Linda, you are definitely an early adopter of international investment. Perhaps you can share with us your insights on this and on some of the current market developments.

When I was thinking about your question, the first thing that came to mind is that Canadians have long been spoiled. They could do well just by being in Canadian investments, whether in the income trusts, strong banks, resource stocks, the currency—all the factors that have enabled investors to “hide” in the Canadian market. However, investors should be diversifying. Economists and the media are beginning to recognize that the Canadian market is facing some tough headwinds and is not necessarily expected to do as well, setting the stage for diversification. I also think that the Canadian market does not offer a lot of selection, particularly in equities. It’s good that investors have started to look around.

Before joining Bay Street, I worked for a major bank and ran a department of financial analysts where we did financial analysis for all the bank’s global customers. Canadian banks have always thought internationally, and so I’ve always felt comfortable looking at companies in different countries and understanding the different economies, industries, and companies. All this means I am comfortable looking at global investments, and I think that we do ourselves a disservice by thinking that Canadians can only do Canadian investments. I think we should recognize that Canadian investment managers are good at looking at global stocks. If Canadian banks are considered to be some of the best global banks around, the same should hold for Canadian investment managers.

How do you approach diversification?

I think the number one thing is to diversify in a way that makes you comfortable. If you or your advisors are comfortable looking at individual stocks, and you can get enough of them, then I personally think a diversified individual stock portfolio is the way to go. If, however, the amount of money is not large enough, an ETF can also do the job. I am a value investor, and value investors are basically contrarians. For example, right now I’m looking at Europe, and I’m looking at buying opportunities. This works if you do enough re- search and you have a longer timeline. If you are a short-term investor, however, then clearly Europe is risky. Instead, you can look at other areas, such as Brazil, Argentina, and/or Mexico. If you are a long-term investor, look for opportunities in beaten-down companies or economies.

Linda, in your term as chair of the Private Wealth Committee, private wealth was identified as the fastest growth sector due to greying demographics in Canada and the U.S. What implications could these factors have for CFA program planning and continuing education needs?

This question is very timely as I just finished drafting a memo on the subject to the private Client Committee. The private client market (i.e., investment products and solutions for retail investors) is the fastest-growing segment of the investment management industry. Service to this market is highly fragmented: Mutual Fund dealers Association (MFDA) advisors, exempt market dealers, investment industry regulatory organization of Canada (IIROC) advisors, investment counsellors/portfolio managers, independent advisors, family offices, etc.

CFAs and CFA Society Toronto are not as well known in the private client space as they are in the institutional arena. They do not know what CFA Society Toronto is all about because a lot of people who become advisors do not have a CFA charter. According to investment executive, only 3.1 percent of advisors are CFA charterholders. We (CFAs, members of CFA Society Toronto and CFA institute) could and should have a role in developments in the investment industry as they relate to the private client space. For example, Canadian regulators are calling for higher regulatory standards with regard to duty of care and suitability for advisors and dealers. The concepts and principles supporting “suitability” are related to our own Standards of practice. We could have a voice in educating practitioners and regulators because we are already applying practices they are trying to formalize.

Overall, people do not think of CFA charterholders or CFA Society Toronto as serving in the private client space. Private client practitioners have to know everything from suitability to practice management to all the various investment products, from ETFs to hedge funds. By contrast, institutionally, you are mainly focused on a single asset, such as equities. Private client practitioners have to know everything. That’s the beauty of the opportunity for CFA Society Toronto—to provide service and programming to that group.

In terms of new product offerings for retail investors, there are many. For example, look at ETFs. They’re changing a mile a minute, and new types are being launched weekly. Or consider new stock listings. In the U.S., the Jobs Act, which is part of Dodd Frank, has encouraged dealers to promote small stocks by facilitating listing requirements. Regulators here and south of the border are aware that there are not enough small companies going public. In Canada, we have the whole exempt market dealer system, distributing non-prospectus offerings such as resource flow-through shares. The Government of Canada recognizes that the resource sector is the backbone of the Canadian economy, and resource companies have a tough time raising capital. Thus, they support the whole exempt market network because it allows little companies to get capital. Overall, with new products coming, and a steady stream of new products and investment opportunities, it is a positive but challenging environment for private client practitioners and investors.

You started your own investment management firm. Can you share the challenges you experienced in starting up your firm and the opportunities that come with working in a smaller sized operation?

I think the biggest challenge is capital to start the business and keep it growing. Also, the regulatory structure seems stacked against small firms. it used to be principles-based, now it’s more rules- based, with every participant having a defined role, which perhaps limits the opportunity to differentiate yourself. But regulations also affect the bigger shops. Recently, the Canadian Securities Administrators published consultation paper 33-403 on a statutory best interest duty for advisers and dealers. The strict implication of this is that if I work for a big bank and I’m an advisor, I am going to have a duty to explain to the client and to prove that an investment is in the client’s best interest. Also, fee disclosure is going to put pressure on the broker dealer systems, which have many layers of fees.

If you look at national instrument 31-103, which revolutionized the investment business in Canada, its requirements and guidelines have raised the bar tremendously. Because of my background—and here my CFA helped tremendously—I was able to register myself and my company, but small new entrants are having a very tough time. The individual skills and standards as well as the requirements for the firms are pretty high.

In terms of work, every day I do something different. Right now we are creating a new product: a flow-through share offering. Thanks to the internet and to outsourcing, I have a great virtual team for back office support, to research and compliance, to trading, all of which was probably not possible 10 years ago. With all these challenges, being a CFA helps.

In your nine years on the board—spanning two terms—what areas did you have an impact on?

I think I had the biggest impact on programming and starting committees. The two major committees I started are the private Client Committee and the Derivatives Committee. When I was on the board, the Toronto options and Futures Society approached us to take on their mandate. We thought the timing was perfect. The whole area of derivatives was very topical, and it was a great area in which to provide service. I volunteered to start a committee and the derivatives Committee (now the Risk Management Committee) has been a “programming machine” ever since.

Similarly, for the Private Client Committee, getting the Board to realize that they have to get out of the institutional mind-set and start to focus on programming for private clients was not a problem, figuring out how to approach this needy group was the challenge.

From a big picture point of view, I believe CFA Society Toronto does not realize how lucky it is. It has a large and diverse membership base, and the number of volunteers is amazing. At the same time, the fact that Toronto is one of the biggest financial centres in the world gives us a leg up on programming and ability to serve our members. At the Board level, the recognition and support of programming goes up and down. However, personally, I am always there for programming, because it is the area in which I can best help serve the Society.

What advice would you give to people just starting out in their careers in the financial industry?

You have to set yourself up to succeed. Get into the part of the business that suits your personality. For example, for a brokerage analyst to succeed, technical skills are only half of it, as the success of an analyst is determined by how they deal with clients. Thus, soft skills are important. Ultimately, it is what you’re like that will make your career. Are you task-oriented or analytic, for instance? You need to situate yourself to win so that your skills complement the requirements of the job and you have a better chance of doing well. In terms of education, I have my CFA, CMA, FICB, as well as an MBA. I’m a lifelong learner. It is all about creating the greatest chance of success. If you love this industry and this business, you would want to succeed.

Charterholder Profile is a regular feature of The Analyst. Do you have suggestions for members that we should profile? Email us with the member’s name and a few sentences about who he/she is and why this person would make an interesting choice for a profile. TheAnalyst@cfatoronto.ca