Preparing for the inevitable: A seasoned advisor's guide

Reinaldo Correia

Investment Advisor, Harbourfront Wealth Management

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Amid the current financial and economic whirlwind, Reinaldo Correia from Harbourfront Wealth Management – an Investment Advisor for more than two decades – shares his experience on navigating smoothly through a market crisis, from proactive asset allocation models and Andex Charts, to instilling client confidence in our new COVID-19 reality.

Offering perspective: An inevitable reality

Since beginning my career in 1998, the COVID-19 crash is the fourth major correction I’ve seen after 9/11, SARs in early 2003 and the 2008-09 Financial Crisis. While I’ve learned that each one is unique in terms of its characteristics, duration, and starting points, they are similar in many ways. As a seasoned Investment Advisor at Harbourfront Wealth Management, I try to provide context and comfort to my clients, explaining that bear markets always need a catalyst to trigger the emotional cycle, and while it can be an unexpected event like coronavirus, or the 9/11 terror attacks, what’s the same is the end result: market losses.

There’s an old saying that the two guarantees in life are death and taxes, but what I’ve always emphasized to my clients is that there is a third – the occasional period of negative investment returns. It’s a natural part of a market cycle, and it’s how we react that’s more important than the event itself. While we may be in the dark on when, how or why (in terms of the catalyst), we can be certain that these corrections will make their way into the lifespan of a long-term investment strategy. What separates you as an Advisor is your ability to add value during these crises, using the skill, tools – and the partners – at your disposal.

There’s an old saying that the two guarantees in life are death and taxes, but what I’ve always emphasized to my clients is that there is a third – the occasional period of negative investment returns.

A proactive Andex approach

With the first two corrections I experienced, I was still in the early stages of my career, so I was onboarding new clients who were accumulating assets. As I naturally evolved my practice throughout the years, I learned that the ones that were aggressively accumulating throughout the downturns were the ones that came out stronger. As a result, I developed an asset allocation model based around the Andex Charts – a technical tool that visually correlates performance to historical events – as a way to prepare clients for what’s ahead, and maximize returns where possible. The charts offer in-depth historical information to help investors understand the context and propensity of market downturns and importantly – subsequent recoveries.

Leveraging my own experience coming through a recession, I run my bull and bear models accordingly, the latter of which holds 10% or more in cash and tilts toward more actively managed, low-vol strategies. And while they’ll never be perfect, they allow me – and my clients – to actually follow the cycles instead of acting complacent. It’s about the reassurance gained from understanding that there’s a proactive plan in place to get them through to the other side, as opposed to a visceral reaction to a market event.

For instance, my clients have been defensively positioned in a bear market model since 2018 and now they’re happy to hold cash. Before coronavirus, markets were expensive from a price-to-earnings ratio perspective, so it was just prudent to reduce risk. Instead of receiving calls asking to redeem positions, I’m getting questions like, “When are we going to put that cash to work?”

Instead of receiving calls asking to redeem positions, I’m getting questions like, “When are we going to put that cash to work?”

An ongoing dialogue: Instilling client confidence

The confidence we inspire is a hugely important part of the equation, helping to engender trust for the long term. Clients take a massive leap of faith with their Advisors, so it’s vital that we’re committed in our recommendations, and know that what we’re advising is in their best interest. In my case, if my clients have been with me long enough, they’ve seen my Andex models a multitude of times throughout the course of our relationship. This is because during periods of robust returns, I take the opportunity to sit down with them, pull out my tools, and emphasize that this bull market won’t last, and show them specifically what we need to act on ahead of time in order to protect capital. Because ultimately, it has to change direction; it always does, like it or not. If the basic premise is to “sell high and buy low,” that means trimming positions that are performing well, and purchasing attractive investments when markets are down. The Andex Charts I use are also extremely powerful because not only do they solidify my views, but many clients can relate to the previous events shown in the graphs; for example, some retirees in my book now reminisce about the double-digit mortgage rates back in the 80s.

All of these conversations are part of a constant, proactive dialogue. Besides regular emails and newly added webinars in lieu of the current face-to-face constraints, I call and see my clients on a regular basis. While it feels like “this time is different” (and it always is to some degree), the principles behind each market correction remain the same, and it’s my job to clearly communicate that. People are naturally afraid of what they don’t understand, so Advisors should spend as much time as possible educating them on the whole cycle process. They may ask, “Can I lose everything?” Let’s break that down; for that to happen, every company around the world would have to shut its doors on the exact same day.

While it feels like “this time is different,” the principles behind each market correction remain the same, and it’s my job to clearly communicate that.

If the markets are down substantially, I explain what that really means for my clients. It’s times like these when I can act as a voice of reason, drawing on my experience – and models – to demonstrate that we were already positioned for a correction, which immediately eases any anxiety. It’s one of the toughest jobs to sit across from a client that’s down a significant amount of money. That said, full transparency and clear communication are absolutely necessary during these rocky times, so have the confidence to address it. Right now, I’m able to say, “We knew a bear market was coming, and it just happened to be caused by something nobody knew existed six months ago. I realize this is scary, but we’ll get through it. Here’s what we did going in, and here’s what we’re going to do coming out.”

Investment partners you can rely on

Sincerity, assurance and accessibility are critical during turbulent times for clients – and also for Advisors in terms of our investment partners. This is one of the main reasons I moved my practice to Harbourfront Wealth Management. Our platform allows complete independence in terms of product solutions – removing any bias and creating full alignment with my clients’ best interests. In addition to applying rigorous investment criteria, including a long track record, I expect service excellence, responsiveness and proactivity.

As an example, Sanjay Singla, my sales representative at BMO Global Asset Management, exceeded expectations when he arranged a webinar in late March with their head of portfolio strategy. It received immensely positive feedback from clients; they appreciated having the opportunity to interact in a real-time discussion with professional money managers who are in the market trenches and have been through it before. The message here is that if we stick to proper principles and lean on support from quality product partners, then we will recover smoothly. While rebalancing is an annual occurrence, I don’t bounce from fund to fund when markets are down because I don’t believe it’s effective. As Advisors, it’s important to remember that we sell conviction, not performance.

I don’t bounce from fund to fund when markets are down because I don’t believe it’s effective. As Advisors, it’s important to remember that we sell conviction, not performance.

A recovery strategy for every client

As I move toward more offensive positioning for client portfolios, every strategy will be different, based on individual needs and circumstances. Case in point: for retirees, many of the discussions I’ve had involve the question, “Do you need to keep drawing the same amount of income now?” If we can hold back a little on the drawdown, it will help the recovery process, but if we can’t, that’s no problem because we’ve already planned for the correction. Typically, for my retiree clients, I set aside two to three years’ worth of income payments in a conservative investment to remove market risk. When markets are strong, we skim off the top, and replace the income source. During volatile times, we sell nothing because they’re already protected for at least two years.

It’s about making your clients understand that there are several ways to accomplish their goals, but above all else, that dedication and conviction to your plan needs to shine through. This holds especially true now. I have some clients who will inevitably question whether it’s right to buy when markets are depressed, but I don’t waiver or panic. Time is always our ally in these situations. Importantly, I speak to clients in a way that resonates. Instead of overwhelming them with technical details, I keep the conversations high-level, and focus on answering the “why,” and the “how.” “Why buy now?” How is this asset purchase going to benefit me?”

In the end, the biggest lesson I’ve learned as an Advisor is that there is no ability to stand still, market crisis or not. Of course, the comfort and confidence you bring to clients come with tenure and experience, but we constantly need to educate ourselves and continue to evolve – and improve. In an era of constant push notifications and new information, client expectations are mounting. In this environment, we need to proactively adapt, and learn from emerging industry trends and market knowledge, to enrich our practice – and relationships.

Reinaldo Correia on BMO Global Asset Management

For concentrated U.S. equity exposure, one strategy I have begun to integrate into my client portfolios is BMO Concentrated U.S. Equity Fund, since they fared well during past downturns, including 2008.  The COVID-19 crisis is unique because not every business will recover at the same pace, so I wanted a manager that has the conviction and track record to actively buy and hold companies they believe will pull through faster. The shorter the recovery duration, the sooner we can start to move forward again.

And for core active strategies across a wide variety of accounts, amongst the options available I utilize the BMO ETF Portfolios, which offer diversified exposure through a professionally managed solution. With a dedicated team of experts, BMO Global Asset Management adds value through continuous monitoring and strategic asset allocation decisions, instead of a traditional, static approach.

To gain more valuable insights, and tools for a resilient portfolio amid the current market volatility, contact your BMO Global Asset Management Regional Sales Representative.

Disclosures

Harbourfront Wealth Management Disclosures

“I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.” You can reach Reinaldo Correia at [email protected] or at www.reinaldocorreia.com .

Disclaimer – This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The information is provided with the understanding that Harbourfront Wealth Management is not herein engaged in rendering legal, accounting, tax or other professional advice. While we have made every attempt to ensure the information contained in this document is reliable, Harbourfront Wealth Management is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is,” with no guarantee of completeness, accuracy, timeliness or as to the outcome to be obtained from the use of this information, and is without warranty of any kind, express or implied. The opinions expressed herein do not necessarily reflect those of Harbourfront Wealth Management Inc. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are not to be construed as a solicitation or offer to buy or sell any securities mentioned herein. Harbourfront or any of its connected or related parties may act as financial advisor or fiscal agent for certain companies mentioned herein and may receive remuneration for its services. The comments and information pertaining to any investment products (The Portfolios) sponsored by Willoughby Asset Management are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Portfolios is made pursuant to the Offering Memorandum or Simplified Prospectus and only to investors in Canadian jurisdictions. Important information about The Portfolios is contained in the Offering Memorandum or Simplified Prospectus available through Willoughby Asset Management. Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with investments in The Portfolios. Investments in The Portfolios are not guaranteed, their values change frequently, and past performance may not be repeated. Historical annual compounded total returns including changes in unit value and reinvestment of all distributions do not take into account sales, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Unit values and investment returns will fluctuate and there is no assurance that The Portfolios can maintain a specific net asset value. Harbourfront Wealth Management Inc. (“Harbourfront”) has relationships with related and /or connected issuers, which may include the securities or funds discussed in this commentary and are disclosed in our Statement of Policies Regarding Related and Connected Issuers. This policy is included in your new client package, on our website, or can be obtained from your investment advisor on request.

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