In the course of helping clients make better investment decisions, we are often asked questions about taxes and estate planning, and find a great deal of value in having those conversations with our clients.

While our consultants are not tax experts, and therefore do not offer tax opinions, we are investment experts and understand how tax and estate planning interacts with our clients investment decisions. We therefore work with clients’ existing advisors to identify the best-fitting, most efficient and effective solutions for our clients. In cases where clients do not have existing tax or estate planning advisors, we are happy to introduce them to our network of trusted professionals with whom we have worked in the past.

Impact investing is often a key goal of many of our clients and several have their impact investing objectives embedded in their Investment Policy Statement (IPS).

Impact investing can be accomplished in several different asset classes. The parameters are determined in concert and in accordance with the client’s vision or specific risk parameters.  

Prime Quadrant can support a client’s impact mandates by:

•          Reviewing the merits of existing impact managers and opportunities or undertaking new manager searches  

•          Helping craft an Impact vision for (or as a part of) the client’s portfolio

•          Connecting the client, as appropriate, with additional impact research and advisory resources

Prime Quadrant is very fee conscious. We often negotiate discounted institutional pricing for our clients by virtue of our large asset base. When analyzing investment opportunities on behalf of clients, we are able to use our extensive experience in sourcing deals to notify clients when fees are excessive. In cases where Prime Quadrant has input on structuring fee terms for a new investment, we make sure that clients are properly rewarded before the investment manager is entitled to earn significant fees.

We do not know of many (or perhaps even any) direct competitors to Prime Quadrant because of our unique model in the industry. We do, however, expect this to change over time as investors learn more about the pitfalls in the traditional financial advisory models. In fact, even our clients, who have been around the financial block, have said that our approach is radically different from anything else that they have ever encountered in the industry.

Unlike most advisors today, we are paid only by the client and only for truly unbiased advice. Fees are determined by the client’s needs, the breadth of services they require, and the amount of complexity involved.  Our compensation is not based on assets under management or commissions nor whether clients invest in any particular investment product. Not only that, but we provide our clients with internal research on, and access to, exclusive deal flow across all asset classes and investment strategies – opportunities that would otherwise be virtually inaccessible to non-institutional investors.

While we may recommend particular investments or asset class allocations as part of a client’s overall portfolio structure, we are agnostic as to whether an investor invests in any particular investment or strategy. Since our job is to make sure every client is doing as well as they can, and is invested with the best people in the business, we have no economic incentive for clients to transact.

Most money managers, on the other hand, will only benefit if and when you invest in their fund or in the strategy they are employing.

Traditional financial advisors operate with a scalable toolkit – i.e., stocks, bonds, options, mutual funds, etc. – whereas asset classes or investments that are not scalable across thousands of clients tend to be ignored.

While this limitation may be the only option for ordinary retail investors, who can neither afford nor access other asset classes, such as Real Estate, Infrastructure, Credit, and Private Equity, it is insufficient for ultra-affluent or institutional investors, who can achieve more with their investment portfolios.

Besides the limitations of investment vehicles, traditional advisors usually charge on the basis of assets under management (AUM). In our view, investors are better served when the amount of fees they pay for advice is based on their needs and the amount of complexity involved.  A traditional advisor who charges based on the AUM of your portfolio could be compared to a doctor asking you to step on the scale to determine how much your surgery will cost.

Additionally, Prime Quadrant advises our client families on their overall portfolio, notwithstanding where the assets are held.  By utilizing this approach, we can ensure we are providing advice regardless of whether the client chooses to invest in any particular investment. We are also able to provide our client families with consolidated reporting on their entire portfolio; a traditional financial advisor will only provide reporting on the assets held with them.

Since every client relationship is unique, there is no set fee for Prime Quadrant clients. Fees are determined by the client’s needs, the breadth of services they require, and the amount of complexity involved. That being said, fees are always agreed upon in advance, so the clients are never surprised when they are charged.

There is no minimum investment size to become a Prime Quadrant client. That being said, Prime Quadrant charges a minimum annual fee which tends to make sense for clients who have investable assets of at least several million dollars.

We believe that investments are not an end in and of themselves.  They are merely the building blocks for constructing portfolios that are designed to give our clients the highest probabilities of achieving their goals.

We have developed an all-weather approach that can be applied across market cycles, which is best suited for longer-term or multi-generational investors.

We proactively source the highest conviction opportunities across all asset classes, which provide attractive risk-adjusted returns on the best terms that clients can access, while endeavoring to minimize the risk of permanent capital loss.  

Our approach is guided by a total portfolio approach and a “risk first” mindset. This involves a robust discipline of diversification across different asset classes, geographies, and liquidity and time-horizon frameworks.

Our due diligence, monitoring and risk-management processes involve both quantitative and qualitative analysis, with the rigor and discipline employed by the largest institutional investors.

For those investments not held directly by clients, we recommend using NBIN as a custodian. We have negotiated preferential custody fees for our clients.

Diversification is not a simple formula and means more than merely holding a large number of investments in a portfolio. Proper diversification involves investing across many different asset classes that derive value from unique sources. (If you have two assets that are moving in completely opposite directions, the seemingly nonexistent relationship suggests they are driven by two different sources).

Every asset class has its ups and downs, and periods when risk is prevalent. An investor might be tempted to keep things simple and focus on one asset class without realizing they are over-exposed to the specific risks of that space. When there are wild swings in any one asset class, diversification can help to avoid agonizing or unbearable losses.

When it comes to geographic diversification, many investors are held back by “home bias” (i.e., a tendency to invest a disproportionate amount in domestic assets or equities). This is particularly important for Canadians, who are predisposed to heavily overweight their portfolios to the Canadian market even though Canada represents only a small part of the global economy. Investors must be wary that countries, like asset classes, have their ups and downs.

Main takeaway: Diversification is investing across different asset classes and geographies, and if done intelligently, can reduce the overall volatility of portfolios.

Despite the efforts of brilliant investors and academics throughout history, the unfortunate fact is that no one has been able to develop a comprehensive measurement that encompasses all types of risk. There is good reason for this. Risk is multifaceted and contains many different elements, most of which are qualitative. How do you measure happiness? How do you measure success? You could try, but you probably wouldn’t want to wager your money on whatever measurement you come up with.

Main takeaway: The best way to evaluate the riskiness of an investment is to understand how it makes money and does not lose money. This process takes time, energy, education and experience.

Protecting oneself from inflation is one of the most important goals of ultra-affluent, “stay rich” investors. As is commonly known, each year – in inflationary economies, like ours – inflation erodes the purchasing power of assets and makes each dollar worth less than the year before.

The best way to protect oneself from inflation is to invest in assets that offer protection. Since inflation is the raising of prices, investments that offer inflation protection typically are those representing companies that have the ability to increase net income in unison with overall prices in the economy. Real Estate, for example, has this attribute as rents can generally be increased in line with a rise in price increases found in the broader economy. Many companies that sell goods and services also have this admirable quality. Some of the most inflation-protected protective assets are the indispensable staples of any economy and/or society, such as farmland, oil or natural gas, and other commodities or hard assets.

Conversely, one investment to avoid in inflationary environments is bonds. Bonds pay investors a predetermined and fixed amount of dollars over time. So, if inflation is higher than initially expected, investors who sell prior to maturity will get less money than they bargained for. In public markets, this typically results in the value and price of bonds falling. An exception to this phenomenon is floating-rate bonds, which adjust interest payments upwards in response to a rise in inflation and interest rates.

Main takeaway: Over time, inflation is the silent killer of fortunes. Certain asset types, such as hard assets, for example, can protect investors from the steady attrition of inflation. Inflation is most detrimental to fixed rate bond investors.

The definition of Alternative Investments is very simple: anything other than stocks, bonds, and cash. The investments themselves, however, are varied and complex. Alternative asset classes are the tools of the diversified investor, and include things like:

• Real Estate
• Private Equity
• Infrastructure
• Commodities
• Various hedged strategies

Alternative asset classes should, at least in theory, provide returns that are not as correlated with public markets (e.g., stocks). Creating a portfolio of assets where some “zig” when others “zag” is important for reducing risk and volatility over time.

Main takeaway: Alternative investments, when properly chosen, are critical for strengthening and protecting a portfolio because they can behave differently than the traditional asset classes of stocks, bonds, and cash.

The term “hedge fund” is one of the most widely misused terms in the investing industry. The first problem is that many “hedge funds” do not hedge – i.e., they don’t offset long positions with short positions.

The variety of hedge fund strategies is virtually endless. One hedge fund may just buy a few stocks in the public market, while another might trade rapidly in derivative and option markets to capture large amounts of miniscule profits. The term “hedge fund” simply refers to the structure of the investment, but success for investors is ultimately determined by the strategy being employed and the people managing the money.

Main takeaway: Hedge funds are investment structures. There are thousands of hedge funds in the world and hundreds of different hedge fund strategies. Each one is different.

To know what an appropriate management fee is for an investment, you must understand the strategy being employed and find out whether you can get the same thing for less elsewhere.

In an ideal world, management fees should be based on the amount of value being added by the people managing the investments and the difficulty of executing the strategy. The industry norm today is not ideal. Typically, the level of management fees depends on the structure of an investment, like whether you are buying an exchange-traded fund (ETF), a mutual fund, or a so-called “hedge fund”. The annual management fees for these different structures can range from 0.30% to over 3.0%, even if they deliver the same results.

As a rule of thumb, investors should not pay high prices for returns that are dictated by the ebbs and flows of the market, like you would find in a highly diversified portfolio of publicly-traded stocks. This strategy is best pursued in a low-fee ETF because the investment manager cannot add much value and executing the strategy is relatively simple. On the other hand, investments that require high levels of manager expertise, such as distressed investing and arbitrage strategies, can only be accessed within higher-end fee structures.

Main takeaway: The “appropriate” level of investment management fees depends on how much value an investment manager is adding, the complexity of executing the strategy and whether it is possible to get the same strategy and level of execution for lower fees.

Everyone wants to earn a “good” rate of return on their invested capital. But what does this mean? Returns can only be good or bad compared to other investments that have similar risk. A good return for a bond is different than a good return for a stock, which is different than a good return for real estate and so on. So the question to ask first is: Can I earn a better rate of return on my money while taking less risk? Anything that offers better returns while taking on the same or less risk is said to offer better “risk-adjusted returns”. The key is focusing on risk-adjusted returns rather than nominal returns. In fact, understanding the risks of an investment is as important as knowing the rate of return that is being promised.

Main takeaway: Returns shouldn’t be judged in isolation because you always have to look at the amount of risk you’re taking. A “good” rate of return depends on what the investment is and the possibility that it could go poorly.

This is one of the most difficult questions to answer. It’s also one of the most important. The challenge for investors is that the answer usually comes from people in the investing industry – like ourselves – who have a vested interest. With that in mind, here is our view.

First, the best people to trust are those that have a financial incentive to align their interests with yours. If an investment professional gets paid a commission for recommending investment products to you, or for turning over the investments in your portfolio, it is not exactly a great start. Second, since you should never blindly trust anyone, the person to trust should be able to explain the reasons behind investment decisions and how the investments actually work. The analogy we use is that you are the CEO and your investment professional is your Chief Investment Officer – as CEO, you should understand everything that your employee says, even if you can’t carry out the tasks yourself. And finally, you should trust someone that invests his or her own money in the same investments that they show to you.

Main takeaway: Investment professionals who (i) institute best practices when it comes to their own remuneration, (ii) explain why and how investments work, and (iii) participate in the same investments are more aligned with your interests than those who don’t.