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Financial Advisory Services: Interview with Mark Barnicutt, CEO Highview Financial Group

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The term “financial advisor” covers a wide range of activity, from insurance sales to asset manager to broker to financial planner, and many more. Both providers and consumers of financial advisory services are well advised to get some perspective about this business.

To help, I chose to interview Mark Barnicutt, a well-respected member of the industry in Canada. I first heard Mark speak last year, and was impressed with the breadth and common sense nature of his perspective.  With no shortage of issues, I tried to keep it big picture focused.

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Charlie Green: Mark, give us just a bit of background. How do you come by your viewpoint?

Mark Barnicutt: I was the COO for the High Net Worth business of one of Canada’s Banks. I have also been a private banker, an investment counsellor, ran a US SEC-regulated advisory business, and now run Canada’s second largest family wealth/fiduciary management firm. I have an MBA and a CFA.

Charlie: For the non-Canadian readership, how does your experience in Canada compare with that of the US, the UK, and Australia?

Mark: I think that the issues in Canada are the same as those around the world today. With the growing concern amongst many investors about meeting their future funding obligations, many clients are seeking truly independent and objective advice in which client interests are truly placed first and the costing of all services are made fully transparent.

Charlie: Mark, what are the biggest issues facing your business today?

Mark: The biggest is the movement toward fiduciary management, for which we’ve prepared ourselves. It’s happening globally.

Charlie: OK, we can’t avoid definitions. Help us out?

Mark: A Fiduciary Manager (also known as an Outsourced Chief Investment Officer) is a securities registered investment professional who typically has no proprietary investment product to offer clients; instead, their sole focus is on being the architect of client portfolios in order that they truly match each client’s investment objectives and tolerances for risk. The implementation of each portfolio is done through the research & due diligence of specialized money managers, who are contracted through the Fiduciary Manager, for the benefit of clients.  As a result, there is complete objectivity and transparency of advice.

Charlie: Who has been governed by fiduciary standards and who hasn’t? How big a deal is it to change, culturally, for firms who haven’t been?

Mark: As in the United States, the issue of ‘who is’ an investment fiduciary exists in Canada. Typically, those investment professionals who have ‘discretion’ over client portfolios are recognized as investment fiduciaries, while those who do not have discretion – i.e. brokers – are not considered investment fiduciaries and are typically held to a lower standard of care (i.e. Duty of Care).

The cultural issues for firms that have operated under a Duty of Care Standard to move to a Fiduciary one are huge.  It’s a monumental shift – especially for firms who simply ‘sell products’ to clients – as it is a cultural shift that impacts the whole organization when one decides to become an investment fiduciary.

Charlie: You say this is happening globally; is it more evident, or does it have a stronger momentum, in some countries more than others?

Mark:  I understand from studies in recent years (Casey Quirk) that the Outsourced CIO industry is almost a $500 billion industry.  In Canada, it’s much more niche, but those few firms in Canada who are fiduciary managers are experiencing solid growth (according to our anecdotal information) given the ongoing challenges that so many investors are facing today.

Charlie: What’s driving this move? What’s been the customer experience of the financial advisory business over the past 30 years? The past 10?

Mark:  For investors…it’s all about working with someone who will truly place their interests first. They are tired of having ‘investment product’ pitched at them and then watching as the many promises rarely materialize. They are also tired of being gouged for excessive fees, which so many times are not transparent, but often times are embedded in various financial products.

Charlie: What do you see as salient now?

Mark: The objectivity and transparency of advice and services.

Charlie: Let’s stay with customers: what are the biggest misconceptions that customers have about the financial advisory business?

Mark:  They think that just because someone is licensed that they have a legal obligation to place client interests first…say, like a doctor or accountant.  As I mentioned earlier, this is not the case unless they are licensed as a discretionary portfolio manager.

Charlie: Similarly, what are the biggest mistakes you see customers making?

Mark: Because there are so many different types of advisors in the marketplace today, clients really need to do their homework and find advisors who truly want to place their interests first. This is unfortunately easier said than done, but I have met several clients over my career who have developed a deep assessment approach for finding the right advisor for them.  As part of their search process, they’ve spent time researching how a potential advisor would actually manage their assets to meet their unique needs, as well as service them.

Charlie: What is the ultimate, best-case, customer value that a great financial advisor can provide? What does a client gain from a really great financial advisor?

Mark:  Becoming a true advisor/partner with clients in helping them actually reach their various investment goals (which are typically some form of current and/or future consumption) but within each client’s capacity and willingness for risk.

Charlie: Thanks very much for taking time with us to help clarify this emerging issue.

Mark: My pleasure.

 

Short-term Measurement, Si: Short-Term Management, Non

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When I talk to audiences about Trust-based Selling®, I have found that the number one response is:

"This is all nice, and I personally believe it—but you need to talk to my boss and my boss’s boss. Things around here are just too short-term—and this is where I live. I cannot afford to ignore the demands for short-term performance; that’s my quota, those are the norms, I don’t have the luxury of building this nice long-term trust. "

Read on to hear my take. But first, here’s Starbucks CEO Howard Shultz’s perspective on short-term vs long-term strategy.

Schultz is the returning CEO of Starbucks. Returning, that is, to take over from Jim Donald, the ex-Walmart executive who succeeded Schultz a few years ago.

Starbucks, in the eyes of its employees and many stockholders, has faltered—its stock price down 55% since May 2006, its original coffee-house focus lost in a modern management obsession with cross-selling, efficiencies, and relentless incremental improvement.

Schultz has set about refocusing on coffee. Bye-bye efficient mechanical espresso dispensers, teddy-bears, cluttered counters, and breakfast sandwiches. Back to basics: trained baristas talking to customers, soft chairs, coffee.

But—most telling of all—Schultz says he’s going to stop reporting same-store sales to Wall Street.

In retailing, that is heresy. It’s what every analyst wants, and assumes they’ll “obviously” get.

Why’s Schultz doing this?

Because he doesn’t want Wall Street or his employees falling for the business fallacy of our era: the belief that you can’t manage what you don’t measure, and the more fine-tuned the metric, the more powerful the management you can bring to bear.

This is hooey, and Schultz knows it. Steering the car by short-term rear-view-mirror metrics has a way of making people lose sight. They end up managing the numbers for the sake of…the numbers. Yet Schultz also knows everyone believes this stuff. So he’s making everyone go cold turkey on metrics to enforce the idea that, as he puts it:

Long-term value for the shareholder can only be achieved if you create long-term value for the customer and your people.

He is so, so right.

There is nothing wrong with short-term metrics per se; what’s wrong is assuming that they demand short-term management. In fact, the best short-term performance comes from long-term management, executed consistently.

What would you rather invest in—a company that consistently urges its salespeople to get customers to buy in this quarter, to juice numbers up; or a company that consistently acts in the best interests of customers, without focusing on which quarter the P&L comes home to roost?

Here’s the reaction of distinguished Yale School of Management professor Jeffrey Sonnenfeld’s reaction to Howard Schultz’s strategy for Starbucks:

“Howard is a brilliant visionary and a genuinely compassionate human being, but he runs the danger of being trapped by his past…Entrepreneurs sometimes don’t grow with the business. You shouldn’t pretend the model can’t keep evolving.”

Well, I have a lot of regard for Sonnenfeld, and of course the future will reveal whether he’s right or I am—whether this is a case of focus on long-term values or a case of arrested development. In the meantime, I have two words for him:

 

Steve Jobs

You know, the guy who blew away the suit from Pepsi who came in to “professionalize” Apple after Jobs the entrepreneur had outgrown his baby. Anyone who invested in Apple at the time of Jobs redux is now wealthy.

Because it depends what you’re evolving. If you’re evolving the Frappucino, well, OK. But if that evolution is costing you in terms of values about long-term focus on employees and customers, then “evolution” is a fraud. It’s the short-term disease again, masquerading as "value."

Success is not a series of quarters strung together in sequence. It’s a long-term story divisible into quarters, with the same principles tying them together.

My answer to those who say, “Hey, I gotta hit the quotas, what can I do?” is as follows:

  1. Who owns your career? And if it’s not you, why’d you give it away?

  2. Make a 6-month deal with your boss—let me ride this trust thing for just 6 months, and then you can start hounding me on the metrics.

In 6 months, you won’t lose much—if anything at all—and you’ll begin to see big results.

You also might be surprised how much your boss roots for you.

And if (s)he won’t do it, well, that’s valuable information for you too.