3 Ideas to Up the Value of Your Book
Here are three compelling ways Advisors can simplify their books of business today—while maximizing the overall value—for a smoother transition approaching retirement.
September 2023
Sanjay Singla
Vice President, Intermediary Distribution, Central Ontario, BMO Global Asset Management
Read bioMaking the move to managed money
It can be said that value lies in the eyes of the beholder. However, for many Investment Advisors (IAs) I’ve spoken to, certain factors matter more than others when buying or selling a book—including the makeup of your product shelf. In decades past, the traditional stockbroker model placed a heavy burden on the owner’s particular, non-transferable skills. A buyer could not claim to replicate the secret sauce of a lone Advisor’s methodology, which likely meant weaker retention after the transition took place. Since then, the industry has moved toward a service-oriented model using third-party managed money. More and more IAs have pivoted to simpler investment offerings that outsource the bulk of portfolio management duties to dedicated investment teams, freeing up the time needed to build client relationships, leading to a stronger and more valuable business.
Value lies in the eyes of the beholder.
While this transition doesn’t happen overnight, making the switch can help maximize your business’s value and simplify your practice. But where to begin? Using BMO Global Asset Management’s wide range of core and satellite solutions, here are three ways to streamline your product shelf.
1. Start with core building blocks
Rather than creating individual portfolios for each client, you can build model portfolios for different client types and customize them to specific needs. The BMO ETF Portfolios are popular core solutions, which combine the advantages of ETFs—like greater liquidity and cost-efficient access to all markets—with the convenience of mutual funds in one low-fee investment.
Overall, there are six different portfolios available for every phase of the “investor lifecycle.”
BMO Fixed Income ETF Portfolio
BMO Conservative ETF Portfolio
BMO Equity Growth ETF Portfolio
You’ll find a traditional 60/40 mix between equities and fixed income securities in the BMO Balanced ETF Portfolio, while the BMO Fixed Income ETF Portfolio aims to reduce volatility and preserve the client’s investment. All of BMO’s ETF Portfolios are actively managed by the BMO GAM Multi-Asset Solutions Team, or MAST, who use a consistent investment philosophy and proprietary “Five Lenses” framework to help drive their asset allocation decisions.
Add sustainable income for retirees
For Advisors with many retirement-aged clients, the BMO Retirement Portfolios might be another core managed solution worth considering. While the path to retirement is different for everyone, Canadians are facing many of the same challenges, such as an increasing cost of living and less pension support from employers.
Our three different retirement portfolios are designed to limit the uncertainty of market volatility and support clients throughout retirement. On one side, our most conservative option, the BMO Retirement Income Portfolio, offers capital protection and some potential for growth. Whereas, on the other side, the BMO Retirement Balanced Portfolio offers more growth potential based on greater equity allocation. The BMO Retirement Conservative Portfolio sits nicely in between.
Fixed Income
| Asset Allocation | BMO Retirement Income Portfolio | BMO Retirement Conservative Portfolio | BMO Retirement Balanced Portfolio |
|---|---|---|---|
| Fixed Income | 65%-85% | 50%-70% | 30%-50% |
Equities
| Asset Allocation | BMO Retirement Income Portfolio | BMO Retirement Conservative Portfolio | BMO Retirement Balanced Portfolio |
|---|---|---|---|
| Global Equities* | 0%-10% | 5%-25% | 20%-40% |
| BMO Risk Reduction Equity Fund | 10%-30% | 15%-35% | 20%-40% |
* Includes Canada, U.S. and International Low Volatility, Broad Market and High Quality equity ETFs. Also includes hedged to CAD allocation.
2. Customize with satellite strategies
Many Advisors will be familiar with the “core and explore” approach, where a portion of a client’s portfolio holds traditional fixed income securities—such as major market indices—providing stability and long-term growth and another part invests in slightly riskier stocks or more specific sectors or regions. We have many complementary solutions to further streamline your product shelf and help clients achieve their investment goals.
Concentrated global equity: The BMO Concentrated Global Equity Fund and BMO Global Income and Growth Fund, for example, retain the spirit of a stock-picking approach with all the advantages of a managed solution. The BMO Concentrated Global Equity Fund offers concentrated exposure to 20-25 high quality, mega-cap growth stocks that are tied to long-term secular growth trends and poised to beat the benchmark over the longer term. The BMO Global Income and Growth Fund, on the other hand, uses the expertise and insights from over 40 investment professionals and leverages their 50 to 70 top ideas in one global balanced Fund.
Investing in innovation: The BMO Global Innovators Fund is a newer addition to BMO’s suite of global equity solutions, featuring a global portfolio of 50-60 equities that are positioned to benefit from innovation trends—like artificial intelligence—over the next decade in what many believes is the next industrial revolution. BMO’s Global Equity Team uses a differentiated approach, which combines their Global sector insights with macro insights from MAST, a strategy with a deep expertise that uses top-to-bottom knowledge of various sectors to contribute to their best ideas.
For books that are heavy on income-focused clients, BMO’s suite of covered call solutions offers several strategies that would complement BMO’s ETF Portfolios and BMO Retirement Portfolios. While market conditions play a significant role in these strategies’ performance, covered call solutions have provided a similar overall return to the underlying portfolio with a lower risk level over the long term.
BMO’s Covered Call Suite: There are seven mutual funds available, each with the ability to add extra income to an investor’s portfolio and provide a buffer against potential losses.
- BMO Covered Call Canadian Banks ETF Fund: Offers the stability of Canada’s “Big Six” banks with the potential for dividend growth.
- BMO Covered Call Canada High Dividend ETF Fund: Invests in larger-cap companies, including banks, energy businesses and major telecoms.
- BMO Covered Call U.S. High Dividend ETF Fund: Holds larger tech-oriented businesses, such as Apple and Microsoft.
- BMO Covered Call Europe High Dividend ETF Fund: Focuses on consumer staple-type organizations and mass health care companies.
- BMO Covered Call Energy ETF Fund: The underlying ETF, the BMO Covered Call Energy ETF, invests in a diversified portfolio of energy and energy-related companies.
- BMO Covered Call Utilities ETF Fund: The underlying ETF, the BMO Covered Call Utilities ETF, provides exposure to an equal weight portfolio of utilities, telecoms and pipeline companies.
- BMO Global Enhanced Income Fund: Provides one-ticket access to multiple covered call strategies to supercharge the income received from your portfolio.
3. Consider guaranteed investment funds to preserve wealth
Lastly, we’ll address a question many Advisors with older clients receive: I’ve built my nest egg, now what? BMO’s Guaranteed Investment Funds, also known as segregated or seg funds, offer both recurring revenue and income—what you might call “sticky” revenue to maximize the value of your business, or “sticky” returns for income-oriented clients.
Still, there are a lot of misconceptions around seg funds, which often result in them being excluded from client portfolios. The reality is, if you haven’t had the time to consider them more closely, you may have overlooked some key executorship benefits for your clients, particularly now, as Baby Boomers seek ways to efficiently transfer wealth to the next generation.
A segregated fund policy can offer the same diversified investment opportunities as a mutual fund to help build wealth. But in addition, segregated fund policies provide important wealth protection, business and estate planning solutions. There are several client segments within your book who can benefit from seg funds, including business owners seeking creditor protection for their personal non-registered assets. This could also include so-called “GIC refugees,” risk-averse investors who traditionally seek guaranteed investment certificates (GICs), but are looking for alternative solutions. The most compelling case, however, lies with seniors and retirees aged 70-85 who are looking for estate protection.
Make every investment count
Whether you’re buying or selling a practice, compatibility matters. Stock-picking brilliance cannot be reliably passed from one owner to another, nor is there any guarantee that clients will automatically transfer their trust. Moreover, there would likely be a smaller pool of buyers, as a new generation of Advisors evolve their value proposition, moving toward a service-model and, often, a fee-based financial planning approach.
This method is not only worth more on a dollar-for-dollar basis than traditional practices, as recurring revenue is typically worth three times as much as non-reoccurring revenue, but outsourcing day-to-day portfolio management can also free up time to build client relationships. Ultimately, making a conscious effort to change something today could save time and hassle down the road.
Please contact your BMO Global Asset Management wholesaler for any additional support and guidance.
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