Lori Pinkowski Reviewing The Best Strategy For A Secure Retirement
December 20th, 2010 12:07 PM
Originally published February 2008
Any set of fresh, professional eyes can spot a flaw or two in strategy or execution of an investment portfolio.
Lori Pinkowski has thoroughly reviewed so many, she can also analyze the major pitfalls that financial advisors and their clients need to avoid.
Pinkowski, a senior investment advisor with Canaccord Capital, specializes in helping people secure a comfortable and rewarding retirement. “This means taking a conservative approach – diversification, lower fees and maximized return for solid growth – customized to the client’s individual needs.”
However, when she reviews portfolios for her prospective clients, a complimentary service she’s been offering for years for high net worth individuals, “It’s surprising how often we see portfolios with low returns and stagnant holdings, that are too diversified or not diversified enough, and are either more aggressive or conservative than the investor realizes. And all too often, we see investors paying far too much in various fees.”
Fee-based vs. commission-based.
It’s still not uncommon to find investors paying commissions on trades when they do a lot of trading, or having a fee-based structure when there is little trading. “I often recommend having commission-based accounts for conservative investors. The costs can be lower overall, depending on the frequency and size of trades. Many investors who are with bank firms are pushed into fee-based accounts instead of commission based -- and usually not to their advantage.”
Extra commissions.
“We’ve also seen examples in our portfolio reviews where the broker has taken advantage of a client.” On fee-based accounts, the advisor is getting paid a percentage of the total portfolio, usually one to two per cent. But they can also sneak in more commission when they get clients to invest in new issues offered by the brokerage firm, receiving up to an extra three per cent.
“It’s perfectly legal, and sometimes it can be in the client’s best interest,” Pinkowski allows. “But usually it’s not. Over and over, we see where brokers have put clients into new issues that are more speculative than what the client needs, that don’t meet the client’s income requirements, or that create an unbalanced portfolio, and it’s obvious they’ve done this for the extra commission. When you review this, it often becomes clear that the client had no idea what they were investing in and that their adviser was earning double fees.”
There are also other extra commissions. “In one case, a client had $150,000 in a hedge fund out of a $500,000 portfolio -- too much in one holding, but that wasn’t the worst thing about it. The hedge fund was underperforming for years and it charged six per cent in management expenses. Meanwhile the broker was receiving an additional 0.9 per cent annually for holding the fund. The client was already paying the advisor two per cent on all the holdings in a fee-based account, including this hedge fund. As well, the broker had received a further five per cent on the fund purchase up front. The client was locked in and then had to pay three per cent to get out of it! The client would have never have seen this on their statement. It was the worst I have ever seen.”
Fund fees.
Mutual funds can be loaded with fees, and there may be deferred service charges that kick in if the investor needs to make changes and sells the funds early. “We’ve heard investors say they were told ‘this won’t cost you anything,’ and then they find out that they actually have to pay five or six per cent to sell the fund.”
When fund fees are performance-based, the client is only paying a lot if they’re getting great returns. But some funds charge high fees regardless of how the fund performs.
“Often, we see portfolios with a large portion of holdings in mutual funds that have a performance that’s about the same as the index,” Pinkowski notes. “So the client is paying two or three per cent for mutual fund fees when they could be investing in index funds and getting the same return, but paying just a half a per cent in fees.”
Diversification.
“One thing we see fairly often when we review a family’s holdings is that the husband’s and wife’s portfolios are identical,” Pinkowski says. “This usually results in under-diversification and sometimes an over-concentration of investments in one stock or one sector. The advisor should be taking into account the total family asset mix.”
Too much diversification is bad as well, such as owning too many stocks or mutual funds. Commissions or fees involved in each holding can cut your return. As well, there’s a danger of missing opportunities or exposures while trying to track, analyze and manage a broad array of investments.
“Investors need to overweight certain stocks and underweight others, otherwise you would essentially own an index fund.”
Stagnation.
Sometimes, when Pinkowski looks at a portfolio, it’s apparent it hasn’t been reviewed critically for a long time. “We see underperforming stocks and funds that are being held for five years or more, without changes,” she notes. “And usually, when that’s happening, it’s also clear that there has been little contact with the advisor.”
“It’s a two-way street,” says Pinkowski. “The advisor has to be in contact – with regular reviews of the whole portfolio as well as on-going communication about market changes. And the client has to feel comfortable calling the advisor whenever there are questions or concerns.”
Risk level.
All investors have their own individual financial goals – and a particular level of risk they are willing to take. “When we look closely at a portfolio, and analyze the potential returns and possible downsides, an investor is sometimes shocked at what we find,” Pinkowski says. “We find investors who want high returns and can afford to take the risks, but whose portfolios are actually quite conservative -- they’re not going to achieve their goals.”
Worse, though, is finding investors who are relying entirely on their holdings to provide for their retirement, but whose portfolios are quite aggressive. “In these cases, it’s critical to make adjustments to ensure these clients can have the peace of mind they need.”
The review.
It’s not too hard to find little faults in any portfolio, or for one broker to be able to critique the efforts of another. For Pinkowski, it’s important to be more comprehensive in analyzing a prospective client’s holdings.
“That means getting some understanding of the client’s investment goals. Then we can present our breakdown of what the client currently has, what changes we would recommend, and what the portfolio would look like with those changes made – holdings, returns, risks, fees, income, taxes.”
“Our portfolio analysis also includes specific points of interest and comments about individual investments,” she says. “And it focuses on what’s good and what’s not so good – for that particular client.”
The time that potential clients spend reviewing their portfolios with Lori Pinkowski may be their most strategic investment.
Copyright North Shore Magazine Issue Feb - Mar 08
Any set of fresh, professional eyes can spot a flaw or two in strategy or execution of an investment portfolio.
Lori Pinkowski has thoroughly reviewed so many, she can also analyze the major pitfalls that financial advisors and their clients need to avoid.
Pinkowski, a senior investment advisor with Canaccord Capital, specializes in helping people secure a comfortable and rewarding retirement. “This means taking a conservative approach – diversification, lower fees and maximized return for solid growth – customized to the client’s individual needs.”
However, when she reviews portfolios for her prospective clients, a complimentary service she’s been offering for years for high net worth individuals, “It’s surprising how often we see portfolios with low returns and stagnant holdings, that are too diversified or not diversified enough, and are either more aggressive or conservative than the investor realizes. And all too often, we see investors paying far too much in various fees.”
Fee-based vs. commission-based.
It’s still not uncommon to find investors paying commissions on trades when they do a lot of trading, or having a fee-based structure when there is little trading. “I often recommend having commission-based accounts for conservative investors. The costs can be lower overall, depending on the frequency and size of trades. Many investors who are with bank firms are pushed into fee-based accounts instead of commission based -- and usually not to their advantage.”
Extra commissions.
“We’ve also seen examples in our portfolio reviews where the broker has taken advantage of a client.” On fee-based accounts, the advisor is getting paid a percentage of the total portfolio, usually one to two per cent. But they can also sneak in more commission when they get clients to invest in new issues offered by the brokerage firm, receiving up to an extra three per cent.
“It’s perfectly legal, and sometimes it can be in the client’s best interest,” Pinkowski allows. “But usually it’s not. Over and over, we see where brokers have put clients into new issues that are more speculative than what the client needs, that don’t meet the client’s income requirements, or that create an unbalanced portfolio, and it’s obvious they’ve done this for the extra commission. When you review this, it often becomes clear that the client had no idea what they were investing in and that their adviser was earning double fees.”
There are also other extra commissions. “In one case, a client had $150,000 in a hedge fund out of a $500,000 portfolio -- too much in one holding, but that wasn’t the worst thing about it. The hedge fund was underperforming for years and it charged six per cent in management expenses. Meanwhile the broker was receiving an additional 0.9 per cent annually for holding the fund. The client was already paying the advisor two per cent on all the holdings in a fee-based account, including this hedge fund. As well, the broker had received a further five per cent on the fund purchase up front. The client was locked in and then had to pay three per cent to get out of it! The client would have never have seen this on their statement. It was the worst I have ever seen.”
Fund fees.
Mutual funds can be loaded with fees, and there may be deferred service charges that kick in if the investor needs to make changes and sells the funds early. “We’ve heard investors say they were told ‘this won’t cost you anything,’ and then they find out that they actually have to pay five or six per cent to sell the fund.”
When fund fees are performance-based, the client is only paying a lot if they’re getting great returns. But some funds charge high fees regardless of how the fund performs.
“Often, we see portfolios with a large portion of holdings in mutual funds that have a performance that’s about the same as the index,” Pinkowski notes. “So the client is paying two or three per cent for mutual fund fees when they could be investing in index funds and getting the same return, but paying just a half a per cent in fees.”
Diversification.
“One thing we see fairly often when we review a family’s holdings is that the husband’s and wife’s portfolios are identical,” Pinkowski says. “This usually results in under-diversification and sometimes an over-concentration of investments in one stock or one sector. The advisor should be taking into account the total family asset mix.”
Too much diversification is bad as well, such as owning too many stocks or mutual funds. Commissions or fees involved in each holding can cut your return. As well, there’s a danger of missing opportunities or exposures while trying to track, analyze and manage a broad array of investments.
“Investors need to overweight certain stocks and underweight others, otherwise you would essentially own an index fund.”
Stagnation.
Sometimes, when Pinkowski looks at a portfolio, it’s apparent it hasn’t been reviewed critically for a long time. “We see underperforming stocks and funds that are being held for five years or more, without changes,” she notes. “And usually, when that’s happening, it’s also clear that there has been little contact with the advisor.”
“It’s a two-way street,” says Pinkowski. “The advisor has to be in contact – with regular reviews of the whole portfolio as well as on-going communication about market changes. And the client has to feel comfortable calling the advisor whenever there are questions or concerns.”
Risk level.
All investors have their own individual financial goals – and a particular level of risk they are willing to take. “When we look closely at a portfolio, and analyze the potential returns and possible downsides, an investor is sometimes shocked at what we find,” Pinkowski says. “We find investors who want high returns and can afford to take the risks, but whose portfolios are actually quite conservative -- they’re not going to achieve their goals.”
Worse, though, is finding investors who are relying entirely on their holdings to provide for their retirement, but whose portfolios are quite aggressive. “In these cases, it’s critical to make adjustments to ensure these clients can have the peace of mind they need.”
The review.
It’s not too hard to find little faults in any portfolio, or for one broker to be able to critique the efforts of another. For Pinkowski, it’s important to be more comprehensive in analyzing a prospective client’s holdings.
“That means getting some understanding of the client’s investment goals. Then we can present our breakdown of what the client currently has, what changes we would recommend, and what the portfolio would look like with those changes made – holdings, returns, risks, fees, income, taxes.”
“Our portfolio analysis also includes specific points of interest and comments about individual investments,” she says. “And it focuses on what’s good and what’s not so good – for that particular client.”
The time that potential clients spend reviewing their portfolios with Lori Pinkowski may be their most strategic investment.
Copyright North Shore Magazine Issue Feb - Mar 08
Photos
