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Monthly Archives: March 2013

The client wants to know – ‘What’ (do I need)? –

‘Why’ (do I need it)? –

‘Who’ (can give me financial advice that I can trust)? –

We are moving from Professional Sales to Professional Advice.

Financial Sales is product driven.

Financial advice carries with it a Fiduciary duty to the client that requires a
solid understanding and mastery of complex information and knowledge confirmed by professional experience and credentials.

This is being driven by 14,000,000 Boomers in Canada trying to understand how they will be able to retire to age 95.

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By Kristin Doucet, Editor

Incoming chair Harley Lockhart talks about Advocis’s proposal to raise the bar for financial advisors, his objectives for the year, and battling his personal demons

If you ever meet Harley Lockhart, one thing you’ll notice about the new chair of Advocis is that he is not afraid to speak his mind. In fact, his honesty is probably one of his greatest strengths

“I can be blunt,” says the 65-year old advisor, who is based in Kelowna, British Columbia. But for Lockhart, honesty is a good policy — one that has paid off in his several years as an Advocis board member and in his 28 years as a financial advisor. “I’m very unstructured, so it doesn’t hurt to have structured people around me,” he says, refer­ring to those who serve on the board with him. “The last thing I need is a bunch of ‘yes’ people; I need people who [can] challenge me and help me refine ideas.”

As chair, Lockhart is currently leading board members — and the Advocis membership at large — on one of the most important initiatives in its 107-year history, one that is expected to bring about higher standards for financial advisors and increased consumer protection for consumers.

Millions of Canadians rely on financial advisors to provide them with sound financial advice and access to suitable financial products and services. While con­sumers should be able to count on widely-held standards of professionalism and a high degree of accountability from their advisors, the unfortunate reality is they can’t.

Advocis’s solution to this problem is to require all financial practitioners to belong to an accredited professional association. . On February 8, 2013, Advocis president and CEO Greg Pollock relayed the details of Advocis’s professions model proposal to Advocis members via webcast.

Considering that over 50 regulatory bodies impact the financial services profession, Lockhart believes there has never been a better time for Advocis’s solution.

“Regulation has become more intrusive,” says Lockhart. “Regulators don’t know what it means to sit across from a client. So they try to come up with all these rules governing behaviour, [although] this behaviour is not as important as who’s in the industry. If you get rid of the bad eggs, you get rid of the bad behaviour. That’s what Advocis’s proposal [to raise the professional bar] has the potential to do — get rid of most, if not all, of the bad eggs in our industry?’

Putting clients’ interests first has always been a given for Lockhart, whose website states that the focus of his practice is”… to enhance my clients’ quality of life by reducing financial stress.” Lockhart provides insurance solutions to clients and works with them to understand the sources of their financial stress, which he has found is often the result of a disconnect between their values and where they spend their money.

“Many people don’t recognize what’s important to them:’ he explains. “It’s about [helping them to] prioritize?’

But Lockhart wasn’t always so positive about the insurance business. After a failed business venture with a Robin’s Donuts franchise in Burnaby, B.C. in the mid-80s, and with a wife and four young children at home, Lockhart found himself struggling to make ends meet. The representative from the Robin’s group insurance plan suggested Lockhart speak with the regional manager at London Life about a job. Reluctantly, Lockhart agreed; however, he had already decided this was to be only a temporary gig.

“I told the regional manager that I wouldn’t lie to people because I had to sleep at night, and that I probably wouldn’t be a good fit in the industry:’ he recalls. “That was my perception of the life insurance business at that time. I didn’t understand it, nor did I really appreciate the good job the agent who had sold me my life insurance had done

In his first year at London Life, Lockhart sold over 100 life policies, and ended up working for the company for the next four years. While he struggled with the concept of “selling,” he realized that he needed to learn how to communicate with clients without pressuring them.

“I had to change my vocabulary about the selling process. When you’re trained in sales, you learn how to handle objections, close, etcetera — I had to get rid of those terms:’ Lockhart explains. “So, my clients never have ‘objections’ — rather, they have ‘concerns: which together we resolve. That’s how I get on the same side of the table as the client. I never win unless the client does?’

From London Life, Lockhart moved to Canada Life in Kelowna, where he continued to work until the company dis­banded its career agency in the 1990s. In 1999, he became an independent advisor, and today operates Quail Ridge Financial Services.

Lockhart’s wife of 30 years, Dale, works with him in the office. “She tells me where to go and when to be there,” he says with a laugh.

As a father and now grandfather, Lockhart has made it a pri­ority to balance work with family commitments. He coached all four children through their youth in various sports, having made the decision years ago to put his family before his job.

Lockhart recalls a story where he had been trying for months to get a meeting with a businessman in town. Reluctantly, the man finally gave him 15 minutes to meet. The day before the appointment, however, Lockhart discovered his oldest son was playing in a baseball game. When Lockhart called to cancel, he was sure that was going to be the end of the business relationship. To his surprise, the man was understanding and agreed to postpone the meeting. That day, his son made a game-saving play that Lockhart would have missed had he kept his appointment.

“[Being at my son’s baseball game] was way more important to me than if I had made a million-dollar deal:’ he says today. “The risk I took to the do the right thing paid off.”

But Lockhart didn’t always feel so confident in his decisions. In 1994, he suffered a serious bout of clinical depression, which resulted in his taking a year off work. Despite the stigma around mental illness, Lockhart is very upfront about his condition. He recently wrote an article about his experience for Visions magazine, which is published by the B.C. division of the Canadian Mental Health Association.

“I recognized from the outset that if I hide [my experience with depression], I give it more power than it [deserves]. When everyone knows about [the illness], it no longer has any power over me. I never had anyone reject me because I had
clinical depression,” Lockhart says. “I was out of the business so long that no one expected me to come back. But I knew that it wasn’t the job — it was me. So I did a lot of work on who I am.”

Lockhart, who has been an Advocis mem­ber since 1985, obtained his chartered life underwriter (CLU) designation in 1994, and received the Leslie Dunstall Silver Medal for CLU studies for British Columbia. Lockhart has served in a number of volunteer capacities with the association, including eight years on the Advocis North Okanagan chapter with a stint as chapter president. Lockhart was also a member of the founding committee of the Okanagan School, where he continued as a director for nine years. He was also a member of the chapter leadership council, and was founding chair of the chapter board, on which he served as chair for four years.

For the past three years, Lockhart has been a director-at-large on Advocis’s national board of directors, volunteering in the areas of communications and membership. He was also chair of the task force that revised the Advocis Code of Professional Conduct, and over the last three years has served on the executive committee of the national board as treasurer and as vice-chair.

“Harley is the ultimate Advocis member,” says Dean Owen, past chair of Advocis and fellow board member. “He has incredible passion for his business, for the industry, and to give in all facets of his life.”

Lockhart’s passion is evident in his desire to communicate to Advocis members in ways that emotionally resonate with them. Whether it’s his Holiday/Christmas or Valentine’s Day messages,

FORUM columns or individual member emails, Lockhart strives to personalize his communication in a way that he hopes will encourage members to respond.

“Communication is my number-one priority as chair,” he says. “Because our members are entrepreneurs, we need to communicate with them in ways that engage them. Communication needs to be something we do with members, not to them.”

Lockhart believes Advocis needs to appeal more to the emotional side of members as opposed to the intellectual side, because “that is where every decision is made.” This is not unlike how he communicates with his own clients.

Lockhart sees his role in the association as “the little wooden stick that you put in the paint can to [stir things up ];’ adding that he initially got involved as a volunteer with Advocis out of frustration with the association. “From day one,” he says, “my focus has been on changing things [for the better].”

One of the changes Lockhart would like to see as chair is a higher level of engagement with Gen Y advisors – or the “after boomers” as he likes to call them . Lockhart believes this necessitates a rethink of the ways in which the organization communicates with this demographic. To this end, he has created a task force made up of Gen Y advisors to help genera te ideas about how best to do this.

Lockhart’s other main objective as chair is to have mandatory membership for all advisors in an accredited professional asso­ciation in at least one province by the end of the year.

One of the challenges Lockhart sees with Advocis’s proposal for mandatory membership is that it may not translate into more members for the association. The proposal doesn’t specify any one particular association that advisors would have to join ; but as Lockhart also points out, Advocis already has the structure in place to be the preferred association for financial advisors.

In order to be accredited under Advocis’s proposal, a professional association would have to meet certain criteria including: a code of code of conduct and ethics that prioritizes clients’ best interests; a requirement that members maintain errors and omissions insurance; elevated minimum initial proficiency standard s of fee-only planners who do not sell financial products; contin­ uing education requirements; a best practices manual or practice handbook ; a governance structure that includes representation from both financial advisors and the public; a complaints and disciplinary process; and a public-facing database whereby clients can conduct a quick check of advisors’ credentials and disciplinary history.

“At the end of the day, our members will determine whether or not Advocis is their association of choice. Advocis has a consistent track record of always putting clients’ interests first. Since 1906, our motto has been non solis nobis- ‘not for our­ selves alone’- and I think this gives us a huge amount of credibility.”

The timing of Advocis’s proposal coincides with a recent submission Advocis made to the Canadian Securities Administra tors (CSA ) with respect to an October 20 12 paper on duty of care, and an upcoming response to a December 20 12 paper on traiing commissions.

It would seem, notes Lockhart, that the CSA is being influ­enced by what is happening in other jurisdictions, like the U.K. and Australia, which are implementing new regulations banning third-party commissions on financial products as a result of widespread fraud. But as Lockhart argues, the problems in Canada aren’t the least bit similar.

“The perception of the problems we are having in Canada have been created by a few columnists at the national newspa­pers- that’s not the reality,” he says. “There’s not a huge public outcry [for these regulatory changes in Canada ] . The stories that have hit the press are about criminal behaviour. No matter how many rules you create, you’re not going to capture the criminals.”

Lockhart explains that there is already a fiduciary duty in place for Advocis members. The first tenet of the Advocis Code of Professional Conduct requires all members to always put their clients’ interests first.

“Our approach is principles-based,” he says. “We have eight principles in our code of conduct and there are no shadows in which to hide. I don’t see what will be accomplished by having a fiduciary duty enshrined in legislation or by abolishing cmissions in Canada.”

According to a new report from Deloitte called Bridging the Advice Gap, 87 per cent of 2,000 U.K. consumers who purchased investments didn’t realize there were embedded commissions. Furthermore, the report finds that advisors who are now required to charge a separate fee can expect a backlash consumers.

As expected, the less the amount of investable assets, the more likely a consumer will be to reject paying a fee and thereby hire a financial advisor.

Should a similar ban on commissions happen in Canada , Lockhart sees the potential widening of the advice gap as a seri­ous threat to the financial future of many consumers.

“People are happy with the current system – they don’t want to have to write a cheque for the advice they receive.” he says.

“There are many consumers with small asset levels who will not write a cheque for service; these are the people who probably need advice the most.”

What the consumer should focus on, says Lockhart, is not the commissions paid to the advisor but rather the benefit they receive from the advice. “There are three factors in any product: the price, the cost, and the value. The price is the number — it has no relevance whatsoever; the cost is what you give up to get what you want; and the value is the perceived importance of the benefit received. While the cost and the value are what’s most important to the consumer, most of the focus in the media has been on the price of advice, not the value,” he says.

Studies on the value of financial advice, such as the recent CIRANO study, demonstrate the positive effect of advice on wealth accumulation. The CIRANO study, the largest and most scientif­ic of its kind in Canada, offers compelling evidence that those who use advisors have two to three times more assets, save twice as much, and are better prepared for retirement than those who don’t.

To Lockhart, proposing higher standards for advisors is a natural progression for Advocis, which has been advocating on behalf of its members and their clients for over a century. To that end, Lockhart’s vision for the association is that it is recognized by professionals and consumers, regulators and politicians for what it really is: an organization committed to enhanc­ing consumer protection by promoting advisor professional­ism. Again, Advocis’s motto — non solis nobis — “not for ourselves alone” — is proof of that, he says.

“I don’t think we can overplay that motto, because it’s true. I think we need to bring that to the forefront all the time.”