The following comments represent the personal opinion of Doug Nelson and the philosophy of Nelson Portfolio Management Corp.

What services are you registered to provide?

Doug Nelson is registered as a Portfolio Manager through Nelson Portfolio Management Corp. Nelson Portfolio Management Corp. constructs portfolios using individual stocks, bonds, exchange traded funds and the NFC Tactical Asset Allocation Pool, to name a few.

Doug is responsible for making all final investment decisions in the client portfolios.

 

My advisor is recommending we set aside 1.5 to 2 years of income in a money market fund. The side fund will provide my income over the next 1 to 2 years so as to avoid drawing income at times when the portfolio value is down. Is this a good strategy?

My preference is to address the portfolio risk issue head on through effective portfolio design and risk management strategies. History tells us that significant downside moves in the market typically occur only 17% of the time. Therefore, it makes no sense to me to set aside 1.5 to 2 years of income in a money market fund earning 1% to 2% return so as to protect you against an event that happens only 16% of the time.1  In other words, the 7% to 15% of your portfolio set aside in the money market fund will be missing out on growth opportunities that occur 81% of the time. It makes far more sense to me to actively manage your risk as required over time by focusing on high probability investment outcomes.

 

My advisor is recommending a leveraged investment loan using mutual funds, as a strategy to increase my savings for retirement. Should I do this?

We recommend clients avoid investing in leveraged investment scenarios.

 

How does your fee structure work?

  • For the Bundled Approach: Clients with typically less than $250,000 invested, will be 100% invested into the NFC Tactical Asset Allocation Pool. The management fee and expenses on the pool is 1.50%.
  • For the Unbundled Approach: Clients with typically greater than $250,000 to invest, are encouraged to consider the Unbundled Approach. This approach breaks down the fees paid into the following areas: i) A fixed flat annual portfolio management fee (paid to Nelson Portfolio Management Corp.), ii) the management fee on the NFC Tactical Asset Allocation Pool (a 0.85% management fee; paid to Nelson Portfolio Management Corp.), iii) the imbedded portfolio management fee costs of any exchange traded funds owned in the client portfolios (these amounts are not income to Nelson Portfolio Management Corp.) and iv) an estimate as to the typical annual transaction costs (paid to NBIN Inc., the custodian of your portfolio).
  • We have created this type of fee structure so that you can see how your total portfolio management fees decline over time, as your portfolio rises in value. This information is illustrated in the Nelson Portfolio Management Corp. (NPMC) Client Information Document.
  • You will see a full disclosure of your expected portfolio management fees in the NPMC Portfolio Allocation Plan page as well as in your Investment Policy Statement. Further information on all portfolio management fees are provided in the NPMC Client Information Document.
  • The NPMC Client Information Document is provided to you as part of the overall NPMC Client Binder. This information is provided to you prior to signing any forms or agreements.

 

Where are my investments held?

All client accounts are held at the National Bank of Canada (www.nbcn.ca).  See the attached brochure for more information:  Welcome to National Bank Independent Network

 

What reports will I receive?

NPMC will send to you a quarterly portfolio package. This package contains a color commentary of our current market views as well as a quarterly performance report showing your historical rate of return and portfolio management fees paid.

Download our report for March 31, 2015.

 

How do I avoid being a victim of fraud?

The greatest incidence of fraud occurs when the client writes a cheque directly to the financial advisor, or a firm that the financial advisor owns and operates. This is fine if it is clear that you are paying for specific financial planning services and that the fee charged is only a few thousand dollars. However, you run the risk of being a victim of fraud if you write a cheque for $10,000, $50,000 or much more to the investment advisor so that they can make an investment on your behalf. It is extremely important to write the cheque directly to the financial institution that is holding your money.

In our situation, all deposit cheques are written to NBIN; all investment transfers are completed on NBIN forms; all statements received are from NBIN and all withdrawal cheques are produced by NBIN.

Another way to avoid a bad investment experience, is to invest only into areas that are 100% liquid at all times. This means that all investments held are traded on the open market and can be sold at any time. Try to avoid situations where products can only be sold on a “secondary market” that is provided by a financial institution. In our view, at the very time when you most want to sell a bad investment may well be a time when the financial institution is unable to provide a reasonable price on the “secondary market”. Therefore, to protect yourself, only deal with liquid, actively traded investments.

 

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  1.   68% of all distributions on a bell curve of portfolio returns lie within 1 standard deviation above and below the mean return.  The remaining possible returns thus occur 32% of the time.  Half of the time the returns are above the mean return (16% of the time) and half of the time the return are below the mean return (16% of the time).  We are not typically concerned about above average returns.  Therefore, our attention turns to 16% of the time when returns are well below average.