Should you hand over the management of your assets to a boutique fund management firm?  Most small businesses and investors seem to think so. For one, a boutique offers a significant advantage in performance if it is compared to larger firms that specialize in asset management. In addition, it offers investment processes that are more differentiated and disciplined as well.

According to an article in the Financial News, banks are now more accommodating in including boutiques on their distribution platforms. In addition, online correspondence and the latest advancements in internet technologies also make them easily accessible for individual investors.

Here are other reasons why hiring the services of a boutique wealth management firm makes sense –

Specialized Services

When it comes to asset management, a boutique management firm is a more convenient prospect for individual investors mostly because the people who manage it already have a considerable amount of experience in marketing or investing. In addition, the managers who are in charge of such a company already have experience working in larger investment firms before they decide to offer their expertise in a more specialized work environment.

A Specialized Talent Pool

The flexibility such a firm offers enables it to attract the best talent in investing especially investment managers who prefer having more power over investment processes. An investment management firm exhibits at least three specific criteria –

1. A smaller presence in headcount and Assets Under Management (AUM) as compared to global wealth management companies
2. Boutique firms offer highly specialized approaches to investing. For instance, they might focus on specific sectors  or serve particular types of clients
3. Instead of being owned by private investors, a boutique asset management firm is in part, or solely owned by an investment team

All of these perks can result in a considerable amount of investment advantages for a client whose risk profile is similar to what the firm offers.

Why such a firm offers superior services is apparent. Their managers have vested interest in ensuring that the firm does well since they might invest their own personal assets in the portfolios that they manage.

Enterprise versus Boutique Wealth Management

Large wealth management firms bring a variety of resources to the table. There is no doubting the fact. Their approaches are based on teams that include financial planners, tax professionals, relationship managers and other financial experts. Such vast areas of expertise would offer better prospects to individual investors, right? Unfortunately, that is not always the case. When it comes to asset management, a bigger pool of expertise is not always better.

It is easy to see why; a larger advisory firm would operate as a scalable model of efficiency more often than not. Its main objective would be to manage and build a growing pile of assets. A boutique investment management firm, on the other hand narrows its view of its clients thereby allowing it to offer services that are higher in quality that what a company might offer at the enterprise level.

Remember, while larger wealth management firms might offer economies of scale, technology and compliance, their services rarely translate into performance advantages for the clients whom they serve.

We are happy to announce that we intend to be making a formal application for an SR&ED grant owing to some of the technology involved in our proprietary risk management platform.  As it has been delivering solid results for our customers for several years, and having developed novel methods for quantifying risk in stocks and other securities, we feel it is likely to succeed.

Lenski Advisors began operating in Canada in July, 2002.  It has been an exciting journey and we wish to thank all of our customers and vendors for making this one of our most successful years ever.

People frequently talk about having a diversified portfolio, however what they often think that means is simply having a lot of different stocks. Having a large number of different stocks will insulate your portfolio from some sorts of narrowly focused risks. Larger systemic risk reduction requires careful analysis including correlation analysis of investment sectors.

If you have a portfolio that consists of only oil and gas stocks, then any shifts in the oil and gas market will affect your portfolio as a whole even though you may have many different individual holdings.  Correlation analysis lets you track the historical returns of market sectors against each other to see if they frequently move in lockstep, or have no connection.  In some cases you may even discover negative correlation, meaning when one sector rises the other falls.

A sophisticated portfolio will usually have ten or more sectors, including different investment vehicles such as stocks, bonds, or more exotic holdings like currency swaps.  Through careful work one can find the “efficient frontier” which allows for maximizing return while simultaneously minimizing risk.  For more information, read about Modern Portfolio Theory.