Anyone who moves in the financial and family office space knows about Jason Pereira.
As co-founder and senior partner at Woodgate Financial Inc. in Toronto, he’s often outspoken about the financial industry and how advisors should work with their business and their clients.
We sat down with Pereira and talked about his early days witnessing the end of the dotcom bubble, his philosophy on financial advice and his thoughts on alternative investments.
How did you get started in finance?
I was in high school and I was afraid of going to university and taking a degree that I would never use. I had no idea what I wanted to be in life, so I went to the co-op department office and told them things that interested me as a teenage boy, and money interested me.
They ended up putting me at ScotiaMcLeod at Scotia Plaza in downtown Toronto. So at 17 years old, on Bay Street, I started off doing nothing but filing. The co-op position turned into a summer position turned into a “come back whenever,” and really that was it. I had a job throughout high school and university and at the end of it, I learned a lot.
It was a great experience, but I also learned what it was like to be in the belly of the beast and how there was no metric for client success. I got to try a lot of different things in financial planning and see the power or the ability to just make small changes and have massive impacts on people’s lives, versus a lot of the more prototypical stockbroker’s behaviour I was seeing.
So when I left there, I had an opportunity to start something somewhere else. But then when I started with an independent firm, I realized I didn’t know anything about running a practice. So I learned as much as I could about rights management, wherever possible, and started to get an idea of the next five years for what I wanted the company to look like.
So I’d say I got into it for short-sighted reasons, but stay for the long term ones.
You said you were seeing some stockbroker-esque behaviour. What were you seeing?
I started at the end of the dotcom bubble. I got to see Bre-X, I got to see Nortel, I got to see WorldCom, I got to see all of those fiascoes as my first initiation to the industry.
What was your reaction, and how much of that helped form your philosophy toward clients?
I think the biggest thing that hit me was how little thought went into what was being recommended.
I expected all this analysis to be done, and whatever else, and it was just like, ‘I read a newspaper. I’m gonna recommend this stock.’ At the time I’m only 19 years old, but [I realized] no, this is wrong.
I think I was very close to leaving the industry entirely, until I started to think there was an opportunity to do something different. What I found was how easy it was for [advisors] to become almost disassociated from what was going on. These were numbers on a screen to them, and meanwhile, I was seeing people’s lives.
Where are your high-net-worth individuals looking to put their money these days?
A lot of this stuff around how high-net-worth clients are looking for this kind of investment in blah-blah-blah – that is a line fed to them by the industry: ‘Oh, you’re a high-net-worth client, you need to graduate to the next level of whatever.’
It’s like, ‘You’re this big, so therefore you get something exclusive.’ When in reality, what everybody has access to is the answer.
And what is that answer? Or is it a diversified portfolio that acknowledges your short term, medium and long term goals and your risk tolerance?
When you start reading the academic literature – which is pretty much borderline definitive – and even ones that acknowledge that there might be alpha out there, they basically say that it will be swallowed up by and captured by fees over time as the portfolio grows, because we think of alpha as a limited opportunity for extraction.
What’s your opinion on alternative investments like private equity?
There is data and evidence showing persistency of outperformance of people in the private equity space.
However, it is persistency performance of managers. Managers get primary deal flow. So, really, the only thing that matters in the private markets is deal flow. If you are a big deal with a pure, good offer, if you’re a good option, guess what? [Global investment firm] KKR and the other big players got there first.
By the time you start working your way down, anyone in the Canadian retail space is looking at this stuff. You have to ask yourself, how did it even get to you?
This might be how all pensions and rich people invest, but at the same time, you’re not investing in the same thing. In the stock market, you’re investing in the same thing. Here, you’re investing in the stuff that they passed up. So that’s a concern.
Where do you think the markets are going?
How we invest in markets or the industry as a whole?
Both.
Take a look at any projection assumption by any credible institution out there, from Vanguard to BlackRock, and they’re saying get used to 4 to 5 per cent if you’re lucky. There’s a big difference between expectation and reality, and advisors need to be leaning into that.
Most brokers I find out there tell their clients that their job is to make 10 per cent a year. I have literally blown up relationships with other brokers by saying to clients, ‘Oh, that’s what he told you. Here’s the survey of these institutions and what they’re saying. So you’re telling me this person is going to double the market. That would make him better than Buffett.’ People want to be lied to because it appeals to a base level of greed.
That will free up time for meeting preparation, and everything else is going to basically land in the advisor’s lap, and there are only three options. The first is to do less work, which I mean you’re accepting that you’re not going to go beyond a certain point.
The next option is to expand the number of clients you have. But the reality is, as a human being you can’t keep more than about 150 relationships straight in your head. It’s called the Dunbar number. It’s a psychological concept about how many relations you can keep straight. You can either accept that it does become a limiting factor, or not. If you don’t, you’re going to pile on more clients for your service. Frankly, [since] the robo-advisors are doing implementation at a cheaper price, your value proposition is challenged.
The other side is basically if I had more time, but a set number of clients, I can spend more time per client. I could spend time finding ways to actually do things that matter to them. Help them with their planning concerns, help them expand what the definition of planning is in their lives. This is where we’re not just financial planners, but the fields of behavioral finance and behavioral psychology and financial therapy are going to play a huge role.
Artificial intelligence will ironically allow good planners and advisors to become more human, to allow us to spend more time on a human level with people to allow us to actually focus on them.
Responses have been lightly edited for clarity and length.
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