Episode 2.5 with Dan Hallett

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Text transcript

Kevin Press:

Welcome to the Canadian Advisor.cast, a podcast dedicated to financial advisors and the people who work with them. My name’s Kevin Press. I’m Editorial Director of Advisor.ca.

My guest today is Dan Hallett, a Principal and Head of Research at HighView Financial Group. Dan is an active writer and speaker on a range of industry issues. He’s also worked with regulators to raise industry standards and improve investor transparency.

HighView is a professional boutique investment counselling firm for affluent Canadian entrepreneurs, professionals, families, and foundations. Great to see you, Dan. Welcome to the podcast.

Dan Hallett:

Thank you. It’s a pleasure to be with you.

Kevin Press:

You and your partners launched HighView back in 2010. How would you describe the firm’s philosophy?

Dan Hallett:

Well, you know, our clients have-through some combination of hard work and risk taking, and a bit of luck-have amassed significant wealth. And so, you know, we believe, at a high level, our job is twofold.

One, first of all, make sure they never are in a position where they have to make that wealth again, but also give them the peace of mind that their wealth is being managed responsibly, sustainably, and in a way that’s really going to tilt the odds of success in their favour as much as possible.

So, you know, you could describe it as peace of mind or, there’s many ways to, kind of, frame it, but, at a very high level, that, we believe, is our objective. And, in delivering that advice, we owe every client a fiduciary standard of care. So it is really putting their interests above all. I like to describe it as treating every client the way I would want to be treated if I was not in finance and I was in sitting in the client’s chair. And, yeah, I think that’s a key part. And it’s a duty that even though it’s incumbent on us by law, it’s something we talk about and we embrace pretty openly.

But at the heart of that is [a] financial plan, because that really drives everything and the conversations around it. So that’s a really important piece that is easy to overlook because it’s not the part that gets the most attention, but it’s pretty critical.

Kevin Press:

We talk a lot about the power of a plan and the importance of a written financial plan. What do you hear from clients when you talk to them about that? Is that as much a priority for the client as it is for the industry?

Dan Hallett:

It depends on the client. Some of them…there’s some clients are just not interested in us doing a plan for them. Some of them…I mean, some of them are in the fortunate position where they’ll never be able to spend the money that they’ve been fortunate to accumulate. And, in that sense, the planning is effectively being done by, you know, through a combination of all of their professional advisors-it’s not just one firm doing it. And in that case, we’re working together with them and making sure that there’s a line of communication open between us.

So, I think it varies in importance. I think the key thing, though, is-because you’ve mentioned the written plan-the key thing is the implementation and the follow-up. I mean, creating the plan itself is really important. But to keep it as a living document, there needs to be a lot of follow-up, and fine-tuning and revisions, whether it’s every year, which we do, in many cases, for clients, updating that every year. But for others, it’s maybe updating it every two or three years-just depends on the circumstance. But, you know, from the client’s perspective, I think the ones that are engaged in that process, they really value it.

Kevin Press:

Yeah, there is no one, sort of, type when it comes to affluent Canadians, is there? There’s…I imagine there are many personality types as there are and across the broader industry.

Dan Hallett:

Absolutely. Yeah, I mean, the thing is, it can be a very probing process. So, it’s sometimes you’re pursuing people to get little bits of information that maybe were, we still require to complete the initial plan. But, you know, I could see, you know, being guarded myself with a lot of my personal information. I could see being grilled by somebody to extract all the data and the info that they would need. The first time through, I could see how that would be a little delicate because it is a very probing process, or can be.

Kevin Press:

That’s so interesting. We kind of take that for granted. How would you compare the industry in 2010 when you were starting the firm to where it is today?

Dan Hallett:

Gosh, like even, yeah, even in that period, it has changed a lot. I think the first thing that comes to mind when I think of that time period is there were lots of initiatives in years prior to that by regulators and different agencies to effectively raise the standards for Canadians, and raise the bar of professionalism for the industry, for advisors.

And, it seemed that for a long time-it was actually one of my colleagues that made this observation- you know, regulators would make some progress and then a bull market would follow not long after, and then that would fall by the wayside. And there seemed to be a cycle of that happening for a while.

And I think in 2010, or in the early 2010s, that really shifted. And I’m not sure, exactly, what the driving force was. Could have been the financial crisis, to an extent. But that’s when regulators really started to not only start the momentum, but really sustain it, where they were able to implement some pretty key initiatives. And so, that’s certainly one of the things that has changed.

I think that has encouraged, I don’t know, “forced” is maybe too strong a word, but it’s certainly encouraged or incented a rising level of professionalism across the industry. And I think that was probably happening before 2010, to an extent. But regulators’ efforts, I think, were, were challenged before that.

Kevin Press:

It did seem, at the time, that people were more engaged; the industry was maybe a little more self-reflective, given the gravity of what was going on. It would be, sort of, counterintuitive to say that, that crisis really didn’t impact the approach that regulators took.

Dan Hallett:

Yeah, I mean, it was a pretty huge event. Like, maybe, “intense” is another description. I certainly remember feeling the intensity of some of the events that were happening in the fall of ’08 and early part of 2009. So, yeah, I think that’s a factor.

I think some of it could have been just the competitive forces as new people entered the industry. Like, if I think back to the early part of, if I rewind a bit further back than 2010-early days of my career-you know, it was pretty casual in a lot of ways.

There was always a contingent that was serious about financial planning, which wasn’t talked about a lot at that time. And there were a lot of people, it was allowed by regulators for people to be, kind of, part-time, part-timers in terms of selling financial products. And so, you know, I think there was a period of time where, you know, as people retired, as new people entered, there was a desire to just be a bit more professional, get more credentials.

And I think slowly, step by step-and it was slow-we are now sitting at a point where the industry is just at a much more professional level. I mean, I can still remember all the different initiatives around, you know, should we implement a best interest standard? Should we not? Is that, you know, there are lots of debates around that. Banning commissions; not banning commissions-just disclosing them. So, there’s been a lot of back and forth, but I think we’ve landed in a, you know, in a pretty good spot. Now when we can look back-you know, 15, 20, 30 years-we’ve made some good strides.

Kevin Press:

How do you think total cost reporting’s going to play out in that context?

Dan Hallett:

Again, it’s going to impact different firms differently, because, for some, you know, total cost reporting has effectively already been happening. If there is very limited amount of total costs still left embedded in the product, then, effectively, those clients have been receiving what amounts to total cost disclosure. That’s the case with HighView. But, you know, it’s going to be an eye-opener. But, I think, yeah, I don’t know. I don’t know that that’s going to have a major impact.

I think the fact that it’s arriving, you know, during-at least so far-pretty positive markets, maybe not, like, as we speak, because markets are falling as we’re sitting here speaking. But I think that helps in terms of people absorbing it and not, you know, not reacting too strongly.

And, hopefully, even though those fees haven’t been, sort of, on an official report, that there’s been discussion of them. And so I think to the extent that there has been some open and transparent discussions of total costs, even if it wasn’t always on paper, that it shouldn’t come as a big shock. But I feel a little out of touch as to how clients across the board, like on a really wide spectrum, how they’re going to react to that.

Kevin Press:

Well, the flip side of it is will they react, will they even consume the information, right? I really wonder about that, and I wonder if this ends up being kind of a nothing burger because people just don’t read their statements.

Dan Hallett:

It could be. A decade ago when we saw the implementation of CRM2, that initial disclosure of the compensation, you know, I was certainly pleased that we’d got to that point, but when I actually started seeing the reporting and how it was presented to people, it could have been…it wasn’t the most user-friendly, let’s say, right? Because it’s like piecemeal; it’s like by account, for example. And if you have, it’s not unusual-you think of a family-not unusual to have, say, seven, eight accounts.

And when you’re seeing, you know, these amounts all over the place, of course, anybody could grab a calculator, add it all up, and say, “What’s our total portfolio value?” and get a sense of how one relates to the other, what the dollar total is, and all that. I’m not sure many people did that. And I’m not sure that the…well, I’m pretty sure the presentation could have been better in terms of making it more meaningful for people. So I agree that could be the same thing here, because it really is being embedded in the same reporting format and template.

Kevin Press:

We’ve talked about this professionalization of the industry a lot on the podcast. And, I’m curious if you think, first, if we…have we made enough progress, and then, sort of, going forward, how optimistic are you?

Dan Hallett:

I think to still work in this industry, you have to be an optimist at heart. Even though I spend a lot of time talking about the things I don’t like in the industry. I think you have to be an optimist. And so I am. I am an optimist. When I see where we’ve come, from where things were when I started, and even from when I joined HighView, you know, we continue to move in the right direction.

But, you know, if you think, you know, if you ask, like, “Have we done enough?” I would say, “We’ve never done enough.” And my hope is that what happens with a lot of individuals, which is, I mean, even for me, like, I’m in my 32nd year in the industry, I’m always still trying to do better, better for clients, better research, trying to find better insights, and just, there’s always something to learn.

And so, my hope is that, that happens enough times across the board with a lot of individuals that as an industry, we adopt the same attitude, is that, yeah, we’ve made a lot of strides, we’re much more professional than we were 20 or 30 years ago, but let’s keep trying to get better. It’s my hope, I…we’ll see if, as an industry, we continue to move in that direction, but I hope we do. And, if I had to guess, I think that we’ll continue to improve.

Kevin Press:

Let’s narrow the focus a little bit. Ben Felix was a guest in our first season. He talked about, his words, “ETF slop.” He thinks there’s too much product out there that seems designed to add provider value more than investor value. What’s your take?

Dan Hallett:

I agree wholeheartedly, and sadly, I was talking about the very same things back in the 2000s and in the late ’90s, even as far back as, like, ’98, which is when I was first beginning to speak to folks in the media.

I still remember the number. I’m pretty sure I remarked that there was something like 2,500 mutual funds available at the time, and there was way too much, and upwards of 90% were not worth investing in.

And so those numbers just keep growing, right? I mean, and now you have the ETF marketplace just ballooning in terms of number of products and assets. Yeah, in that sense, it hasn’t changed. It’s gotten worse because there’s just more and more products. And I agree, most of them are not worth investing in. The ballooning of choice, the huge proliferation of product doesn’t do anybody any favours.

And it doesn’t help advisors; it makes it harder for advisors to, sort of, sift through. You have to be…you have to really have a lot of focus and be able to sift through a lot of noise to be able to benefit from the increased choice. And I think, you know, someone like Ben, I think someone like myself, I can quickly, sort of, cast aside all the stuff that I’m not interested in and zero in on the things that I think will really help somebody. But that’s a huge challenge for advisors, and it’s exponentially harder for do-it-yourself investors.

Kevin Press:

That’s true, and a lot happening in the alternative asset category, too. Do you see the same issue?

Dan Hallett:

Well, I think you can make a case for, and there is a case for investing outside of traditional markets, traditional stock and bond markets. It feels like we’re on the cusp of an avalanche of more and more that’s going to be made available to, particularly to retail investors.

And I think that’s always a concern, partly because of what we just spoke about, around the proliferation of product. You know, if you make a wrong choice in an alternative, it can be more difficult to get out. Now, it doesn’t mean every, not every product that, you know, puts some restrictions or limits on redemptions is necessarily having operational problems. It just means more people want to get out than are getting in. But, but if you make a poor decision, and you make a poor choice, you can get stuck for years. So that’s one aspect of worry.

The other is just advisors’ ability to make good decisions, and having the time and the resources to do proper due diligence. You know, there are some advisory teams that are set up well to handle that task. But I don’t know that most are. You really need some dedicated resources to attack that. And it’s much more important for alternatives because the work is so much…the demands are higher, the work is more specialized, and the information can be harder to come by. So, sometimes have to get a bit more creative when doing that work. So, that is a bit of a concern, for sure.

Kevin Press:

Yeah, fair point. No one’s going to argue against the importance of due diligence. But, a lot of these products are about mitigating risk and, you know, it seems-given, certainly the state of markets in recent years, not withstanding positive returns last year-that risk management is as important as ever. I mean, what’s your take on this argument that the traditional balanced portfolio is maybe a little out of date?

Dan Hallett:

So, I don’t agree with that view. So let me try to reconcile those two things where I say I see a case for alternatives, but a traditional balanced portfolio is not dead. You know, I…just because something can be added to a portfolio, doesn’t mean it should be for everybody, first of all. And bonds are still contributing; it’s a modest amount of return, but it’s still a meaningful amount, more meaningful than we had seen in a long time prior to 2022.

I think that statement could have been stronger when rates were near zero, where you had to take a lot more risk to bump the yield up. You know, rates aren’t that high today, but meaningfully higher than they had been in a long time. So they’re still a meaningful contributor to a total portfolio. And, there would be lots of clients who could achieve their goals without alternatives. The pitch for alternatives and the pitch to say, you know, the traditional balanced portfolio is dead, is that they’re looking for higher returns and more diversification, which, I think, can be really valid reasons to look at alternatives. But you have to first look at whether you need to do that.

And, I would say that, you know, without getting into specifics, regardless of what type of alternative investment you’re looking at, it’s not so much that it’s lower risk. The idea is that if it works, it moves differently from the rest of the portfolio, and that can help to mute the ups and downs that you’d otherwise have in a stock and bond portfolio. But it doesn’t mean that on a stand-alone basis it’s low risk.

You just have different…the risk shows up in different ways. It doesn’t show up with a wildly bouncing price. And that’s a due diligence challenge. You have to dig to see and understand, and what that risk is, where it lies, and how does that fit in the portfolio. So the traditional balanced portfolio is not at all dead, but at the same time, there is some room, I think, and a case to be made for adding some other assets.

Kevin Press:

And you say that fully understanding that the longevity trends we’re seeing really do change the calculus from a planning perspective, and how long money needs to last.

Dan Hallett:

Yeah, no, it’s true. That is a challenge. You know, people are living…I think people tend to live longer than they think they will individually, right? I mean, I’ve certainly run across lots of people who will look to a parent who said, “Oh, well my, you know, my father died at 70. I don’t expect to live much past that.” And, you know, I mean, sometimes that happens, but I mean, that’s more of an emotional response than anything. And I think often people underestimate how long they will live.

I mean the, the mortality tables are a useful benchmark for that. But when people start, sort of, talking about, you know-barring any major health issues-when they, kind of, use examples like that, you know, I think that’s where your point of longevity comes in.

You need to plan to live to an older age, even if you may not think you’ll live that long. So it’s certainly a challenge, but I think that can be addressed-like, for someone who maybe is uncomfortable with alternatives-that can be addressed just by dialing up the allocation to equities, for example, to stocks.

But like any other scenario, you know, you’ve got to find the right solution that fits with each client. For some clients, just ramping up the exposure to equities will do the trick. Maybe others will benefit from having some alternatives, and maybe the solution is something else entirely, depending on the client.

Kevin Press:

Pull the lens back a little bit. I think the challenge people have with this debate about product development, and is there too much product, is how do you stop that, right? I mean, you can’t slow down innovation; organizations and smart people are going to continue to develop new ways for people to invest. What would you, if it were up to you, Dan, what would you change about the product development process?

Dan Hallett:

Kevin, there’s a reason I’ve never been hired in product development because I wouldn’t launch near the number of products that are out there. What would I change? I mean, I guess to be realistic, what I would change is I would really avoid all the, what I would call “gimmicky products,” or some of the one-upmanship that I’ve seen happening in some of the product segments.

 And, and I know it’s been a favourite subject of mine in recent years, but the covered call strategies are a great example of this, because we started with-if we really look at the evolution of just that strategy in the mutual fund and ETF space-you started with a pretty broad strategy, you know, whether it was Canadian equities, more likely U.S. equities, broad-based exposure, with some, you know, selling call options on those positions to generate cash flow.

But then we got to sector funds, sector ETFs. So whether it was banks, utilities, what have you. Then we went to, you know, gold yield funds, then we went to single-stock covered call funds, and then we’ve added leverage to all of those. So, you know, this one-upmanship, I guess, is that it just keeps taking, takes even what…well, I wouldn’t even say it’s a good idea.

But, anyway, let’s say you take an idea and you just overdo it. Anything worth doing is overdoing. That’s how I would describe the product, sort of, the product development, product management. If I had one wish, I would at least stop that part.

Kevin Press:

And that’s the challenge, right? Because it’s, kind of, human nature. Is there a role for the marketing leadership in these organizations to step up, maybe, and be the voice of the investor?

Dan Hallett:

That’s happening with certain companies, but it’s not going to stop the next company from overdoing it. Because the incentives are there to launch more product. You know what the ’90s, I think, taught the industry or what it showed was that, you know, if you launch more products, you will attract more assets from investors.

And, you know, it is very much the, “throw the spaghetti at the wall” approach. You go with what sticks, but you keep throwing. You know, you keep trying; you keep taking your swing at the plate, and you see what works. Because the incentives are there for the businesses so, they will continue to do that.

You know, there’s, you know, people that can try to voice their opinions as to whether this kind of product or that kind of product is helpful for people, and if it isn’t, to try to educate on that. But, in my experience, that hasn’t had a major impact on whether the products are launched or whether people invest in them. But it doesn’t stop us from trying.

Kevin Press:

Yeah, but, I mean, clearly, you see a role for yourself and others like you to do that education, to be a voice for the customer.

Dan Hallett:

I do. I think it’s always really difficult to gauge whether there’s any impact from those efforts at all. But I guess somewhat selfishly, I feel better having tried than just sitting on my hands and watching people continuing to buy products that I think are not helpful at all.

Kevin Press:

I’m fascinated by that, Dan. I mean, it seems such an uphill climb, and I’ve spoken with so many folks like yourself who’ve really, sort of, taken this on as part of their professional lives. Is the work enjoyable? Is it…it’s got to be tough at times.

Dan Hallett:

Advocacy is definitely a labour of love. I don’t think there’s really anything in it for the business in terms of doing that. Most of the…I mean, a lot of times the industry will comment on consultation papers, and what they’re doing is they’re trying to protect their business. No, we don’t want to take, we don’t want…that rule’s not going to work because of X, Y, and Z, and it’s going to cost too much, and it’s, you know, it’s not practical and, you know, that’s not the…it is a labour of love because, you know, I’ve taken it upon myself to participate in different consultations. And usually, it’s either a topic that I’m just really interested in, or something that I think is important for investors. But it’s almost never something that really impacts our business.

So, when I say it’s a labour of love, it truly is, because I’m spending time that I’m taking away either from the business or from my personal life. The two are, kind of, hard to separate at times. But I’m taking that time. I’m not really getting any… I’m not getting any compensation for it. And, it’s not clear that if I just look at my individual effort that it’s had any impact at all. But, you know, occasionally, I see a glimmer of hope. I see a regulator that maybe has taken even one little piece of something, my opinion, or from my analysis, and made some use of it.

And that’s enough. It’s enough to-and maybe I’m a glutton for punishment-but, it’s enough to, kind of, keep me going for the next one. But I have had a bit of a break from advocacy the last three years, but I’m ready to get back to it this year, so.

Kevin Press:

We talked a little bit about title protection as we were preparing for this week’s episode. What’s your take on how the industry is doing on that front?

Dan Hallett:

I was pretty disappointed with how that turned out. I was involved in some of the early consultations, and I think the first two formal rounds. But I, kind of…I did give up after that; I didn’t do the final round of consultation because I could see where it was going.

Yeah, I think it was a lot of time and a lot of effort, a lot of words for, I don’t know, I don’t see how the public is protected all that much at this point. I think the effort could have been something really helpful and meaningful, and I think it was diluted somewhere along the way.

There was an effort a long time ago, about 25 years ago, and it was something that I raised throughout the time that I was involved in those stakeholder meetings and whatnot. And it was actually an old initiative that the Ontario Minister of Finance had spearheaded. And it was going to be title protection; it was going be financial planning, regulation; it was going to be the province, sort of, defining a whole regime, including administering a comprehensive exam; like, really taking over, probably closer to the Québec model. And I thought a really interesting way to attack title regulation as well.

In a pretty simple way they were covering, you know, a large number of titles. And I thought that was a good model to follow, but nobody really seemed interested in that. Even just from the title perspective, the title parts, I thought, were interesting to incorporate, even though that was a much bigger initiative.

And that one, back in 2001, that was effectively lobbied to death. Never to be heard from again. And so, I was hopeful to be able to take some of the pieces from that and incorporate it into title protection here in Ontario. And, yeah, as I say, there wasn’t much interest in doing that.

Kevin Press:

Those were the days of the Financial Planning Standards Council and Don Johnston. I remember interviewing him for “Advisor’s Edge” and his efforts to line the industry up behind the CFP designation.

Dan Hallett:

Yeah, yeah.

Kevin Press:

It seemed to me at the time that there were too many organizations in the business of providing continuing education, and on that basis alone, it seemed a tough nut to crack.

Dan Hallett:

It was. I mean, it was a bit puzzling at the time when… so the initiative I was speaking of was Ontario’s Multilateral Instrument 33-107. How’s that for a nice marketing label? And, it seemed like it was ready to go, and I think it was, and then it was all of a sudden, it just hit a wall and nobody heard anything else. And it was only years later where I would ask people in the regulatory side of things, “What happened to that?” And it literally got lobbied to death.

So, I think there were lots of things happening. That might have been an example of what I spoke of earlier, of, sort of, regulatory momentum, kind of, only going so far, and then it dying for one reason or another. But, yeah, like the days of Financial Planning Standards Council, and, yeah, there were a lot of moving parts back then. And, again, I think we landed in a good spot in terms of credentials, but title protection, I wish had materialized in a more meaningful way.

Kevin Press:

Thanks for this, Dan.

Dan Hallett:

Oh, you’re welcome.

Kevin Press:

My guest has been Dan Hallett. Visit HighViewFin.com. Canadian Advisor.cast is a production of Newcom Media. It is produced by Alisha Hiyate. Noushin Ziafati is our Associate Producer. My name is Kevin Press. Thanks for being with us.