Where client is king

It also shows how the needs and business philosophies of planners and brokers are merging. In our May issue, brokers at Vancouver-based Canaccord Capital Inc. gave their firm top marks, citing their independence as the reason for the firm’s high score. It turns out Berkshire and Canaccord have much in common: Berkshire’s advisors also rated it No. 1 for independence.

Kris Astaphan, Berkshire’s executive vice president, was surprised by the scores. “This is a shock for me, because I never expected us to do so well,” he says. “This has probably been our worst year, in terms of back office.”

The showing is due to a strong business model, says Astaphan, adding that three important elements separate Berkshire from its competitors.

First, the firm prides itself on hiring the right people. “They have to be qualified, with experience, and not be arrogant. We have turned a lot of people away who did not fit our model,” he says. “It doesn’t matter if you have $100 million in accounts; if I’m not comfortable with you, I’ll invite you to go elsewhere.”

Freedom is the second part of the model. At a time when non-competition contracts and equity deals are commonplace, Berkshire says its advisors and clients are free to leave if they are unhappy.

The third and most important aspect of the Berkshire philosophy is an old-fashioned one — putting the client first. The interests of the firm and advisor are secondary.

“Everything we do is for the client. Suppose you go to the doctor and you don’t know he is part owner of a pharmaceutical company. He prescribes one of the company’s products, and when you find out, how would you react?”

Astaphan says he can use the analogy, even though Berkshire’s sister company is AIC Group of Funds, because Berkshire offers no incentive for advisors to sell the in-house products.

“There is no pressure to sell [in-house funds],” adds one of the company’s planners in Ontario. “I came from Investors Group Inc., where all you sell is in-house funds, so I make it a matter of principle not to sell them here.”

Another advisor on the West coast says he joined Berkshire because he didn’t have to sign a contract stipulating that his clients belong to the company.

For reasons such as these, Berkshire’s planners gave the firm an impressive 9.7 for freedom from pressure to sell proprietary products. Berkshire also shared top spot for sales support and legal and compliance — even though one Toronto-area advisor calls the company’s compliance policy the toughest in the business, and thinks Berkshire can sometimes be too strict.

Good ethics and a tough compliance department is part of Astaphan’s client-is-king philosophy. Berkshire will even go so far as to refuse an advisor’s licensing renewal if the firm can’t keep an eye on him.

One advisor in Western Canada felt this first-hand. The advisor, who is in the process of leaving the company, says he was told his location was too remote for compliance.

“I don’t know who that was, but I would not be surprised because we don’t take any chances,” says Astaphan. “If we can’t be confident we are supervising local offices properly, we won’t take a chance.”

Berkshire does take chances when it comes to improvements. The company’s technology system was updated in the past year, an experience Astaphan would not care to repeat.

Berkshire changed its entire back-office system from RPM International Trade to Dataphile Software Ltd., the same one used by Canaccord. Ironically, the survey’s leader in the back-office category, for the second year in the row, was TWC Financial Corp., which uses the RPM system. TWC advisors, however, lowered their back-office rating this year to 7.7 from 8.9 in 1999.

Rapid growth, tracking transfers and converging 14 years of historical information were some of the issues Berkshire faced, bringing its back-office score to 6.8. Astaphan expected the score to be much worse, and says it was no coincidence Canaccord ranked first in the broker’s report card if it is also using the Dataphile system.

“Our research told us if we did not jump quickly the lineup would be years long, and we’d be too far behind,” Astaphan says.

Technology is not the only area in which Berkshire needed some upgrading. Marketing and advertising support scores, although higher than most firms surveyed, still leave much to be desired.

The company instead gives advisors a higher payout (75% on average), and leaves advertising up to individual planners. “Milton Friedman, the economist, said the most effective way to develop an economy is to place the greatest amount of cash in the hands of entrepreneurs,” Astaphan says.

Berkshire’s business model does not call for national advertising campaigns. The best way to advertise, says Astaphan, is to have brand recognition as the result. He doesn’t say how Berkshire will do this, but says he wants people to think of Berkshire when they think of financial services.

“You know, when you think of soft drinks you think of Coke,” Astaphan says.