Investment Advisor versus Mutual Fund Representative versus Portfolio Manager, why does it have to be so confusing?
In the world of financial advising, it’s the wild west when it comes to job titles. You’ll see things like President, Wealth Manager, Financial Advisor, Life Coach, and so many more. Hopefully, this will change one day, and we’ll see uniformity across the board, but for now, the best way to determine an advisor’s capabilities is via their licensing.
The three that we’ll be covering today are Investment Advisor, Portfolio Manager, and Mutual Fund Representative, which we’ll start with first.
Mutual Fund Representative
A mutual fund representative is someone who is licensed to advise and sell mutual fund products. This means they can’t sell or provide any advice on investments such as stocks, ETFs, bonds, and others.
To become licensed, an individual has to take one of two courses. The Canadian Securities Course or Investment Funds in Canada. Yes, that is correct; no college or university education is required. Just one course, and you can start selling mutual funds.
So, if you look at your investment statements and all you see are mutual funds, there’s a good chance they are a mutual fund representative.
The second type of licensing we’ll be covering is for Investment Advisors. To become an Investment Advisor, three courses need to be completed.
- The Canadian Securities Course
- The Conduct and Practices Handbook
- Wealth Management Essentials
By completing these courses, an investment advisor can sell and provide advice on investments such as stocks, ETFs, and bonds, in addition to mutual funds. If you are working with an investment advisor, you can have a multitude of different investments. However, your advisor cannot make any changes to your portfolio (buys and sells) without your verbal consent.
Lastly, we have Portfolio Managers. In my opinion, two major factors allow Portfolio Managers to stand out.
The first is the ability to manage your portfolio with discretion. This means they can execute buys and sells within a portfolio without verbal authorization from clients. Why is this a benefit? It eliminates one of the conflicts of interest faced by investment advisors. As mentioned, if an investment advisor wants to buy or sell a security, they require a verbal confirmation from the client before executing a trade. This creates a conflict of interest as to which client should be contacted first. So, if an investment advisor has 200 clients, by the time the last person is contacted, the trade being completed might not be as favorable.
To give a portfolio manager discretion over an account, an Investment Policy Statement (IPS) needs to be completed. This protects clients in the sense that the Portfolio Manager must respect the IPS. If someone is a conservative investor, they cannot start speculating on penny stocks.
The second reason Portfolio Managers stand out is that they have a fiduciary duty to act in their client’s best interest. I know, right, you would think everyone in the financial industry would have a fiduciary duty, but that’s unfortunately not the case.
Importance of Fiduciary Responsibility
Here’s a quick example of why this is so important; let’s say you want to buy a dividend investment and you work with a mutual fund representative. The representative is only able to offer you solutions via a mutual fund. If there are other dividend investments such as ETFs that have performed better or have lower fees, the representative does not have a fiduciary responsibility to make you aware of this.
Course to be a Portfolio Manager
To become a Portfolio Manager, you would need either your CFA (Chartered Financial Analyst) designation or the CIM (chartered investment manager) along with the same courses as an investment advisor. Additionally, there is also an experience criteria that needs to be met.
I hope this was able to shed some light on the financial advising industry.