Managing the accounting firm independence constraints:
All the large accounting firms have stringent procedures when it comes to investing. This is mostly due to
various scandals that happened in the past where audit clients’ information would be passed around a firm and employees, often partners from the same or different department would have access to it and potentially trade on that knowledge. Because of this, protocols in the form of independence teams have been put in place to manage and avoid such conflicts of interest.
The problem is that the resulting effect of managing the above conflict comes at a cost, which tend to be
lower returns and a higher cost for managing the portfolios. Now most executives for these multidisciplinary
accounting firms have a choice between a meager selection of mutual funds from a few banks
selected by their firms or they can hire portfolio management firms with the experience of managing such
constraints while providing them with respectable returns and risk management. The main problem with
managing these firms’ constraints at the bank level is to sacrifice performance of the portfolios by buying
mutual funds even though the portfolio may be large enough to have its own Separately Managed Account(SMA); this is more in line with the degree of risk tolerance and customized for the client to deliver superior
The performance issues associated:
Mutual funds have proven to be some of the least performing investment products available along with
expensive fees associated with their purchase. It is typically a class of investment funds designed for smaller
portfolios which are not large enough to have their own mandate. The assets of all the small investors are
pooled then into a mutual fund to provide access for that diversification. ETFs (Exchange Traded Funds)
which tend to track a specific sector or general market with a fraction of the fees mutual funds charge, have
proven to be a worthy opponent. Some of the employees with larger portfolios typically give in and buy those mutual funds from the banks just to have peace of mind. But there are other options such as finding a
firm with the knowledge of the challenges these employees face and the skills and ability to build and manage well-performing portfolios that are vetted and approved.
BlueSky Investment Counsel is one of these firms as we have been managing investments on a discretionary
basis while pre-clearing and recording the investments for such clients. Our portfolio manager has the experience of dealing with partner clients and other employees in firms such as Deloitte and PwC.
BlueSky Investment Counsel typically goes about it in two ways. First, we open an account at the firms authorized
bank and use their self-trading platform to invest for our clients Or we open an account at one of our two
primary custodial firms, Credential Securities or National Bank of Canada to hold the assets.
Portfolio creation and securities selection:
Following the account opening process and the potential financial planning that we do for all our clients; we
vet a portfolio of securities using our clients’ specific independence portal to make sure the portfolio created
matches their authorized/approved securities. We do this when we rebalance portfolios or liquidate assets as well. Our portfolios have mostly stocks and bonds, but we can also include authorized private equity funds or ETFs among other things.
The portfolio creation follows our processes, our investment perspective, and our execution methods from the asset allocation stage to the final securities selection stage.
First, after an extensive research process and review of the macro-economic conditions, we form a view which will guide our asset allocation. The second phase consists of deciding which sectors are more likely to benefit from such market conditions and finally we select a few options among the best securities in those sectors. This provides us with the flexibility to always have exposure in the sector even when our top pick is not allowed by the accounting firm’s independence platform.
We recognize of course that our clients have different needs and levels of understanding of the market, and we provide them with up-to-date reports and regular updates.
If you are an employee facing these constraints in your firm, reach out to us at firstname.lastname@example.org or call 416-930-5550.