Portfolio Transparency

By Mark Barnicutt on November 12, 2021

After a thirty+ year career in the Canadian wealth management industry, I’ve learned many things.  One of my key learnings is that during bull markets – when ‘making money’ seems to be effortless – many affluent families become hyper-focused on the ‘rates of return’ being generated in their portfolios, while neglecting to understand ‘how’ those rates of return are being generated within their portfolios.  In other words, in the management of my portfolio:

  • Who are the various service providers?
  • Are they professionally competent & proven at providing these services?
  • What are they being paid for their services?
  • What, if any, conflicts of interest exist amongst these various service providers?

Who Are the Service Providers of My Portfolio?

The core of asset management operational structures have four key participants:

  1. Advisor: This is the service that relates to the pure advice and counsel with respect to the structuring of an investor’s portfolio aligned against their unique goals, timelines, and tolerances for risk.
  2. Investment Manager: This is the service that relates to the money management of an investor’s portfolio (i.e. the people who select the stocks and bonds in clients’ portfolios).
  3. Broker: This is the service associated with the buying & selling of securities (i.e. stocks and bonds) in investor portfolios.
  4. Custodian: Custody is the service associated with the safekeeping of client assets, independent of any of the other investment providers and service participants.

At HighView, our view has always been that the separation of each of the above activities is paramount in the provision of truly objective and transparent advice and service.  We call this the professional division of duties, which is illustrated in the image below:

Why Is Separation Of Professional Duties Important To Affluent Families?

There are three reasons why we believe the separation of these duties is important for investors:

  1. Professional Competency:

Each participant should be a proven best in class provider of professional services in their area of purported expertise.

  1. Conflict Of Interest Elimination:

Each participant should not have control, undue influence, or benefit (directly or indirectly) from the services of another participant.

  1. Fair Value Pricing:

Each participant should price their services on the fair price for value delivered in a competitive marketplace.

These principles were at the core of the investment counsel industry when it was founded over 100 years ago, when Arthur M. Clifford started an investment counsel firm in Los Angeles in 1915 (Read about the history of investment counselling). Specifically, in the traditional investment counselling and asset management industry, there has always been a very clear separation of duties amongst the various professional service participants in order to avoid conflicts of interest and collusion.

Consolidation of Service Providers Creates Objectivity & Transparency Issues for Affluent Families

The Canadian wealth and investment management industries have consolidated over the past three decades due to relaxed regulatory and cross-ownership rules. With this consolidation, the professional separation of duties principle has rapidly deteriorated as large Canadian financial institutions (i.e. banks and insurance companies) have increasingly purchased and/or built all four operational service providers (i.e. advice, investment management, brokerage and custody).

Although these integrated and bundled services (i.e. wrap programs and services) are sold as a convenience for investors, the business logic for this is what our country’s large financial institutions refer to as an ‘increased share of the investor wallet’. In other words, why restrict your services to the provision of only one service when you can offer four services, lock-up the whole client relationship, and make more money!

The ‘wrapping’ or ‘bundling’ of these services into branded ‘investment programs and products’ has become so extreme amongst large Canadian financial institutions that many of their Client-Facing Advisors can no longer tell ‘who’ the various participants are within their clients’ portfolio offerings and how the various money management and operational pieces are meant to fit together for the benefit of their clients.

I refer to this approach as ‘wealth bundles’, like Rogers does with your phone, internet, and TV services — but this is with your money!  As a result, wealth management amongst Canada’s large financial institutions has become less about living the professional principles of objectivity & transparency that the investment counsel industry was founded on, and more about the ‘increased share of investor wallet’ through the branded packaging of integrated investment products and programs.

What’s The HighView Approach?

At HighView, we believe the professional separation of duties, together with full fee and expense transparencyis of paramount importance for both objectivity and transparency. It’s all part of being a true investment fiduciary for our clients, and the reason we have full and complete separation of professional duties of all service provides within our clients’ portfolios.

Our sole source of revenue is the counsel and advice we provide to our clients.  All other service providers (i.e. investment managers, brokers, custodians) are completely independent of HighView and are, therefore, only selected for their professional experience and proven competencies, all at institutional pricing levels, and perform their due diligence.

What Should Affluent Families Do When Faced With Transparency Challenges?

If you’re an affluent family client of a wealth management firm that cannot or refuses to unbundle their service providers (together with their respective fees), you must be prepared to ask some tough questions of your wealth management firm with respect to their true investment fiduciary commitments to you.

In other words, are they managing your money to service you, or for the convenience and benefit of themselves? It’s your money and you have the right to expect and demand complete objectivity and transparency of advice, fees, and service of your portfolio!

Mark Barnicutt
See Beyond

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