Top 4 TD Wealth Management Interview Questions

Prior to the Great Financial Crisis a wave of bank consolidation took place. However, over the decade afterwards very little large-scale M&A took place -- partly due to uncertainty over regulatory changes partly due to banks wanting to focus on changing their internal balance (i.e., prioritizing wealth management, as most large investment banks like Morgan Stanley and Goldman Sachs have).

But TD has begun to buck the trend and has been a been growing its platform with significant new acquisitions, the most notable of which is First Horizon (currently they are supposedly circling around Cowen as well). 

Anyway, as I've always said you ideally want to join platforms that are growing, and TD in general, and TD wealth in particular, have been doing just that over the past number of years.

TD Wealth Management Interview Questions

Below are some hypothetical interview questions and answers. As always, I've tried to touch on some current market themes within them (as the most popular type of interview question will involve discussing markets). 

What are some leading indicators of a recession?

How would you position a portfolio as a recession approaches?

Will the negative correlation between bonds and equities return?

How should you handle a client who wants to get out of these volatile markets?

What are some leading indicators of a recession?

This is a classic style of interview questions. It's deceptively simple -- there's no math involved or objectively right answer. However, it allows an interviewer to differentiate between candidates based on how articular they are and what answer they choose to give.

While there's no need to give an exhaustive list, there are a few relatively reliable indicators. 

First, when 2s10s - or better yet, 3m10s - invert, that's typically a sign of a recession because it's showing that the long-end of the yield curve is less than the front-end (thus the market is pricing in the expectation of rate cuts, which are a signal of a recession). 

Second, nearly every developed country will do a survey of "purchasing managers" to gauge how much they're expanding (or contracting) inventory. In the US, there's the ISM Purchasing Manager's Index, which is currently pulling back significantly. This could be a sign that companies are seeing weaker demand, a build up of inventories, and thus less purchasing. This, of course, has the knock on effect of weakening growth. 

How would you position a portfolio as a recession approaches?

When a recession approaches - especially in an inflationary environment when rates won't be able to be dropped, at least immediately, to buffer it - you need to watch out for multiple compression in equities and instead look for fixed income products.

However, while the yield of credit is enticing, if a recession ends up being deep you'd expect corporate credit spreads to widen further than they have in the run up to a recession (thus causing the price of those corporate bonds to decline in value).

Likely the best strategy - especially in the current environment - is buying long duration government bonds (i.e., treasuries). Because these are likely to come down based on the anticipation of future rate cuts in the future, even if the central bank (i.e., the Fed) is committed to keeping rates temporarily high to help squash inflation.

So, in summary you'd want to always have a diversified portfolio. However, you may want to go overweight bonds and go underweight equities. You may want to go overweight corporate credit as well, but you'd need to be careful about credit quality and only do so if you don't think we're going to have a deep recession.

Will the negative correlation between bonds and equities return?

Historically there's been a persistent negative correlation between bonds (i.e., treasuries) and equities. The general theory behind this is quite simple: as equity indices decline in value that's probably due to the economy doing poorly, so yields on bond should drop (in anticipation of future rate cuts to stimulate the economy) and therefore the price of bonds rise. 

So, in the end, by having a portfolio like the famous 60/40 you diminish potential volatility (i.e., you don't get all the upside when equities are going higher, but you don't get all the downside when they go much lower). 

However, to begin the year we saw the negative correlation turn into a positive one due to inflation fears. Bond yields went up, so prices went down, and equity prices also went down based on the anticipation of rates going up. So the 60/40 volatility hedge didn't work out nearly as well as you'd hope.

But if you believe that inflation will moderate over the medium-term, then the more "normal" relationship will reemerge again. In other words, we'll return to a world where equities trade down due to poor economic performance, which is itself a deflationary phenomena, and in response a central bank cuts rates (sending bonds higher). 

How should you handle a client who wants to get out of these volatile markets?

I often bring up this question because it's not only incredibly common, but also incredibly important. 

Your role as a wealth manager is to work with your client, not against them. This means sometimes you're going to need to do things that aren't necessarily what you would do (i.e., shifting their portfolio based on their wishes).

So the first thing you need to do when answering this question is make it clear that you understand that your job isn't to be dictatorial. Rather, your job is to try to explain your perspective in a calm and clear manner -- if the client still holds a view that's counter to your own, then that's perfectly fine.

So, in this situation you should make it clear to your client that you understand their concern, but that most of the market gains made in any given year will come on just a handful of days. It's very hard to time market turnarounds - because they are always forward looking - and so you'd hate to see the client "lock in" significant loses only to lose out on future gains. 

Conclusion

Ultimately, if you're in Canada and are looking to get a start in wealth management than there are few places better than TD. Moving outside of Canada, by joining TD you'll be joining a growing team with a platform that'll unequivocally be able to serve you well. So, if you have the opportunity to interview at TD - even though they don't have branches on every corner in some locales - be sure to take it.

Hopefully these questions have been interesting to go through! If you're looking for even more questions, be sure to check out the long list of wealth management interview questions or asset management interview questions. Of course there's also the wealth management guide itself -- which has over 180 questions and answers all compiled for you.