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Harvard graduate and former professional hockey player William Horton, CFA, now works with high-net-worth private clients in his investment consulting business. Horton earned the CFA charter in 1992 and he is engaged in behavioral finance research to gain greater understanding of investor decision making.
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“I
take a lot of pride in helping clients make investment decisions
that are good for them,” says Horton, president of Horton
Financial, an independent investment-consulting firm serving private
clients and family offices in Canada. Horton says that doing so
requires both the technical know-how to approach financial problems
from various perspectives and also an understanding of the psychological
drivers underlying a client’s investment behavior—skills
that the CFA Program and, subsequently, CFA Institute member benefits
have helped him to acquire.
When Horton enrolled
in the CFA Program, he already had several years of industry experience
as a broker and financial consultant. “I thought the CFA Program
would be a way to legitimize the knowledge that I had already. Instead,
it expanded my knowledge; it gave me different ways to view, understand,
and approach technical problems,” says Horton, who adds that
from the beginning he found the curriculum to be applicable to his
job.
Another reason Horton
pursued the program was because “the CFA charter was the standard
that Canadian firms were looking for when hiring investment counselors.”
Shortly after receiving the designation in 1992, Horton was hired
as a portfolio manager for Royal Trust Investment Counsel. From
there his career took off.
By the late 1990s,
Horton was a managing director of CT Private Investment Counsel,
which at that time managed over US$8 billion. In 1999, Horton joined
a boutique wealth management firm where he founded, registered,
and was president of CAP Investment Management, the firm’s
investment counsel arm, which grew to US$180 million in assets under
management. And in 2001, he founded Horton Financial. His only regret:
“I wish I had enrolled in the CFA Program sooner.” |
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Over
the course of Horton’s career, he has made a point to keep
up with industry developments. “In our field, working with
uncertainty is part of daily life. Sure, there are standard ways
of doing things and looking at situations, but sometimes they don’t
work,” which, says Horton, obliges CFA charterholders to continue
to build upon their knowledge base by reading industry publications
and gaining exposure to new ideas and approaches. Doing so developed
Horton’s style of investment consulting. “I’m
not so certain I’d be as interested in applied behavioral
finance today had I not gone through the CFA Program,” he
says.
Clearly, the CFA
Program can take candidates in many directions. But no matter what
the course, Horton says that paying attention to the people side
of the business is essential to success. “One has to take
a technical, left-brain approach when working in this business,
but you ignore the right-brain side at your peril,” cautions
Horton.
Horton asks his
investment counselors: “What kind of successful relationship
have you ever been in that has been only one way?” Horton
explains that “relationship management is not about having
a nice customer database that tells you what kind of wine your customers
like and where they like to go on vacation. You have to give a little
to connect with people.” That advice applies not only to clients
but to colleagues as well, says Horton.
For example, Horton
describes a recent investment manager search he conducted for one
of his clients. “I shared with the finalist managers exactly
what my client wanted, which surprised them, because typically the
managers come in guessing. Often, they try to ferret out information
about the client and try to tailor the presentation as best they
can. Or, they just say ‘This is who we are and what we do,’
without concern for the individual client. But in trying to deliver
to my client the best possible decision-making basis, I think it’s
important to be up front with the managers. After all, it’s
a transparency of process that contributes to a good decision. So
in any relationship, I try as early as possible to set the tone
of transparency, honesty, and integrity.”
Ultimately, in his
role as a consultant, Horton believes the biggest differentiator
between a professional who is serving the client and one who simply
is going through the motions “is having in-depth technical
knowledge and the ability to translate that knowledge in a way that
the client can understand and feel comfortable with it.”
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Footnote:
Interested in the intersection of psychology and investment decision
making? Consider these scenarios:
Scenario 1
In addition to whatever you own, you have been given US$1,000.
You are now asked to choose between:
A. A 50 percent chance to
gain US$1,000 and a 50 percent chance to gain nothing.
B. A sure gain of US$500.
Scenario 2
In addition to whatever you own, you have been given US$2,000.
You are now asked to choose between:
A. A 50 percent chance to
lose US$1,000 and a 50 percent chance to lose nothing.
B. A sure loss of US$500.
In a 1979 study* on decision making under
risk, the above scenarios were presented to two different groups
of subjects. Although the two scenarios are identical in terms
of net gain to the subject, 84 percent of the subjects chose B
in the first scenario, while 69 percent of the subjects chose
A in the second scenario, thus demonstrating that people tend
to avoid risk when profits are involved, but tend to be risk seeking
when losses are involved. Horton says that how you frame a scenario
for a client is very important in helping that person make sense
of the options and commit to an investment strategy that both
achieves goals and “feels right.”
*Daniel Kahneman and Amos Tversky, “Prospect
Theory: An Analysis of Decision Making Under Risk,” Econometrica,
vol. 47, no. 2 (1979).
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eople.
That’s what investment consultant William R. Horton, Jr.,
CFA, says he likes most about working in the investment industry.
By that, he means not only the day-to-day interaction with clients
and colleagues, but also his deep interest in how emotions and biases
influence investors. This otherwise is known as behavioral finance.