Do you know how your financial advisor invests his or her own cash? Likely not.
According to a survey conducted for Hennick Wealth Management by Environics Research in 2016, just 6 per cent of Canadians who use an advisor know if their own actually puts their money where their mouth is.
Adam Hennick, a Toronto investment advisor and CEO of the company, wants to change that, believing that transparency equals investor trust. We caught up with Mr. Hennick, who began his career in 1988 as a gopher at a national brokerage firm, to find out how investors and fellow advisors react to his recommendation to be completely – gulp – transparent.
In January you made a bold claim. You said in a news release that in order to gain clients' trust, advisors should "bare all." That is, reveal to clients their own personal RRSP picks and returns. You said you'd go first. What happened?
Everything that I own, my existing clients know they own too – except in very unique circumstances where their brother-in-law runs a part of a company and they want to own shares. So it's not like, "Here, come see my RRSP this month," because they know they'll just see their own anyway.
How about new clients or prospective clients then?
When people come in to see me, that's often what I do: I'll show them my account. They can see my name, the performance and the dollar value. [Mr. Hennick acknowledges, though, that not all of an advisor's personal wealth is reflected in an RRSP.]
What are their reactions when you show them what's going on in your own portfolio?
The responses are usually eye opening. Back in November I showed my RRSP to a referral and he said to me, "You know, that's the reason why ultimately I chose to move my stuff with you. I've spoken to two or three other advisors, but you told me you invest the exact same way as your clients."
Are you comfortable telling me what's in your RRSP?
Are you going to print it?
Okay, put it this way, based on your own RRSP, which investments would you recommend?
I fashion myself a deep value investor. I look for companies that management has a big stake in. I've found deep value in retailers in Canada. For instance, something like Leon's Furniture Ltd. Leon's owns a lot of real estate, plus their business continues to grow a double-digit bottom line. I also own things like Reitmans (Canada) Ltd.
Everybody hates it. It must be the most hated investment I think I've shown people. They're like, "Really? No one's ever in those stores." And look, their overall sales are doing better. Plus, 40 per cent of their share price is in cash. And they own some real estate. Not the distribution centres and head office, but there's real value. Then there's Constellation Software Inc. It's quietly one of the largest technology companies in Canada. And nobody's ever heard of it, but again, management owns a big stake in it.
Did other advisors take you up on your challenge to show their own RRSPs to clients? What happened?
It just fell flat. It was one of those things – you go to the top of a mountain and nobody responds. So, that's really the answer.
Why do you think that is?
It's a hard thing for advisors. Because I really believe this: There's a dark secret among them. Not all of them; there are really great advisors out there, too. But some of them carry a dark secret. They know they really haven't performed that much better than a GIC. And that's tough. They don't really talk about those things.
So how did it feel when you put out this challenge, and then all you heard were crickets?
You know, I wasn't surprised. At the beginning of 2017 there was a real panic in the industry.
Because of new CRM2 regulations that require advisors to disclose fees and performance numbers to clients in a more tangible way?
Right. CRM2 comes out and [there's] panicking. And at the time, my guess was that CRM2 would be a non-event. I thought that clients receive so much mail and e-mail that they'd look at the reports and think, "I don't even understand that." That's really what happened with CRM2. It didn't do what people were afraid it was going to do, which was wake up the masses.
So my challenge to advisors and clients went a similar way. The lack of response shouldn't have surprised me based on clients' reaction to CRM2.
Investors don't really care? It's apathy then?
I think a lot of it is because people are confused. They hire an advisor because they're busy and they don't want to spend the time scrutinizing reports. This is also about their future. So their investments don't seem as important perhaps as a dentist appointment or a kid's skating practice. The RRSP comes last. The industry, I think, has always fed on that apathy.
This interview has been edited and condensed.