Periodic insights from our Investment and Private Client Teams on a broad range of investment and advice-related topics
A unique approach to strategic wealth management: a conversation with KJ Harrison CEO Joel Clark and Chief Investment Officer Peter Barlas
Many investment firms offer services to high-net-worth clients, but few take the holistic approach KJ Harrison does. Offering a full suite of private client services, wealth management advice and investment strategies, the firm has developed a uniquely client-focused approach to helping high-net-worth individuals and families achieve their financial and personal goals. In this Q&A, Chief Executive Officer Joel Clark and Chief Investment Officer Peter Barlas explain.
Q: What does ‘strategic wealth management’ mean for KJ Harrison’s clients?
J: It really boils down to this: everything we do begins and ends with a focus on them. High-net-worth individuals and families have unique needs, and so we begin working with them by developing a deep understanding of the full spectrum of their current situation and their goals. What do they want to achieve, both personally and financially? How do those goals relate to their business or family dynamic? How can we best guide them to where they want to go in their lives, not just their portfolios? From there, we provide personalized advice and a rigorous investment approach, with the highest standards of communications and compliance.
Q: One of KJ Harrison’s core values is to treat clients as if they were partners. What does that mean in the real world?
J: The first and most obvious meaning is that partners and employees here co-invest in our firm’s investment strategies, right alongside our clients. But it’s also informed by the way we’ve organized the firm, from our fee structure to our people. We hire people to do a better job for clients, not just to create more complexity. We also communicate frequently and transparently – the way we would like to be treated if we were clients. When it comes to how we build and grow KJ Harrison, we’ve always put the clients’ interests above our own, and we make decisions based on their long-term benefit. We concluded long ago that a successful and profitable business is an outcome of doing good things for your clients, not the other way around.
Q: On the investment side, your goal is outstanding long-term risk-adjusted returns for clients. How do you try to achieve that?
J: One core element of our approach is to try and insulate our families from massive drawdowns. We know if investors suffer big losses, they can panic and risk abandoning their long-term plan. And they tend to abandon their investments at the bottom of the market. Many people actually make no financial headway over long periods of time because they are just making back what they lost, and we’re really trying to avoid that with our families. Again, it starts with the client and the objective you’re trying to deliver.
P: One of the things we talk about is having a barbell approach, especially in today’s world, where there is so much uncertainty. Take the recent trade tensions between the U.S. and China. You could make a case that if there’s a ceasefire, markets could shoot up 10%; you can also draw a lot of scenarios where everything falls apart. So how do you build a portfolio to make sure clients are protected in the downside scenario but also poised to participate in the upside scenario?
J: There are two steps to how we allocate capital. The first step is at the client level. We spend a lot of time with families, understanding their personal objectives and allocating capital across different investment strategies accordingly. And then there’s how we allocate the capital within each of our investment strategies. It’s a two-pronged approach – it’s not one-size-fits-all.
Q: How does KJ Harrison’s “bottom-up” investment framework work?
P: What we’re looking for is to buy the best businesses in North America. We want them to have barriers to entry, ‘moats’ around their businesses, and free cash flow generation. We want management to be excellent allocators of capital, and we also look to ensure that management’s share ownership and compensation packages are aligned with shareholders’ interests. Then, once we’ve identified an opportunity for an investment, we roll up our sleeves and get involved – meeting with management, visiting factories, talking to consumers and suppliers.
Q: Would you describe your approach as value investing?
J: No, not in the way most people think about value investors. Our weighting between risk and non-risk assets is reflective of our view of the general economic and market cycle. Once we’ve made that determination, we fill the risk bucket according to the criteria Peter talked about – we want to own the best companies in North America. So we’re overlaying a macro, top-down approach onto thorough due diligence and on-the-ground research. That’s one thing that’s changed significantly from, say, 20 years ago. Back then, a stock might have been able to perform well independently of what’s going on at the macro level, but that’s just not the case in today’s global, interrelated, synchronized world. Valuation plays a role, but it can’t be the lone driving factor.
Q: What’s your approach to risk management?
J: The first key to managing risk is to make sure you have the client in the right strategies. So if you have a 90-year-old woman in an all-equity fund, and she needs immediate income, that would not be assessing her risk profile correctly. We have strategies that do different things, and have different risk profiles, and we match those to the client. And the other way we manage risk is within our funds.
P: We like to buy businesses with a margin of safety. Avoiding big losers is a really big deal for us, but on the flipside we are always looking for big winners. So we’re managing risk both ways.
J: Peter brings a true understanding of risk management. If you think about the traditional investment industry, many asset managers never interact with the end client, so their version of risk management is comparing returns to a benchmark. But Peter knows many of our families intimately. To them, the risk is loss of capital, or not achieving their personal objectives – the benchmark is irrelevant.
Q: How does that approach make you different?
J: I think the majority of people in our industry don’t get that emotional side. And many don’t pause and reflect on what I call the big-cycle risks, because they happen so infrequently. But that’s the difference between a firm surviving a cycle or not. I don’t think it’s good enough to have the firm’s success – and our clients’ portfolios – just follow the ups-and-downs of the market. That’s not really a successful value proposition.