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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.

 

Trusted Advisor? Or Just Not a Crook?

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The term “trusted advisor” has been around a long time.  Recently I wrote about how the phrase has undergone “trusted advisor inflation” and become far more casually used.

When Maister, Galford and I wrote the book The Trusted Advisor back in 2001, one of our aims was to debunk the idea that trust was mainly about competence, credentials and cognition. We said:

..becoming a good advisor takes more than having good advice to offer. There are additional skills involved, ones that no one ever teaches you, that are critical to your success…you don’t get the chance to employ advisory skills until you can get someone to trust you enough to share their problems with you.

The theme of this book is that the key to professional success is not just technical mastery of one’s discipline (which is, of course, essential), but also the ability to work with clients in such a way as to earn their trust and gain their confidence.

We went on to say:

The trusted advisor is the person the client turns to when an issue first arises, often in times of great urgency, a crisis, a change, a triumph or a defeat.

Issues at this level are no longer just seen as organizational problems, but also involve a personal dimension. Becoming a trusted advisor, the pinnacle level, requires an integration of content expertise with organizational and interpersonal skills.

That was then (2001). To my astonishment, it appears that not everyone in the world has read our book and committed it to memory. (Imagine that.)

Thin Trust

That’s not the way a lot of the world has come to use the term “trusted advisor.” The following quotes are taken from current promotional literature:

Full disclosure of conflicting interests is the only way to build and keep trust with your clients.

For decades, CPAs in public practice have laid a foundation of trust with clients by competently handling confidential financial data and performing core services such as tax preparation.

There has been much talk about how accountants should embrace value based, business improvement services so that they can step up and truly embrace their trusted advisor status. Yet little has been written on how to go about doing that in a way that sits firmly within the accountant’s heartland – the numbers.

A trusted adviser offering objective solutions in wealth structuring based on XYZ Research and industry leading global resources…who understands clients’ specific investment needs, structure and area of interest…the trusted advisor is complemented with a team of financial experts and corporate resources.

As your trusted advisor, XYZ delivers a wealth strategy service to manage the financial complexities in your life.

Your loan closing is just the beginning of our relationship.  Annual mortgage reviews and rate watches are just a few of the benefits XYZ provides to their clients.   That is why __ will not only be your mortgage Planner, but your Trusted Advisor as well.

I’m deliberately not providing links here because I’m not trying to embarrass anyone, but rather to make a simple point: the idea of a “trusted advisor” as synonymous with nothing more than competence, credentials and procedural compliance clearly lives on.

Who should you trust? According to these views, someone who’s been vetted by the industry, many will tell you. How will you know you can trust them? By the number of letters after their name, or by the stress tests they’ve passed. Or in some cases, by the way they are paid (via fees, rather than transactional commissions).

Let’s be clear: basing trustworthiness on whether or not one structurally faces financial temptation is a pretty low hurdle. It reminds me of Nixon’s famous utterance, “I am not a crook.”

Barring someone from temptation doesn’t create deep trust in them. While avoiding conflict of interest is a good thing, it’s entry-level stuff.  We reserve deeper trust for those who face temptation, and who nonetheless rise above it through ethics and character.

The bar for being a trusted advisor is higher than not being a crook, being competent, and passing industry equivalents of drug tests.

Reclaiming Trust

A few years ago, we wrote a White Paper: If You Think Competency Sells, Think Again. In it we provided research proving what Maister, Galford and I had claimed a decade earlier: that the dominant factors driving trustworthiness are not competence, business acumen and procedural rigor.

The more powerful drivers of trustworthiness are, in fact, the ‘softer’ side of things: the “intimacy” and “other-orientation” factors we identified in the trust equation.

It may have become fashionable to deny it, but human wiring has not changed in the last decade; we are still prone to trust those we feel secure confiding in, and those whom we feel have our best interests at heart.

They’re only beginning to teach that at business schools (Bill George is an exception). And you will not find it by mastering documented procedures or by improving your business acumen.

 

Bad for the Customer, Good for the Stock Price: Wait, What?

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Bill Bachrach has a business somewhat like mine, though with a specific vertical industry focus: he teaches people to become trusted professionals in the field of financial planning. I’ve read much of his material over the years and have the highest regard for what he has written (not to mention what he’s done—like the Hawaii Ironman Triathlon).

The other day, Bill found just the right words to express a paradox. Just how is it that an industry, by burning its own customers, can raise its stock price? We’ll come back to that: first, here’s Bill, from his newsletter The Trusted Financial Advisor:

The headline reads: "Wall Street wins big as Dodd drops fiduciary provision." And the first line of that article is "Chalk it up as a win for the securities and insurance industries." How do the securities and insurance industries win when the client loses? It’s a fascinating way to view the world, but not surprising.

Here’s my translation: "the lower the standards the easier it is for us to manage our advisors, salespeople, and agents." It’s the usual product-oriented, fear-based thinking from our industry at-large and it proves, once again, that you have a competitive advantage as an individual Trusted Advisor who chooses to put the client first.

Can you believe what you just read; you have a competitive advantage by putting the client first? Yes, you do. Doesn’t everyone put the client first? Apparently not. Amazingly enough, our industry considers it a win when they don’t have to adopt the highest standard of care for their clients. Wow.

Point One: There Are a Few Bad People Out There

Now, you can argue that the industry is right in its argument that the absence of a fiduciary standard is actually in the best interest of the client, but I’m with Bachrach on this one. If you disagree, I’ve got a bridge for you.

Some people think trust is naïve, that the world is a nasty place, that no one is trustworthy, and that trusting is a foolishly suicidal act.

Trust is not naïve—there is no trust without risk, for example—but it needs to be said that those people are not all wrong, not by a long shot. There are industries more rife than others with untrustworthy behavior, and the business of money, at least in recent years, is one of them.

But there’s a bigger issue that Bachrach’s indignation suggests:

Point Two: Watch Out for Profit-Justified Ethics

There are a number of researchers out there—I won’t name names, but you could research them easily—who invest quite a bit of time and energy in proving that "good" business is also good business; that you can do well by doing good. Profitability is shown to be correlated with values like transparency, social responsibility, candor, and customer focus.

I’ve studied a lot of that work, and think it is generally and fundamentally true. Doing good really does result in doing well. But—not in all cases, and not necessarily in the short run.

As Bachrach points out, you’ve got an entire industry that apparently believes they can make more money by gouging their customers than by being straight with them. Are they wrong? Put it this way: I wouldn’t even bet your money against Wall Street on this one. They are most decidedly not stupid.

Why’s this an issue? Because many of these socially-minded thinkers—whom I happen to think are basically right, and whom I support—are playing with fire when they use profitability as a justification for “good” behavior. The more you say, “the good-doing companies are actually more profitable than the evil companies,” the more you conflate the two. And the more you open it up for some companies to infer the converse and the inverse:

“It’s making the most money, so it must be the good thing,” and

“It’s not making money, so it must not be the good thing.”

And what you’ve then done is to re-define ethics in terms of profitability.

Now, there is no harm in pointing out that good deeds are usually more profitable. And none of these analysts intend to argue in favor of the perverse results. But intentions have a way of getting misinterpreted by those who have ulterior motives; those who are, oh let’s just say, bad.

It’s similar to what L.J. Rittenhouse said in a recent Trust Quotes interview, the "result of trying to replace moral standards with legal standards" is a lowering of integrity. So it is here, when we don’t guard against the turning of the ethical tables.

Just to be clear: if something is ethical, it’s usually profitable. But if it isn’t profitable, that doesn’t mean it isn’t ethical. And just because it is profitable doesn’t mean it is ethical.

There will be the more-than-occasional situation where the right thing to do is simply not the profitable thing to do. That’s when you find out who’s ethical, and who’s simply hustling their own customers.