Vetting Your Investment Manager

Courtesy of Scott Pountney, Empire Life, Posted 12 Sep 2017


Now that the digital age is upon us, we’ve become experts at comparing various products and services. Conducting due diligence has never been easier. At the click of a button we can compare product features, sort by top sellers, and even read reviews and recommendations from other customers.

Due diligence with the investment arena has also become easier for both advisors and investors alike. The internet is chock-full of new tools, questionnaires, calculators, and recommended lists, to help make us better investors.

So, if you’re considering putting some money to work with an investment manager, where’s the best place to start your due diligence? The most obvious answer is to examine the investment manager’s track record of performance. Yes, a portfolio manager’s record of success in various market environments is a crucial step in determining where to invest your money.

However, before getting to this step, let me suggest three key things to look at first. Step one, search for, and review the Independent Auditor’s Report for the fund(s) in question. This can be found in the annual financial statements for the funds and can usually be found on the fund manager’s website. You’re looking for two things here - a reputable auditor; the auditor’s opinion of the financial statements.

Step two, look for a separation of responsibilities between investing and compliance. This simply means that the Portfolio Manager of a chosen fund should not also be the firm’s Chief Compliance Officer. This normally isn’t an issue at larger firms but can quite often be the case at smaller start-up firms and when looking at alternative investments, including hedge funds.

And finally, the third step is to review the registration details of the Portfolio Manager. This can be done very quickly at the CSA website (www.securities-administrators.ca). The names of all registered Portfolio Managers will be listed here as well as any potential red flags regarding past indiscretions.

Performing these steps is a simple, fast and easy way to protect yourself from investment fraud by being an informed investor.