industry 40 years ago?
Being a financial manager is very competitive right now. This wasn’t the case 40 years ago. In the 1970s, if you wanted to manage your money, you only had two options: hire a stockbroker or invest in a few mutual funds yourself. At the time, money managers were becoming seen as superstars and were highly respected – John Templeton, Bob Krembil (head of Chiefswood Holdings Ltd., Peter Cundill (who founded the highly respected Cundill Value Fund in 1974) and Peter Lynch (manager of the Magellan Fund at Fidelity Investments from 1977 to 1990, where he achieved an average annual return of 29.2%), just to name a few. Word spread about their unique talent for increasing investment returns and the rest became history.
At the same time, the mutual fund industry has exploded with the sheer amount of funds we have today. Too many people have gotten involved in the money management business. We currently have over 5,000 mutual funds, segregated funds and private funds, but not all are good quality investments.
I like to compare what was happening in the investment and financial products industry to what was happening in the National Hockey League (NHL), as the number of teams grew from just six in the 1950s to 30 today. What happened to the quality of the teams? Game quality? It slowly went downhill. Moreover, the chances of any NHL team winning the Stanley Cup have also decreased significantly. It’s important to think about money management in the same way – the quality of money managers has declined and the chances of picking a winning financial product yourself have also decreased the more investment products are introduced.
MS: Are there any solutions for this?
Yes, but first it is important to understand what investors need and want. First, investors and the media in general always confuse the terms “financial planner” and “money manager.” They use them interchangeably and assume they are the same thing. They are not. I chose the profession of a financial planner, not a financial manager like Cundill, Templeton or Lynch. I just knew I wasn’t as good as them at selecting investments and managing people’s money.
So when it comes to helping people with their finances, my role is more like the CEO of a hockey team – that is, I bring together the best people and build the best possible portfolio management team, whether it’s finding the best index fund, dividend fund or manager small-cap fund for my clients. I then combine all of this investment advice with a financial plan, which may include an estate plan, retirement plan, income tax plan, and/or insurance plan.
Sure, some people will want to handle the entire investment themselves, but others will want an investment manager to do it all for them. The final decision is theirs, but they need to understand the approach.
MS: What is the specific job of a financial planner?
A financial advisor’s job is to build a great portfolio and financial plan, not just purchase a financial product. For example, by combining several good mutual funds, you can build a very profitable, well-diversified and well-managed portfolio of indexed mutual funds or ETFs. This portfolio could include a high value global equity mutual fund such as DFA Global Equity Portfolio F (MER 0.55%), a high dividend mutual fund such as Purpose Core Dividend Fund (MER 0.55%), a great global bond fund , such as PIMCO Income Class D Fund (MER: 0.79%), a great global small-cap fund such as Mawer Global Small Cap Fund (MER: 1.81%), or a great all-cap fund such as EdgePoint Global Portfolio Series F (MER 0.95%).
Like any great hockey game, a player may get injured (disability), burn out (close to retirement), or the game has changed (faster play, fewer shots) and the player can no longer compete and then a change must be made. If you look back, you’ll remember great fund families like Altamira, AIC and Global Strategy. These were once great mutual fund families that simply burned out. It happens – and this is why you never, ever want to give all your money to one money manager and why I decided to become a financial advisor – a CEO simply has a much longer lifespan than a coach or hockey player. Why? Because building a good long-term portfolio is only part of the job – the second part, as I said, is bringing together experts in insurance, income taxes, estate planning and retirement so that the full financial picture is visible and these individual experts can bring their knowledge to help development and protection of your money at all stages of your life. This is what I’m proud of.
MS: How to narrow down the selection of products and investment funds?
There are some general rules. These are: try to keep the fund management expense ratio below 1%, find a mutual fund manager who also owns all or part of the fund company, and finally interview the fund manager yourself so you can get a feel for his investing style. For example, do they invest in large or small companies? Do they gravitate towards growth companies or do they choose values? Like a hockey player, a finance manager can’t be good at every position – they might be a great left winger but a terrible goalie, so you have to mix and match to suit their talents.
MS: Any other words of wisdom?
It is extremely difficult to know and plan for what will happen in the next 10 or 20 years. But after more than 35 years in the industry, I know one thing: as we get older, there will come a time when we all need help with our finances if we want to do things right. You will seek advice from close family members or friends or get professional help. It’s much easier to start early and build trust and a relationship with someone you know and have worked with over the years than to start over at age 70 when you’ve accumulated a significant amount of assets and then have to trust someone with it. Building a relationship with a professional you trust is always best done sooner rather than later. Believe me, you’ll be grateful you did.
MS: Thank you for your time, Tony.
You can read Tony’s book here. Tony DeThomasis can be reached at (email protected)
Read more:
