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This blog explores how Individual Investors might benefit from Institutional Investor practices.


Financial Planning surveys say investors don’t plan. And commissioned Advisors don’t get paid to help investors plan. Further, when investment geeks talk, we digress into jargon and the investor hears gibberish. It’s no wonder Individual investors don’t have a plan.

In contrast, Institutional investors have to plan. Regulatory authorities require it. And good thing too. pension plans are responsible for the retirement income of millions. So Pension Plans put a lot of resources – time, effort, skill, money, technology – into planning.

The premise of this blog is that if Individual Investors don’t have a plan, then they can then mimic a pension plan and piggy-back off of all the work that pension plans do. For free. Herein we explore some pension practices and attempt to find practical implementation for the Individual Investor.

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Investment Philosophy.

A risk management approach to investment portfolio management delivers more consistent performance which means moderate and more predictable returns (which translate into faster compounding). Investor requirements are straightforward: Investors focus on risk, return, tax and cost. These requirements are attainable with a focus on what is controllable – investment process, reasonable expectations, investment policy, asset allocation, the amount of risk assumed, costs and tax efficiency and simplicity.

Asset Allocation.

Whatever else the investor does, getting the Asset Allocation right is key. The point of portfolio management is protection of capital with prudent growth. Client requirements influence investment policy but any strategy must revolve around asset allocation. Asset allocation, as documented in the investment policy, is THE key to achieving desired risk and return characteristics … and asset class structure determines performance more so than individual securities.  Institutional investors have, to a large extent, concluded that asset allocation decisions … account for the largest part of returns …” “Institutional investors know that they get the most value (80 – 90 percent) through asset allocation rather than through the asset manager.” (CFA Research foundation, Investment management after the Global Financial Crisis, October 2010, page 21).

For individual investors, a top-down, macro discipline adds value more so than bottom-up individual security selection. With a top down, macro discipline, the focus is on the most important and controllable portfolio management decisions: global asset class, region, country, and sector and currency decisions. This broad and global diversification is THE antidote to managing portfolio volatility … and opportunities for return diversification are global.  In recent years, investors have seen (bottom-up) fundamentals take a back seat to (top-down) macro news. Consequently, asset allocation  is even more important than normal. Large market oscillations warrant being more active around the strategic asset mix. I call this the active management of passive investments. Others would call it tactical asset allocation. Importantly, asset allocation also avoids the high cost and significant risk of individual security selection.


Mutual funds did a good job in their day. But, they are yesterday’s news. The roughly 1% embedded fee is intended to pay for Advisor advice (called a ‘trailer’). However, if the Advisor doesn’t advise, then the investor should not be paying the additional 1% fee. Simple.  If the investor is not getting advice, then they ought to consider index funds or using Exchange Traded Funds (ETFs) or lower cost mutual funds which don’t include a trailer fee.


Doug CronkDoug Cronk CFA PRM is a Pension Investment and Risk Management Officer

(You know, there are some experiences in life you will never forget. This will not be one of them.)
4 Comments Post a comment
  1. Larry #

    Thank you for your prompt reply


    April 29, 2013
  2. Larry #

    Hi Doug, I have recenntly discovered your site and have been the posts with great interest. You have confirmed and crystallized many of my thoughts regarding the value of asset allocation, the strengths and weaknesses of managed versus index money, etfs etc.
    I am a professional about 8 years away from retirement. I have probably saved enough to have financial freedom and likely leave a bequest to a cause I feel very strongly about.
    My question is about management fees: I have been very diligent in seeking out lower cost providers- trying to see through the shiny quarterly statements. I certainly don’t begrudge the professionals their hourly rate; they work hard, I work hard. The problem is the scalable model. They certainly don’t work any harder if my portfolio increases from 2 million to 4 million while my annual fees almost double. ( I still am amazed that supposedly smart people are prepared to pay 2 plus 20, for the dubious privilege of using a hedge fund)
    I do need professional advise about asset allocation, a back office to keep track of the paperwork, and for the occasional hand holding but ideally it should be on an hourly rate. I get well remunerated on fee for service basis and my clients are apparently well satisfied. Is there a competent professional who would offer this service? Afterall the principles you describe are relatively simple, even if most retail investors don’t follow them.
    Any general advice would be most well come as I realize you cannot give specific Information.
    I have bookmarked your page and will be avid follower.


    April 28, 2013
    • Hi, Larry. Thanks for visiting.

      I suggest you start by speaking with Gordon Ross here in Vancouver.

      The folks at MacDonald Shymko (Vancouver) charge an hourly fee. They also ‘manage money’ using DFA funds … which is, I think, a conflict.

      Adrian Mastracci (KCM wealth management) is omnipresent, very good (RFP planner) and likely expensive. Cannot vouch for his portfolio management capabilities … but they will move you from do-it-yourself to fully discretionary … not sure that’s what you’re looking for.

      Good luck.

      Don’t get me started on the 2 and 20 …


      April 29, 2013

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