Hola Everyone! Today I am delighted to welcome you to another instalment of my special guest feature series on my blog that is brought to you by my Toronto based development firm KMD Group Inc.
My guest this week is Stephen Pietro of Scotia Wealth Management. Stephen is a Wealth Advisor at ScotiaMcLeod, a division of Scotia Capital. He holds the Certified Financial Planner and Chartered Investment Manager designations. Stephen is passionate about education and especially educating those from communities that may not have as much access to financial planning resources. In 2018, Stephen began teaching classes at a local college on stock market investing and financial planning. He is also active in his local community and works with his councillor on charity projects, community events and on efforts to help improve businesses in the area. Stephen is currently my own personal wealth advisor and I have had the utmost privilege of working with him.
Katia : Welcome Stephen! it’s great to have you join us in this special blogpost on “Katia In Toronto”. Can you please tell us about yourself and how you came about to being in the position you currently hold?
Stephen: Thanks for having me Katia! Well I started what I do because growing up I saw first-hand what financial hardship looked like. The environment I was brought up in was in a loving family that struggled with money. This really impacted me and I was motivated to seek a future for myself that would give me financial freedom. I wanted to be able to give this to others as well, by pursuing a career in this field. Currently I work with Scotia Wealth as an Investment Advisor and in addition to this, I am also teaching two courses at a local college (Seneca College). One of those courses is “Introduction to Stock Market Investing” and the other is “Personal Wealth Management”. This allows me to reach an audience with a wide variety of financial backgrounds. Including people that have a lower net worth and may not have access to the information that clients with a higher net worth may have.
Katia: What Services Do You Provide Clients Here at Scotia Wealth?
Stephen: We are primarily focused on investments but a big part of that is financial planning. Financial planning encompasses cash flow planning, retirement planning, contingency planning, tax planning, investment management, and estate planning. The investment side is one piece of the puzzle but its not the only piece. The way the investments are structured are almost as important as what the investments actually are. The idea is that we want to help people grow their wealth but also make sure that the way their wealth is managed is efficient and that it is protected from volatility and erosion. We want to keep as much money in our client’s pockets as possible. The transfer of money from one generation to the next is important and so we also want to help plan for that. From a tax planning point of view; we help you to understand what certain tax planning shelters and options are. For example, understanding things like a Registered Retirement Savings Plan (RRSP), Tax free savings accounts (TFSA’s) and the use of trusts. Overall it’s planning for things like time and life stages. A portion of your money should be in something safe, a portion of your money should be in something slow and steady, and a portion of your money should be more long term and more growth focused. In the end It’s all about educating people that it does not matter how much you have, you can always save money and have investments even with a minimal amount.
Katia: How many clients are you currently working with?
Stephen: I currently work with about 60 clients. But our team is growing and that is allowing us to expand our business.
Katia: How do you measure and evaluate investment performances? How do you track success
Stephen: In terms of how we evaluate success. I think success isn’t necessarily a number where one goes “I made 9% a year, or I made 10% a year” I think that needs to be more in line with what a client’s goals and risk tolerances are. For example, let’s say you have a client who is very conservative and wants to make sure that their wealth doesn’t decrease at all because they are not okay with fluctuations in the market. Knowing that, I go ahead and make that client an outlandish return in a particular year but I have put them at risk; to me that is not success. On paper it looks good and they have made money but if the market had gone the other way, the client would have been devastated. Whereas if a client is more aggressive and can tolerate the ups and downs of the market and I have decided to put them in a more conservative mandate; then again that is not success. Understanding what clients are looking to accomplish and helping them get there is success. So I think success for each client is really personalized, in terms of what they are looking to achieve.
Katia: So what I understand from all this, is that most investments are successful when they are long term.
Stephen: Yes, that is correct, and I would say most clients are somewhere in the middle in terms of level of risk they are willing to take. Most are not the kind who don’t want to take any risks at all, because they understand that investments with no risk produce very little return, but they are also not very aggressive where they are okay with losing half their portfolio in a year. Most clients are somewhere in the middle and are looking towards long term consistent returns
Katia: Many people are waiting for a drop in the market. What do you think about this?
Stephen: Well we have seen people who have been waiting for a correction since all the way back to 2014. The part of the market that is difficult to manage, is that we know that the market ebbs and flows and has different cycles. However, the problem is we don’t know exactly when a cycle will stop or change. The problem with trying to wait out the market is that in the example of someone who has been out of the market since 2014, if they had waited from 2014 till now because there was no substantial downturn then they would have missed out on being in the market for all those years. Even if there was a significant downturn in the market tomorrow, that person would have been further ahead just being in the market all those years. Although a correction is always a valid concern, we know that trying to time the market isn’t an effective solution. What we do to mitigate that is that we have clients invested in various areas so that when the market does eventually turn, the type of investments they are in will decline less than what the market does. And when the market does pick back up again (as it always does). Their investments pick back up a little faster than rest of the market. It’s less exposure to volatility and more exposure to high quality securities in the right industries that will recover faster than everything else.
Katia: and that is between the Stocks and Bonds?
Stephen: Yes between all the different products that we put in place including stocks, bonds, structured notes, ETF’s, mutual funds, other alternatives, and so on and so forth. Also remember that each one of those categories has sub-categories. For example, stocks have a lot of sub-categories (i.e. small cap and large cap) including being divided by geography and by the type of industry, some of them pay dividends and some of them don’t. Even on the bonds side there is short term and long term as well as corporate bonds and government bonds. So overall it’s really important to know all these and which one fits best for the client.
Stocks and bonds have somewhat of an inverse relationship to each other. That is, when stocks tend to go down in value, bonds increase. The reason for this is that stocks are viewed as a more risky investment and bonds are safer. So when the stock market has a downturn, people move their money out of stocks (causing the prices to fall further) and they move it into bonds (causing their prices to increase).
A stock is like owning a tiny piece of a company. On the stock market, we are allowed to buy stocks of companies that are publicly traded. A bond on the other hand, is like you loaning money to that company. The company is obligated to pay you back interest plus your original investment. Bonds are considered to be safer because if a company ever goes bankrupt, the bond holders need to be paid before the stock holders do.
Katia: How often are reviews done on a Client’s Portfolio?
Stephen: In terms of watching the market, that is something that we do everyday and we have a part of our team that only puts their efforts on this. I have a colleague whose main job is to focus on the day-to-day of the market. As well, we also outsource some of our investment research and analysis. Our process utilizes 15 different analysts that are looking at mostly North American stocks. For us it makes more sense to have a team of people doing that rather than one person trying to do all that research by themselves and also trying to handle the client interactions.
Katia: Okay that makes sense. What about changes? How often do you suggest changes to the client? Is it weekly, monthly or just when you start to spot upcoming fluctuations.
Stephen: Part of it is built in whereby we do things like annual reviews and generally we look at the structure of clients investments quarterly. The exception to that is anytime we feel like something is happening we are tactical and try to adjust on the spot. So part of it is structured and part of it is that we act when we need to.
Katia: When do you suggest young people start creating an investment portfolio?
Stephen: As far as youth, they say that the best time to plant a tree was 20 years ago and the next best time is today. The younger the better. Often, I find with the young people that I work with they already have a good example through their parents. A lot of it truly starts at home and parents that teach their kids good habits with money tend to lead to more successful children.
Katia: You know this has really captured my attention because at the end its about education in every single area of your life and investments is something we tend to forget about. It’s not about how much money we have but creating the discipline. Educating yourself and optimizing your resources where you not only put aside money for things like the gym, education and leisurely activities, but also for investments. This is important in order to increase your wealth. For me I believe that a good balance in the different areas of your life is one of the secrets to success.
Katia: Are there any programs for youth on investments or programs that teach parents how to teach their kids about investments?
Stephen: Not any formal programs that I know of currently, but I am working on an article now for the Globe (newspaper) that discusses that specifically. Here is the question: If parents have been successful, how do they make sure that their success does not limit their kids ambition? Because if a child is given everything then there is no real incentive for them to work and often parents want to make sure their kids understand the value of money. However, they also do not want their kids to suffer either. There is a balance there, whereby one has to think about how do you give your kids a good life, but also teach them about the value of money and hard work? I am working on something now that will illustrate that, but in terms of formal programs there aren’t any that I know of. I do think that there should be one, and that is part of the reason why I like being on the education side. I think that is one of the biggest things our education system is lacking. Well in this country anyway.
Katia : I look forward to reading that article! I also would like to add that I think good values and ethics are a key component of educating your kids about money and having good human interactions.
Katia: what tips do you have for young people to start investing?
Stephen: Tips for young kids starting out. Once they get to high school and perhaps even younger, invest early and invest often. Once you have your first part time job start saving even as little as $50 a month. In terms of paying your bills, think of yourself as a bill. Before you pay your cellphone and electricity bill, pay yourself first. It’s not to say don’t pay all those but do think of yourself as an important priority. It’s doing something now for the older you.
Katia: What can people do to save for retirement and be financially stable?
Stephen: One of the most important parts about retirement planning is understanding what your cash flow is like. What I mean by that is understanding what money is coming in and what money is going out. Finances tend to change over a person’s life so if you are married or if you are single and if you live in a large city vs a small city, all those things affect your finances. Someone living in Toronto is going to have a higher cost of living than someone living in Sudbury, as the cost of real estate is quite different. It is important to understand what your costs and expenses are throughout your life and to plan for that.
It is important to prepare for the different stages of life and realize that as you grow older new experiences may arise that result in needing to invest more in your changing lifestyle. Believe it or not, in the early years of retirement, people’s expenses actually increase. As long as you are healthy and you are not working anymore, it is like you are spending 7 days per week on vacation. Being able to be flexible in retirement planning is also quite important.
CLOSING NOTE :
Okay everyone, thank you kindly for reading through my latest blog post and thank you once more to Stephen for being a part of this blog. I hope you were able to learn a little bit about wealth management.
There is so much value in every single stage of your life. You do not need to be young to have lots of vitality and you don’t have to be old to have acquired knowledge or wisdom. To be fulfilled and economically stable, It’s about making the right choices in life (and how you design your life for every single stage of it) that drives your growth and happiness as a person. Being prepared allows you to confront any challenges that may arise. Life is like planning for an amazing trip. If you start planning today you will have a more pleasant experience and a better future. I personally believe in a world where everything is possible. So I end off by borrowing a line from Scotiabank which is that “You’re richer than you think”.
Until next time, love and light always!
Photography by Karimah Gheddai