30 Years of Putting Clients First at PWL Capital

30 Years of Putting Clients First at PWL Capital

By James Parkyn - PWL Capital - Montreal

PWL Capital began 30 years ago with a clear vision. My two partners and I had an idea that we believed could reshape the wealth management industry in Canada.

We set out to build a new type of advisory firm—one without conflicts of interest and focused solely on clients.

PWL would offer fee-based wealth management, with no commissions or in-house products. At the time, this idea was far from mainstream. The vast majority of wealth managers were compensated through commissions. They focused on selling their firm’s products, and their incentives were often misaligned with those of clients.

We also wanted to bring together money management and financial planning under one roof. We’d create a true one-stop shop to help clients reach their goals. This was a big new idea.

Leading-edge firms in the U.S. had already moved in this direction. It was the way of the future. But no one else in Canada had adopted this approach yet. Financial planning and sound asset allocation were often given little more than lip service.

Investors deserved better

My partners Laurent Wermenlinger and Anthony Layton (the “W” and “L” in “PWL”) and I felt investors deserved better. We wanted to put clients first. Our approach would be based on clients’ needs and disciplined long-term investing.

PWL would hold itself to the highest standards of integrity, objectivity and expertise. With no conflicts, we could sit on the same side of the table as the people we served.

This carried through to how we reported performance results to clients. We adopted the standards of the Association for Investment Management and Research (now the CFA Institute). This was virtually non-existent in the retail wealth management space in Canada at the time.

Clients would easily be able to see how their investments were doing.

Pioneering approach vindicated

We believed there was an investor appetite for such a new approach. It turns out, we were right. PWL Capital quickly had $7 million under management soon after we opened our doors in 1996.

Our pioneering approach was vindicated. This, however, didn’t mean easy sailing. Despite our early success, the first years were challenging and uncertain. After paying rent and salaries, we didn’t have enough left over to pay ourselves as partners for several years.

PWL grew quickly, but costs did, too. We needed larger premises. We had to hire more staff. But we knew we had to invest in our business, even if the payoff took time. We had to create value for clients and develop an internal business culture. Targeting success too quickly also had its risks.

After four years, we reached our first $100 million in assets under management. We took our first steps at expansion in 1997 with an office in Ottawa, then another in Toronto in 2003.

I worked those first years non-stop. When I travelled across Canada and the U.S. for conferences, I thought of those trips as my “vacations.”

Enter the ETF

The financial markets brought their own set of challenges. The dot-com crash of 2000-2002 led to a drop in assets under management. But we learned from the experience, too. We saw something during the crash that shaped a new course for PWL: Active managers had failed to outperform.

This revelation led us to research and invest in exchange-traded funds (ETFs). These are low-fee, passively managed funds that replicate the holdings of various indexes instead of trying to beat them.

The idea was to own the entire stock market through index-based ETFs, which own all the stocks in a specific index, such as the S&P/TSX Composite Index.

While ETFs are well-known now, few investors had heard of them at the time. Many didn’t understand why we liked them. They thought it was like giving up. Some likened marketing passive investing with ETFs to entering the Olympics 5,000-metre race with a weight tied around your ankle.

Markets work

But evidence showed that stock picking and market timing were like gambling. These weren’t reliable ways to fully benefit from the market’s gains. Instead, we embraced the bold idea that markets work. Our goal would be to deliver the expected returns that markets have to offer.

As part of this evolution, we helped bring Dimensional Fund Advisors and their low-cost factor-based funds to Canada. Dimensional, in turn, helped us hone our philosophy of passive investing and, significantly, to develop the messaging on how to sell this new value proposition to clients. Dimensional became a key strategic partner in helping us develop our company based on global industry best practices.

We have been working with Dimensional since 2003, and they have excelled at identifying academic findings that can be implemented in the products that we use in our clients’ portfolios.

Dimensional’s discipline about managing portfolios based on academic science is a critical component of how we implement our approach of “buy, hold and rebalance.” This evidence-based approach is core to our success story and the long-term performance of clients’ portfolios.

Many shades of diversification

Other forms of diversification of course remain important, too. For example, U.S. stocks strongly outperformed Canadian and international counterparts for over a decade after the financial crisis ended in 2009. Yet, Canadian and international stocks flipped the story in 2025, paying off for investors with oversized gains.

Being broadly diversified within an asset class is also crucial. As economist Hendrik Bessembinder found in a key paper, just 4% of companies accounted for all U.S. stock market wealth creation above a risk-free T-bill investment from 1926 to 2023. The majority of stocks—51.6%—actually had negative compound returns during this period.

Being diversified between stocks and bonds also reduces risk. These two asset classes tend to have a negative correlation during crises, with bonds offering a cushion when stocks sell off.

Value of diversification

Such an approach also coincides with research showing the value of diversification across asset classes and countries. Owning a well-diversified portfolio of stocks and bonds reduces risk and increases returns, studies showed.

Our approach was to stay broadly invested and diversified regardless of any one market’s short-term ups and downs. This way we’d be sure to capture the total market’s winners over the long run and enjoy the incredible long-term gains it offered.

Our data-based choice has been repeatedly confirmed by new studies over the years. One remarkable study found that just 4% of stocks accounted for all U.S. stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023.

A majority of stocks—51.6% to be exact—actually had negative compound returns. In other words, slightly more than half of stocks lost money over their life.

Fantastic gains come with a price

No one could know ahead of time which companies would be among those successful 4%. Owning the entire market was the only way to be sure to capture their gains. If you did so, you could make fantastic returns.

A dollar invested in a diversified international equity portfolio in 1970 would have grown to over $16 after inflation by 2024, PWL Capital Senior Researcher Raymond Kerzeho found in a report last year.

We recognized, however, that such amazing returns came at a price: volatility. This was the cost of entry for investing success. As Raymond found, the period since 1970 saw six bear markets (a 20%+ real decline). “Investors should hold on to their portfolio and expect bear markets as a normal part of investing,” he said. “These periods are the entry price to join the club of successful long-term investors.”

Most active funds underperform

The research has also only gotten clearer about actively managed funds. Studies have repeatedly confirmed our view that most active funds underperform the markets. In 2025, the annual SPIVA report found that a whopping 89% of actively managed multi-cap funds underperformed the S&P 500 Composite Index over the prior 20 years.

The long-term evidence is that only a small portion of stocks tends to deliver most of the wealth creation of the stock market. But there’s no way to know ahead of time which companies will be the winners.

As Warren Buffett once put it, “It’s harder than you would think to predict which will [companies] be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.”

Supporting clients’ prosperity

But our business was about more than managing portfolios. We saw our role more broadly as supporting clients’ overall prosperity and well being. A portfolio is a means to a bigger end—whether it be supporting a client’s financial needs, giving to charity or community projects, or leaving a legacy for the next generation.

Our first step with a new client is to sit with them to understand their overall goals, risk capacity and risk tolerance. We review everything from tax and estate planning to insurance needs and financial objectives. With this information, we develop an integrated plan, including any needed tax, estate and insurance advice.

The process allows us to craft and propose an investing strategy to meet our clients’ life goals. The strategy includes settling on a mix of stocks and bonds to ensure they have a level of volatility in their portfolio that lets them sleep at night during inevitable market selloffs. The bond allocation provides stability and a source of income during market downturns, reducing the need to sell equities at depressed prices.

Client education builds confidence

Our approach also involves coaching clients in investing. We place a strong emphasis on education. This helps customers feel confident in their strategy and maintain the discipline to stay the course through market volatility, while ignoring the noise from pundits and analysts.

This approach, too, is borne out by evidence. A study by the investment firm Vanguard found that advisors who use wealth management best practices can add up to 3% or more in net annual returns for clients. That added value compounds significantly over many years.

One of an advisor’s most significant contributions is coaching investors, the study found. During market swings, fear and euphoria can push investors toward rash actions that undermine their plans. A knowledgeable, experienced advisor can help clients hold steady when markets fall and avoid overconfidence when they rise.

PWL grew rapidly

Our approach resonated strongly with investors, and PWL grew rapidly. By 2007, we had $600 million in assets under management—nearly double the amount in 2003. Then the financial crisis of 2007–09 unfolded, hitting both investors and the firm hard. Assets declined to $460 million.

We tightened our belts and reduced compensation, not wanting to let any of our team go. Our employees are like family. We’re so proud of how many have built rewarding careers, started families and bought homes. They’re also invaluable for our work—without them, we can’t serve our clients. We’re very gratified that we were able to avoid layoffs and ride it out.

In a sense, we were putting our own philosophy into practice—remaining focused on the long term and navigating market volatility with discipline. We believed that markets would eventually recover and that our strong foundation positioned us well for what lay ahead.

Two new reasons to smile

There was also happy news. I became a father of twins. I couldn’t have been prouder, more excited or more optimistic. Fatherhood infused my work with new positive energy and hope.

During financial crises, portfolio managers tend to spend more time than usual speaking with clients about the markets. We need to explain the rationale behind their portfolio and reassure them about the benefits of sticking with their long-term strategy.

The financial crisis reinforced for us the importance of educating clients. We decided to extend that mission to the broader public. We saw a clear need for unbiased evidence-based guidance amid a flood of poor advice, unreliable forecasts and widespread investor stress.

Helping investors stay the course

In the early 2010s, our portfolio managers Justin Bender and Dan Bortolotti started to write investor blogs. They were later joined by Cameron Passmore and Ben Felix with the Rational Reminder podcast. The latter became one of Canada’s most widely recognized financial education platforms and most internationally successful podcasts on investing. Ben Felix also publishes a widely followed YouTube channel.

My team partner François Doyon La Rochelle and I also chimed in on a smaller scale with our “Capital Topics” podcast (“Sujet Capital” in French), which we started during the pandemic. I also launched my own blog in 2021.

Our content has reached millions of Canadians, positioned PWL as an industry leader and helped investors navigate the complexities of investing and market turbulence. Many PWL team members have sought careers at PWL based on our content.

Our publicly available advice mirrors the coaching we give clients. We’re proud of our efforts to help investors stay the course and maintain a disciplined long-term view. Those who managed to hold on through the selloffs have gone on to enjoy incredible returns.

Values set us apart

One study, which we wrote about in our Capital Topics blog, found that investors who stuck with a 50-50% stock-bond mix through the financial crisis saw a 209% return by 2024—versus a 16% loss for those who moved fully to cash.

To quote Warren Buffett again: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Through the years, PWL has given back in other ways. We support many charities, including United Way Centraide, university and hospital foundations, and other worthy charitable organizations. We believe our values set us apart.

The PWL difference

I couldn’t be more gratified or grateful when clients tell us they appreciate the PWL difference. We see the proof in our results. By 2014, we had our first $1 billion under management.

In 2016, we solidified PWL’s commitment to the highest standards by obtaining certification from the Centre for Fiduciary Excellence, an independent body that promotes best practices in the investment industry.

Assets under management grew to $2.5 billion in 2017 and $5.5 billion in 2025. That year, the Globe and Mail reported that PWL was one of Canada’s fastest-growing wealth management companies. Growth had averaged 17% annually over the previous decade, compared with an industry average of under 10%.

$8B assets—partnering with OneDigital

It’s also gratifying to see the investing industry embrace our approach. In 2025, we took a big step and partnered with Atlanta-based OneDigital. Under the agreement, PWL Capital remains as a stand-alone unit with resources available to accelerate our growth. Together we’re creating a firm with broader reach, deeper expertise and a larger platform, while staying true to the principles that made us successful.

In keeping with this evolution, we rebranded in February as PWL Capital, A OneDigital Company.

Assets under management today stand at $8 billion.

From upstart to industry leader—thank you!

As we celebrate PWL Capital’s 30th anniversary in 2026, I’m incredibly proud of our extraordinary story, values and mission of changing the investing world for clients by offering disciplined, evidence-based financial advice they can trust. I believe wholeheartedly in the values and mission of the firm.

We’ve grown from an upstart boutique advisory practice to one of Canada’s leading evidence-based wealth management firms. I’m very grateful to our OneDigital partners, our highly talented team, my partner François Doyon La Rochelle, and our dear clients who believe in us and have helped fuel our remarkable growth. Heartfelt thanks for your great contributions and for sharing our vision.

I’m excited for the new chapters of PWL and what we accomplish next. We wish our customers, team and partners happiness, health and success in your endeavours.

Find commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

Value has evolved. Diversification remains key.

Value has evolved. Diversification remains key.

By James Parkyn - PWL Capital - Montreal

Investors are struggling to make sense of today’s headlines. The news is hard to ignore—war in the Mideast, fuel prices, political turmoil. When uncertainty rises, it’s natural to feel the urge to act.

But history offers a useful reminder: The biggest risk to investors is often not the market itself, but how we respond to it. The challenge is staying grounded when everything around us feels unstable.

This is where strategy matters. A well-built portfolio isn’t designed for a single future—it’s designed to work across many possible outcomes. One of the most important ways to achieve that is through diversification—exposure to different markets, including those that may not be in favour today.

The value premium

As the great investment thinker Peter Bernstein said, “I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I’m exposed to it. Somebody once said that if you’re comfortable with everything you own, you’re not diversified.”

One of the key ways to increase diversification is by tilting your portfolio towards value stocks. Value stocks are companies trading at relatively low prices compared to their fundamentals—such as earnings or book value. They’re often mature businesses, sometimes out of favor, or simply less exciting than their high-growth counterparts.

Historically, value stocks have delivered higher returns than growth stocks. In the U.S. large-cap market, value stocks beat growth companies by 2.16% per year, according to data from 1926 to 2014. We call this the “value premium.”

Gone, then back again

But that premium hasn’t been consistent. From January 2015 to December 2024, value significantly underperformed growth. The premium during this period was -11.6% per year. This sparked a debate about whether the value premium has disappeared.

Then, during the recent market turbulence, the situation reversed again. Value started to strongly outperform. As of April 5, the Russell 1000 U.S. Value Index was up 2.4% for the year, handily beating the Russell 1000 U.S. Growth Index’s 9.1% loss, the Wall Street Journal reported. Meanwhile, the S&P 500 Index was down 3.8%, its worst quarter in nearly four years.

Is the value premium back? Or do we need to revisit what we think of as a value stock?

Not all cheap firms are equal

New research suggests this is the case. Value investing traditionally has meant buying what was cheap. But in a 2013 landmark paper, Robert Novy-Marx, an eminent finance professor at the Simon Business School at the University of Rochester, showed that not all cheap companies are the same. Some are cheap because they have weak fundamentals, while others are cheap despite being strong.

Novy-Marx found that companies with higher profitability tend to earn higher returns, even when they’re not “cheap.” In other words, price alone doesn’t define value. Profitability is also important.

Novy-Marx updated his findings in an important paper coauthored with Mamdouh Medhat of Dimensional Fund Advisors in October 2025. They found that growth firms reported higher profits than their historical average.

Meanwhile, traditional value stocks remained at their historical norms in terms of profitability. The story wasn’t that value had stopped working. It was that profitability became the main driver of returns.

Valuation and profitability—both important

This led to the conclusion that the best way to capture value is to consider both valuation and profitability. The evidence is that more profitable firms should have higher returns, even if they’re expensive—while cheap companies may not if they’re not profitable. The best value opportunities are reasonably priced stocks with strong profitability.

As Novy-Marx said in the 2013 paper, “Investment managers should carefully consider their portfolios’ exposure to profitability, as it is a key driver of returns across multiple investment classes.”

Dimensional’s discipline about managing portfolios based on academic science has led them to integrate profitability into how they manage their equity funds.

Dimensional excels at identifying academic findings that can be implemented in the products that we use in our clients’ portfolios. For this reason, we’ve been working with them since 2003.

Many shades of diversification

Other forms of diversification of course remain important, too. For example, U.S. stocks strongly outperformed Canadian and international counterparts for over a decade after the financial crisis ended in 2009. Yet, Canadian and international stocks flipped the story in 2025, paying off for investors with oversized gains.

Being broadly diversified within an asset class is also crucial. As economist Hendrik Bessembinder found in a key paper, just 4% of companies accounted for all U.S. stock market wealth creation above a risk-free T-bill investment from 1926 to 2023. The majority of stocks—51.6%—actually had negative compound returns during this period.

Being diversified between stocks and bonds also reduces risk. These two asset classes tend to have a negative correlation during crises, with bonds offering a cushion when stocks sell off.

Free lunch

Whatever the market, the prescription for successful investing remains diversification. It allows investors either to earn the same return with lower risk, or a higher return for the same risk.

This is why it’s often described as a “free lunch”—maybe the only free lunch in finance.

One of the most important results of diversification is peace of mind. Knowing that our investments are well diversified makes it easier to ignore turbulent news and stay focused on the long-term payoff.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

Why Passive Investing Still Beats Active

Why Passive Investing Still Beats Active

By James Parkyn - PWL Capital - Montreal

If you read this blog, you know the evidence about active versus passive investing. It consistently shows that the vast majority of actively managed funds fail to beat the market over the long run.

The reasons are simple. It’s very hard to time the market and pick stocks that will outperform. Even when an active manager makes some good calls, it’s even rarer to do so consistently over the long run, especially as higher fees gobble up gains.

The most striking data about this comes from the annual SPIVA reports on actively managed funds. They show year after year that actively managed funds lag the market.

98% of funds underperformed

In 2024, the report found that a whopping 98% of multi-cap funds underperformed the S&P 1500 Composite Index over the prior 10 years.

Investors have heeded all this evidence. U.S. active equity mutual funds saw over $1 trillion in net outflows in 2025—the 11th consecutive year—according to a report by analyst Larry Swedroe.

Meanwhile, passive equity exchange-traded funds attracted more than $600 billion.

Market efficiency being eroded?

Despite the data, advocates of active management haven’t given up. They’re now making an interesting new argument—claiming that the net outflows may actually help stock pickers.

“The narrative goes like this,” Swedroe wrote about these claims. “As more investors abandon active management for passive index funds, price discovery will deteriorate, markets will become less efficient, and opportunities for skilled stock pickers will multiply…

“There’s just one problem: reality refuses to cooperate.”

Swedroe noted that if the thesis were correct, the steady outflow of funds quitting active management should have led to improved performance against benchmarks. “Instead, we’ve seen the opposite,” he said.

The other side of the trade

Who is correct? Is active investing is getting new life? Has the rise of passive investing indeed imperilled market efficiency?

Weighing into the debate is Morgan Stanley with a new report titled, “Who Is On the Other Side?” The authors are well-known Columbia Business School adjunct professor of finance Michael Mauboussin and his long-time collaborator Dan Callahan.

They look at the question through a unique perspective that’s sometimes overlooked. When you’re buying a stock, there’s a seller on the other side. It’s useful to ask yourself: What does the seller know that I don’t? The same is true if you’re selling.

Professionals help boost market efficiency

Who then is on the other side of a trade in today's markets? These are mostly institutional players, retail investors, sovereign wealth funds, day traders, hedge funds and other professionals. All these actors help make the market more efficient.

Before we go further, let me explain market efficiency. This is the notion that markets accurately reflect available information. In other words, an investor can never get an edge because markets have already priced in all relevant information.

The inventor of the idea, Nobel Laureate Eugene Fama of the University of Chicago, broke it down into three levels.

Weak market efficiency means prices reflect all past data. In semi-strong efficiency, prices reflect all publicly available information. Strong market efficiency means prices reflect all available information, including private data.

Act as though markets are perfectly efficient

In over 25 years of experience as portfolio managers at PWL Capital, we can safely say markets are not perfectly efficient. Fama agrees. At the same time, his view is it’s in your best interest to act as though the market is perfectly efficient.

In other words, assume you have no edge. We at PWL agree with this.

Traders of all sorts are always looking to find pricing inefficiencies. This is the basis of trying to pick stocks and time the markets. But as Mauboussin and Callahan point out, if you want to beat the market, you need a competitive advantage over other market participants.

Every time you buy or sell a stock, someone else is on the other side of the trade. To beat them, you need an edge over them.

2% of companies = nearly 90% of wealth

Determining the fair value of a stock requires you to know the future value of the cash flow of a company and discount rate. That means forecasting the future.

The evidence shows this is very hard to do. Only about 2% of companies created nearly 90% of the total wealth in the market during the last century, Morgan Stanley’s report said. This is consistent with data we reported in our blog that found just 4% of stocks accounted for all stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023.

The likelihood of identifying these 2% or 4% of stocks ahead of time is very slim. Mauboussin and Callahan say this requires an edge in four distinct areas.

1. Behavioural—You need to be more rational than other investors.

2. Analytical—You must be able to predict which businesses will outperform.

3. Informational—You need in-depth research giving you valuable information unavailable to others.

4. Technical—You need to be able to exploit temporary imbalances between supply and demand for a security.

If it sounds challenging, you are right. It is. Most retail investors don’t have the time, knowledge or expertise to gain an edge in these areas. Don’t forget who is on the other side of the trade: professional investors with a team of analysts and vast resources. And even most of them can’t consistently beat the market.

What is your specific edge?

If you conclude that you don’t have an edge, you shouldn’t be trying to actively trade. Instead, the best thing to do is adopt a passive diversified portfolio to capture the broad market’s returns. This means you’re sure to get exposure to the small fraction of companies that will deliver outsized gains in the long run.

If you’re trying to pick stocks, you could get lucky—for a time. But don’t confuse luck with skill. The same applies to picking an active manager. Picking the few who will outperform is called gambling.

Shift in mindset

Accepting market efficiency is a shift in mindset. It leads an investor to stop wasting its time and energy on trying to forecast markets, pick stocks or mutual fund managers. You can focus on things that do matter.

This includes assessing your risk tolerance and finding the right balance of diversified stocks and bonds to meet your goals. It means being disciplined about sticking with your investing strategy.

By adopting a new mindset, you can sit back and let the (more or less) efficient market do its thing.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

How much risk is right?

How much risk is right?

Build a portfolio that doesn’t keep you up at night—while achieving your goals

By James Parkyn - PWL Capital - Montreal

After three straight years of double-digit equity gains, it’s easy for investors to feel bullet-proof. Yet history reminds us that market corrections are inevitable.

Times of euphoria are a good time to ask ourselves: How much of a drawdown could I truly tolerate? If you don’t think about this now, you’re more likely when a correction hits to make emotional decisions that undermine your investing success.

3 pillars of risk profiling

At PWL Capital, we determine our clients’ risk profile as an important step of creating their investment plan. The process includes filling out a risk profile questionnaire. We’ve now made it available on our website (try it here).

The questionnaire helps determine three important things about an investor:

1. Their financial ability to take risks

2. Their psychological ability to tolerate losses

3. Their need for risk

Financial ability to take risks

When designing an investment plan, it’s important to assess a client’s financial capacity to handle risk. This breaks down into a few elements.

• Time horizon—The longer you have, the more time there is to recover from inevitable down markets. Time horizon influences the portfolio’s allocation of stocks versus bonds—with the latter acting as a stabilizer or safe bucket. It’s worth noting that retirees can have very long time horizons of over 20 years.

• Value of your human capital—This is the investor’s lifetime capacity to earn income from work, save and build a retirement nest egg. Some have very stable cash flows; others less so. Some investors maintain the value of their human capital past retirement age, continuing to earn employment income.

• Risk capacity—To evaluate risk capacity, we prepare a detailed balance sheet for the client. A personal balance sheet is like getting a blood test at a medical checkup. It gives important insights for understanding an investor’s financial health and capacity to withstand large drawdowns.

Psychological profile to tolerate losses

Using the risk profiling questionnaire, we also assess the client’s emotional comfort with volatility and seeing losses in their portfolio. There’s an old saying: “An investor really learns their true risk tolerance in bear markets.”

Loss tolerance is important for designing a portfolio that the client can comfortably stick with for the long term. If an investor panics and sells in a bear market, they’re at serious risk of reducing long-term returns while they wait on the sidelines. As we often say, timing the market is virtually impossible.

Thinking about loss tolerance is especially important today after the exceptional stock markets of the last three years. It’s useful to keep in mind that markets don’t just go up. Global stocks experienced six bear markets (a 20%+ decline after inflation) in the past 55 years. That works out to 1.1 such declines per decade on average.

If you fear you may panic and sell, then you should reconsider the balance of stocks versus bonds in your portfolio.

During annual review meetings, we show clients our model portfolios and the returns pre-fees over the last 20 years. The worst period was March 2008 to February 2009. A balanced account (60% stocks, 40% bonds) dropped about 20%, while an assertive portfolio (80% stocks, 20% bonds) fell about 27%.

Despite these losses, a balanced account had a 6.73% annualized return over the past 20 years. An investor who held the entire time would have seen their holdings multiply by 3.68 times. An assertive portfolio saw an annualized return of 7.93%, with their holdings increasing by 4.6 times.

Need to take risk

Finally, we evaluate the client’s investment goals and balance sheet. If your assets are limited, you may need to take on more risk to achieve your financial goals. On the other hand, a multimillionaire who lives on $50,000 annually doesn’t need to take on undue risk.

We do financial planning with clients to understand their needs. For accumulators, we estimate the savings they require. For retirees, we aim to find a sustainable withdrawal rate.

We also consider expected returns on investments and inflation. (You can find our latest twice-yearly report on estimated expected returns in podcast #79 and this blog.)

How aging alters perception of risk

New research says we must also take into account aging. Brain systems for learning, reward and risk assessment evolve over a person’s life, says University of North Carolina finance professor Camelia Kuhnen in a recent research paper. “Those changes systematically affect financial behavior.”

Each person is different and some are unaffected. However, Kuhnen says, aging can reduce the brain’s ability to learn from experience. This is especially true in uncertain situations—such as the environment investors face.

“When decisions depend on tracking outcomes over time—such as figuring out which investments are paying off—performance declines,” Kuhnen says.

This doesn’t mean aging degrades financial decision-making. Rather, we must consider that older people may learn differently and respond differently to information.

At the same time, older adults often outperform younger ones in some areas: managing emotions and maintaining discipline during stressful times. They’ve lived through so many bear markets that they learn to tune out the noise. All this goes into helping to prepare a client’s investment plan.

Risk you can live with—and profit from

Past experience with downturns teaches us important lessons. Markets have prospered despite the dot.com crash, 911, the 2008-09 financial crisis and Covid. The key to navigating these periods is to have a long-term investing plan that reflects your risk profile and sticking to it with discipline.

As David Booth of Dimensional Fund Advisors put it: “Since we know risk is unavoidable—and it’s the source of investment returns—you want to find the amount of risk that is right for you.”

Well said, David. A patient long-term approach converts risk into gain.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

The Value of Good Financial Advice

The Value of Good Financial Advice

By James Parkyn - PWL Capital - Montreal

September marked 25 years since a milestone in the world of financial advice. In 2001, the investment firm Vanguard released its “Advisor’s Alpha” study—research that redefined what it means for advisors to add value for investors.

Rather than viewing success as beating the market, the study suggested that advisors should focus on helping investors with portfolio construction, financial and tax planning, and discipline.

Vanguard later quantified that finding to show the impact it could have. The firm found that advisors who use wealth management best practices can add up to 3% or more in net annual returns for their clients. That added value compounds significantly over many years.

The value comes not from trying to predict the next market move, but from guiding investors to make good choices to achieve their financial goals.

Where does the value originate?

Behavioural guidance–up to 2% or more

One of a good advisor’s most significant contributions is coaching investors, Vanguard found. During market swings, fear and euphoria can push investors toward rash actions that undermine their plans. A knowledgeable, experienced advisor can help clients hold steady when markets fall and avoid overconfidence when they rise.

Vanguard’s research shows that investors who stuck with a 50-50% stock-bond mix through the 2008 financial crisis enjoyed a 209% return by 2024—versus a 16% loss for those who moved fully to cash.

Those who held a mixed stock-bond portfolio through the Covid crisis gained 31%, while investors who went to cash lost 12%.

“These figures demonstrate how a diversified investor has fared well by sticking with a balanced portfolio even through severe market downturns,” Vanguard said.

“Moving to a more conservative allocation… is a natural response. However, while it’s understandable to want to alleviate immediate emotional pain and anxiety, deviating from one’s long-term asset allocation after market declines has proven detrimental to the portfolio’s long-term growth.”

Emotional circuit breakers

This is a key insight. Since Vanguard’s report came out in 2001, many advisors were persuaded to shift their focus more toward educating clients. This is a role we strongly embrace at PWL.

As Vanguard puts it, “Advisors acting as ‘emotional circuit breakers’ for their clients can prevent significant wealth destruction. Advisors have increasingly helped their clients understand the rationale behind their asset allocation, the potential outcomes and the inherent risks. By setting realistic expectations, advisors have helped clients be in a better position to ‘tune out the noise’ and reach their investment goals.”

Tax-loss harvesting—up to 1.5%

Advisors can add up to a 1.5% net annual return for clients through tax-loss harvesting. This involves selling investments that have declined in value to realize a loss, which can offset taxable gains. Those proceeds are then reinvested to maintain exposure to the market.

Investment selection and asset allocation—up to 1% or more

Advisors can add 1% or more for investors by devising a broadly diversified, low-fee portfolio based on the client’s goals and risk tolerance. The exact amount of value varies widely based on the investor’s portfolio.

A well-diversified mix ensures that investors get exposure to top market performers, while avoiding chasing yesterday’s gains. As we reported in a recent blog, a tiny portion of stocks—just 4%—was responsible for all stock market wealth creation from 1926 to 2023 above a risk-free investment in Treasury bills. Slightly over half of stocks lost money over their life.

We can’t know what the winners will be in the coming years, but we can get exposure to them by holding broad index funds that own all the companies in various market indexes. We can further diversify by holding a mix of US, international and domestic stocks, along with bonds.

Withdrawal strategy—up to 1%

How to spend from your portfolio is a crucial question. Whether for retirement or another purpose, a planned sequence of withdrawals can minimize taxes and help assets last longer.

Advisors can make a big impact for investors. Vanguard found that a coordinated approach can add up to 1% to annualized returns compared with random withdrawals, while reducing the risk of depleting assets too soon.

Rebalancing—up to 0.12%

Good advisors help investors by regularly rebalancing their portfolio back to its target allocation. Rebalancing trims positions that have grown too large and reinvests in those that have lagged. The idea is to keep portfolios aligned with goals and risk tolerance and ensure exposure to market winners.

This can add up to 0.12% in value annually, Vanguard found. It might seem like a small impact, but the value becomes significant when compounded over many years.

Instilling confidence

Vanguard’s figures are impressive, but I believe they capture only part of what great advisors deliver. Much of an advisor’s impact can’t be captured in percentages. It shows up in better investor decisions, reduced stress and the confidence needed to maintain the discipline key to financial success.

We at PWL take pride in our craft, and Vanguard’s research underscores why. It’s about helping people build perspective, resilience and wealth that endures far longer than any market cycle.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

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