Conversations With Clients

Every six months or so, Bianca (High Rock's Certified financial Planning Professional, CFP) and I sit down with our clients (not all at once, mind you) to catch up: lots of conversations around what's new in our respective lives (and our family's lives, as we do practice family wealth management), a review of the client's financial plan (at High Rock, we call it a Wealth Forecast) and we provide an update on their investment strategy and portfolio growth. Some of these folks visit in person, but a good number prefer the remote technology that our "Go To Meeting" platform allows, means that they don't have to come downtown, deal with the outrageous automotive /bicycle traffic and pay ridiculous $ for parking. In the case of our clients outside of Toronto, especially our western clients, it is an absolute must. 

Are we on target to achieve their long-term goals? If yes, it is an easy conversation. If not, it requires a more diligent review and perhaps a slightly more difficult conversation around the why's and wherefore's. 

Late August and September are usually pretty busy review times because so many seem to have anniversary start dates that coincide with getting to it (signing up), financially speaking, once summer vacation draws to a close.

Longer-term clients, who have been working with me for, in some cases, close to 20 years, tend to be a little more difficult to get in front of because they have seen at least one if not two significant stock market downturns and are somewhat more in-tune with the nature of long-term goal achievement and know well that time has been and will continue to be on their side: for every ten or so years of investing (historically), you may get a couple of "off" years (usually at or around the end of an economic cycle), but seven or eight years of somewhat above average growth that pull all the annual average return data to reach levels at or above their target (per their Wealth Forecast) growth.

More recent client additions may be a little more anxious, especially if they have come to work with us in the last couple of years. Global stock markets have not exactly been cooking since late 2017 (see my blog from Aug. 13: "Global Equities Are Basically Where They Were In 2017").

Important to our conversations is the asset allocation mix. In times of stalling capital growth (mostly in riskier assets like equities) in these slower growth time frames, we have an abundance of income generating assets (interest from bonds and dividends) that generate approximately a 3% stream of cash into the portfolio over the course of a year (for a fully invested 60/40, equity/ fixed income mix). Bonds that generate less tax friendly income, usually be held in tax deferred or tax sheltered accounts like RSP's and TFSA's for greater tax efficiency.  This cash flow becomes a little more important for our clients who are now depending on their investment portfolios to provide for their lifestyle needs. Our well-managed High Yield bonds (Paul being one of the top Canadian HY portfolio managers in the country), do that very well.

Often, the limited information in the required monthly statements does not reflect this, so for those who are anxious, this (annual income generated) does become a fairly important part of the conversation: If we are targeting a 5% annual average return and 3% is being earned in interest and dividends, then we only need to earn 2% in capital growth, which takes lots of pressure off of the need to hold riskier and more potentially volatile assets. At High Rock, we manage risk first. Why take more risk than is absolutely necessary?

Especially when risk assets are more vulnerable to the late stage of the cycle type swings in price that we have been experiencing since early 2018 (and have basically muted any capital growth since).

As one client so meekly put: "when the f#%& are we going to see some stock market growth?"!!

When all the geo-political (populist politics and trade / currency wars) and economic turmoil starts to lighten up, likely after a significant economic slowdown (or even recession) and we get into a new economic growth cycle. Guessing sometime in 2020 or 2021 (barring anything cataclysmic).

In the meantime, our portfolios are paying us (that 3% or so in income and dividends) to be patient. Sitting on a little extra cash (cash equivalent earning close to 2%), instead of equities (which we think it is prudent to be under-weight in your allocations for the moment) also gives us some eventual purchasing power if / when stock prices take a bit of a dive. Leave the timing to the professionals here though friends (because that is what you pay us for). 

And remember, past performance is never a guarantee of future returns, but at High Rock we do work darn hard to get our clients (and ourselves) the best possible risk-adjusted returns.