Why the Bundled Approach? The bundled approach means that clients (to whom this approach is appropriate for) have 100% of their portfolios invested into a combination of custom, internally managed investment pools. We use the bundled approach for portfolios less than $500,000 so that clients with this amount of investment can gain exposure to all of the investment themes we follow, regardless of the size of their portfolio.

The bundled approach is designed to have one all-in fee capped at a competitive pricing level. The total management fee is 1.50% per year.

Why the Unbundled Approach? As your portfolio increases in size, the complexity of your portfolio may increase in the following ways:

  • You may have a greater number of individual accounts, such as an RRSP, spousal RRSP, locked-in retirement account (LIRA), TFSA, RESP and non-registered investment account.
  • You may be closer to retirement, which would typically require greater attention to be paid to your portfolio to ensure that the value of your capital is protected through potential market downturns.
  • Your income may be higher, which may also require a greater focus toward tax-efficiency.

Your portfolio management fees should i) reflect this greater personalized attention yet ii) also be minimized where possible so that you are able to potentially maximize your investment returns with minimal risk.

Nelson Portfolio Management Corp. recommends that clients with greater than $500,000 consider the benefits of the Unbundled Approach:

  • Lower NFC Tactical Asset Allocation Pool management fees.
  • Fixed fee annual portfolio management fees, based on the size and complexity of your portfolio on your portfolio anniversary date.
  • Full and open disclosure of all fees paid by the client.
  • A declining fee structure: when all fees are added together, the fees, as a percent of the portfolio value, decline over time. This potentially helps the client retain a greater portion of their investment returns year over year.

Why is there a strong focus on risk management?

The short answer is: because the relationship between risk and return is NOT a 1 to 1 relationship.

Here’s the longer answer: Our primary goal when managing money is to create an appropriate risk adjusted rate of return. Our research tells us that the historical relationship between risk and return is typically a 3 to 1 relationship. 1 This means that the higher return you strive to achieve, the degree of volatility to achieve this higher return may increase by three times as much. It is our opinion that this is one of the reasons why people are often disappointed in their portfolio returns over time: investors will take more risk, expecting a higher rate of return, year over year. Yet, due to this higher degree of volatility and risk, the portfolio fluctuates through a much wider range. This means that a higher risk portfolio may actually create a positive return less frequently than a lower risk portfolio. We discuss this issue further in the Nelson Portfolio Management Corp. Client Information Document. Any portfolio that can see significant gains is also a portfolio that can realize significant losses, if the portfolio risks are not managed proactively.

Therefore, it is our view that an ideal return is one that is consistent over time with minimal fluctuations. If the costs to managing the portfolio are also lower (vs. other similar investment alternatives), then mathematically the portfolio manager does not have to take the same level of risk to achieve the same level of return.

It is for these reasons that Nelson Portfolio Management Corp. strives to create a consistent, risk adjusted, tax-efficient return with a lower cost portfolio structure.

Why is there a strong focus on minimizing fees?

It is our view that portfolio management fees can be one of the great killers of wealth over time. A 2% management fee, for example, represents 25% of the total return of a portfolio that generated a before fee return of 8%. Over a long period of time, portfolio management fees can be many hundreds of thousands of dollars, depending on the size of the investment portfolio. If these fees could be reduced by just 15% or 20%, then two important possible outcomes may arise:

  1. The lower fee portfolio may create the same long term returns as the higher fee portfolio, but with less risk. 2
  2. The lower fee portfolio will create significantly greater amounts of wealth if a similar rate of return is achieved compared to the higher fee portfolio. However, because the fees are lower, greater compounded wealth is the likely result.

As a portfolio manager, we believe it is our responsibility to try to manage client portfolios as efficiently as possible, so as to minimize fees while also minimizing volatility and risk.

How does Nelson Portfolio Management Corp.(NPMC) minimize fees?

To help minimize fees NPMC does the following:

  • All NPMC clients are invested into the NFC Tactical Asset Allocation Pool in some manner. 3 By having all clients exposed to the pool in some way, the pool costs are spread across the widest number of clients and a significant amount of assets. This approach helps to keep the costs to manage the pool low.
  • The portfolio management fees applied to the Unbundled Approach clients is a fixed dollar fee, reviewed and reset on an annual basis. 4 With the fixed dollar fee approach, NPMC charges a specific dollar fee based on the value of the client portfolio on the client’s annual anniversary. If new assets are added throughout the year, a new fee is not determined or charged until the next anniversary date. This can help increase the rate of return of the client portfolio throughout the year.  Once the fees are paid the client retains the rest of the portfolio return for the coming year.
  • The fixed fee portfolio management fee can be drawn from the client account or paid by cheque by the client. If the client pays by cheque directly to NPMC, then the after-fee compounded return of the portfolio is greater than if the fees were drawn from the client account. This is another way that NPMC can help clients increase their portfolio returns.
  • To minimize transaction costs, for those clients in the Unbundled Approach, NPMC strives to invest in securities, in the 40% portion of the portfolio (ie: the portion of the portfolio outside of the NFC Tactical Asset Allocation Pool) that are expected to be held for a longer period of time.
  • When all fees are considered, the fees, as a percent of the value of the client account, decline as the value of the portfolio rises. For clients with up to $500,000, typical fees will be approximately 1.50% of the value of the portfolio. For clients with greater than $500,000, total fees from all sources will typically be less than 1.50% of the value of the portfolio. For clients with greater than $1 million invested, total fees from all sources are typically less than 1% of the value of the portfolio. Fees included in this calculation included all imbedded product costs, transaction costs and portfolio management fees paid to NPMC.  These details are illustrated further in the NPMC Client Information Document.

These points demonstrate how NPMC strives to minimize portfolio management fees so as to increase potential returns while also decreasing portfolio risks.

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  1. See references in the Reduce Fees and Expenses section of the Nelson Financial Consultants section of this website
  2.  The portfolio manager may be able to create the same after-fee return, but will not have to take as much risk to do so.
  3. The Bundled Approach clients are 100% invested while the Unbundled Approach clients have 60% exposure to the pool.
  4.   By comparison, most portfolio management fees are based on a fee percent, where this percent fee is applied each month. As the portfolio rises or falls throughout the year, the fees charged to the account will also rise and fall, but the fee percent remains the same.