Would sales people build great cars?

Greg Dean's picture

I’ve been fortunate over the years to meet many of our clients – both advisor partners, and the families and individuals who own our funds directly. Collecting feedback and thanking those who trust us with their hard-earned savings is one of my favourite parts of the job. Often on these visits I’m asked, “So, which fund should I buy?” This is usually met with a blank stare by myself or a member of my team because the honest answer is, “it depends”. That’s rarely the answer people expect, so I want to provide some context and draw parallels to a different industry in order to illustrate why I believe the investment professionals at Cambridge are not always best positioned to answer that question.  

Let’s look at the automotive industry to provide a more relatable example.

If you were asked to explain what Chevrolet does, you would probably say it builds cars. In a similar manner, Cambridge builds investment portfolios. Both Cambridge and Chevrolet make a whole host of products, all backed by their reputation, using skill and experience. In this example, Chevrolet would be the fund company and the Equinox, Camaro and Corvette models, for example, would be different funds that it sells. To be successful, the manufacturer would need car salespeople who explain the attributes of the products and ask questions of prospective customers about their needs, preferences, budget, and perhaps how they see themselves using the vehicle. Additionally, back at the factory, Chevrolet needs engineers and other workers to ensure the products are made safely, cost effectively and with the customer in mind.

Imagine if you reversed the roles with salespeople from the dealership building the cars, and engineers and technicians from the factory now stationed at the dealership to sell cars. The likely outcome? My guess is that Chevrolet wouldn’t have much product to sell, and what they were able to get to dealers wouldn’t sell well!

My hope with this blog is to share why I have never been willing to answer the question, “Which fund should I buy?” The simple fact is that neither myself nor anyone on the Cambridge investment team are best suited to provide that answer to our valued clients. That’s because we don’t have enough specific information about the client’s unique circumstances to help match the individual with the fund best suited for their risk-tolerance and objectives. We rely on our advisor partners to make these connections. But that’s not to say that Cambridge doesn’t stand behind our products. It simply means that as fund builders we focus on having a deep knowledge of the companies we own, as well as the risks we are taking on in the portfolio.  

Another reason we’re reticent to answer this question is because we’re concerned it could lend credence to emotionally driven investment decisions. While it’s certainly not always the case, “What should I buy?” may also logically raise the follow-up question, “What should I sell?” Long-time Cambridge investors will know we are strong advocates of clients building portfolios with advisors for the long-term, and sticking to their strategic allocation through good and bad times with periodic rebalancing. Our opinion is that before you ask yourself, your advisor or a CI sales representative what to buy or sell, you need to ask yourself why you’re looking to make a change in the first place, and whether you’re sticking to your established long-term plan.

Our team is dedicated to executing and refining our time-tested investment process aimed at providing clients with great products and attractive risk-adjusted returns. We rely on our advisor partners and the CI sales representatives to take the products we make and find clients who can benefit from them. Providing the fit makes sense, the benefits should increase the longer the time period of product ownership – that’s the benefit of compounding. However, as any car owner can attest, that’s probably where the similarities to the automotive industry end.

Thanks for your continued support, 


Greg Dean

 

Comments

Submitted by Matt Whyte on

Editor's note: The following comment has been edited with regards to length and formatting only.

Hey Greg. I would consider myself a long-time Cambridge supporter and am grateful for the performance that aided me in building my business. The Cambridge group continues to make up one of the more significant weightings within my practice. My clients are well versed in how Cambridge and other managers administer their portfolios. With that, I recognize that your point of view on this issue is both understandable and practical. However, I will posit that there may be a difference between the question you are hearing and the one we are asking.

I believe it goes without saying that "it depends" is a caveat, but shouldn't be a reason to avert the inquiry. Clients often ask us (advisors) the same "what should I (would you) buy" (and depending on age "what would you buy for your parents"). Most already have existing portfolios. What they may really be asking is "what should I buy right now". By not responding we essentially put the responsibility back to the individual asking the question. I would argue that in most cases, the reason advisors have clients in the first place is because they (clients) do not feel as well versed in investing. By extension, I will contend that advisors who buy Cambridge mandates will assert that they feel the Cambridge team is better versed than they are at investment market analysis.

Additionally, and to be very frank, advisors are not asking this question in a vacuum or without taking your response with a grain of salt. No manager is perfect, nor do we expect them to be. This question is asked to all managers. The notion is to get a better understanding of various theories, positions, and points of view. To be blunt, it’s not all about you.

In fact, by attending your workshop or road show, the advisor is showing that he/she has an interest in doing due diligence. And yours is not the only opinion, event, webinar, or blog they use to weigh their asset allocation decisions. I would never hold your answer against you based on your prevailing opinion at that point in time. Still, refusing to answer will also lead to advisors varying perceptions. Is it better to control the narrative or disengage from it? That’s your call.

Your assertion that a logical outcome of answering “what should I buy”, will lead to a corresponding “”what should I sell”, may also be a flawed perception. As advisors, many of us have various asset allocation or model type portfolios depending on client needs. You acknowledged that we periodically rebalance portfolios. When we do that, we look to do so with up-to-date information, so asking a professional PM their opinion is a valuable resource for us. Consider too that the Cambridge Asset Allocation fund and other mandates are tactically managed, as opposed to say strategic holdings in asset classes or sectors. Many advisors also eschew the strategic allocation you referred to due to evolving client objectives, changing product line-ups, macro-economic trends, and/or improved investment opportunities/products.

Again, it is our responsibility from a compliance perspective to manage client portfolios within their KYC instructions. Your reasoning/reluctance to not answer the question, with an idea to save or protect advisors from mismanaging a client’s portfolio, is misguided. Regardless of your or any managers’ response, we are regulated to manage within the KYC regime.

The moral is, we are asking your opinion on asset classes, not on asset allocation for individual clients. We think you are smart. Not perfect. We like you too, otherwise we wouldn’t be there putting up our hand or waiting to stick around to chat after the event is over. However, not answering, let alone telling us not to ask the question in the first place, probably doesn’t lead to positive outcomes either. Just my long winded 2 cents about a differing point of view.

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