Unlocking Real Value Blog

Creating A Successful Marketing Strategy - April 16th, 2013

The ultimate goal of any marketing strategy is to help you grow your business and increase your brand awareness; cementing trust with current clients is a nice by-product as well. How does it work? Developing awareness of your brand  – who you are, what you do and why you are uniquely qualified – should in turn help you generate leads which, through education and dripping on prospects, will lead to more clients.

In order for a marketing strategy to be successful, it must be multi-faceted, realistic and implemented consistently over time. There aren’t a lot of short cuts here – it takes time and patience. Depending on your resources, there are a number of ways in which you can accomplish each of the above steps; only spend what you can afford to, and make sure that you and your staff have the requisite time to dedicate to marketing without negatively impacting your current business.

Your marketing plan – the written description of your market strategy – should:

  • Detail specific activities you intend to undertake;
  • Identify the audience each activity is targeted to;
  • Specify how you’re going to measure success;
  • Be flexible enough to allow adjustments as necessary; and
  • Stipulate who on your team is responsible for each activity.

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AK In The News: HighTower Loses Advisor Who Had $1B Practice - April 11th, 2013

I was asked to comment by Fundfire on the departure of Margaret Towle from HighTower Advisors, less than two years after she joined the very successful RIA. This follows the departure of another advisor who left last month, the latest two departures from the firm which has been growing rapidly. The firm lost one other advisor last year, who left to run a hedge fund.

The question on everyone’s mind is, do these departures signal problems at HighTower? Probably not. To quote from the article:

“Towle’s exit, along with the other recent partners, isn’t necessarily a “red flag” for HighTower, nor a sign that it has gone from rakish industry upstart to “mature” firm, says Andrew Klausner, principal of AK Advisory Partners. “Maybe better than the word ‘mature’ is ‘growing pains,’” he says. “There are not too many firms that have had their success, and they’ve certainly had more success than failures.”

Klausner says it’s believable that personality and culture could be snags for an outfit like HighTower, where the partners take roles in the firm’s management. “You don’t know 100% that the fit is going to be there,” he says. “When you have a model like that, where you’re attracting the best, inevitably you will have some conflicts.””

We will all be keeping our eyes open to see what happens at HighTower – but I am guessing that they will continue to attract more new advisors than they lose and that they will continue to be a highly successful firm.

(The other advisor who left had joined the firm from Goldman Sachs and reportedly left HighTower to join Credit Suisse. My guess here is that it was an issue of fit – going from a boutique investment firm to an RIA and back to a boutique may signify that this advisor was just more comfortable in that type of firm.)

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Getting The Edge On Other Managers - April 2nd, 2013

I am speaking this week at the Investment Management Institute’s Consultants Congress in San Francisco. The topic is “Getting The Edge On Other Managers.” With so many thousands of investment managers to choose from, it’s important for managers to develop trusting relationships with consultants – as they are often the gatekeepers who control access to institutional clients. In many ways, developing a relationship with a manager is similar to trying to get new clients – just like you try and find out as much as you can about prospects, and tailor your presentations to them, the same is true for consultants.

I have broken the process into two pieces – when you are reaching out to the consultant to introduce yourself and your firm, and what to do when you have actually been able to get a meeting with them.

Reaching Out

  • Do your research upfront and find out as much about the consultant as possible. Tailor your approach to match.
  • Highlight your Value Proposition/Mission Statement. Answer the question: All things being equal, why should your firm be considered?
  • Focus on your firm’s strengths and don’t compare yourself to the competition. That’s not your job, and will make you look bad.
  • Highlight your capabilities above and beyond managing money – educational programs, thought leadership, etc.
  • Ask about their preferred method and frequency of contact.

Meeting With The Consultant

  • Bring the right people to the presentation, including those people that will be interacting with prospects/clients.
  • Describe your overall business philosophy– talk about profitability, resource prioritization, distribution, etc.  How are you retaining key talent? What changes have you made over the past 12 months?
  • Describe any process adjustments that you made in reaction to the 2008 financial crisis. Were these changes permanent or temporary?
  • Explain any unusual fluctuation in AUM. Differentiate between market losses and client terminations. Explain how you’re adapting to the uncertain and changing regulatory environment. Focus on transparency.
  • Be humble – but confidently ask for the business!

You probably what was missing in the bullet points – a discussion of your performance. There are lots of great performing managers out there – in every asset class. It is often the intangibles that will help you stick out more.

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AK In The News: Firms Prefer To Keep Staff ‘Lean’ - March 27th, 2013

I was asked to comment on an article in today’s Ignites (A Financial TImes Service) which summarized a recent poll on staffing levels within the financial services industry. 38% or respondents said that their firms current staffing levels were “lean,” while 34% said that the firms were too lean and staff overworked. 16% of respondents felt that staffing levels are just right, and 12% that staffing levels were a little bloated but all employees were necessary.

So what are the take aways?

First, our industry has historically been known for hiring too many people in good times, then letting them go when things get rough – then hiring them right back. This time seems different, however. Perhaps it is because the economic recovery has been so shallow, or perhaps it is because so many financial services firms have been hit extremely hard, but I think this time we may have learned our lesson. To quote from the article:

“Since the financial crisis and typical of downturns in the industry, firms cut back on staff and services. While usually hiring picks up when things get better, that has not really happened this time,” says Andrew Klausner, founder of AK Advisory Partners, a strategic consultancy. “The reality is, staffing levels in the industry are down and they are going to remain down. I don’t see a hiring wave coming.””

Second, not only do the firms seem to be realizing this, but so do employees – those who presumably answered the survey. I would have expected more complaining that firms were understaffed. Again, to quote from the article:

“But Klausner sees a bright side. “It’s positive that more people said lean as opposed to overworked,” he says. “This implies a certain understanding perhaps that we do live in a resource-limited world and that as business goes, so goes the level of support.””

The other explanation for this seeming understanding of resource allocation may be the fact that more advisors have gone independent, and they, because they are running their own businesses, understand the need to run efficient operations. This is in contrast to those who work for larger companies and don’t have to worry about such things. Its hard to say without knowing the make-up of respondents if this is indeed the case.

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Do Your Clients Trust You? - March 26th, 2013

Most advisors would probably answer this question in the affirmative – “Of course my clients trust me.” While no one wants to admit that they aren’t viewed positively, asking yourself this question, and honestly reviewing your business practices and relationships might help lead you to a more prosperous future.

I say this after reading the results of another study showing that many investors really don’t trust their advisors and/or financial services providers. A study by Hearts and Wallets, which includes an annual study of 5,400 households, concludes that 55% of respondents are afraid that they will be ripped off by their advisor, and less than 20% fully trust their provider – down 5% since 2010.

Aside from the obvious, that you want your clients to trust you, the study also reveals that providers who are trusted enjoy an average share of wallet that is nearly double low trust relationships. These clients are also more likely to have their advisors help them in the planning process, and they are more likely to own more products and be open to new concepts, according to Hearts and Wallets.

So – the all important question is – what helps build trust?

  • How well the investor understands how the advisor and the firm earn money. People aren’t as concerned with specific fees as they are with understanding how the system of incentives works.
  • Investors want to feel that their provider is unbiased and puts their interests first, understands them and shares their values.
  • Investors want to work with people who are responsive.

It never ceases to amaze me that it always seems to come back to explaining fees – not the fees themselves – but clearly articulating how everyone is paid. The fee discussion should be at the forefront of meetings with prospects – if the client has to ask – it’s probably too late! It also comes down to client service – being responsive, and setting up your practice to keep clients informed on their own terms.

Finally, one last statistic from the report – 33% of investors report that their main motivation to consolidate their assets is based on rewarding proven results – another key trust builder. And with an estimated $16 trillion in assets ripe for some sort of movement (rollover, consolidation), this question is worth thinking about.

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What Are Top Advisors Doing? - March 13th, 2013

While every advisor has his/her own unique business, there are common traits to be found among the most successful advisors that can be used as a helpful guide for all advisors. The most recent source of useful information in this regard is the always reliable PriceMetrix Inc., which just released its third annual Report on the State of the Retail Wealth Management.

(I always like their studies because of the depth and breadth of the data that they use – data representing more than 7 million retail investors, 500 million transactions and over $3.5 trillion in investment assets.)

While average (per advisor) overall production and assets under management increased last year, revenue on assets declined by 3%, as revenue growth did not keep pace with asset growth. Equity trade volume also declined, and while the shift to fee-based business continued, it did so at a slower rate than the year before. Among these somewhat mixed messages were some positive takeaways:

  • Advisors reduced the number of households that they serve from an average of 165 in 2011 to 159 last year – with the focus moving to deepening relationships with their largest clients.
  • The average size of households grew in 2012 by 13% (from $435,000 to $491,000) as did revenue per household.
  • The proportion of households with at least $250,000 in investable assets rose from 34% to 38%.

The key to future success, according to PriceMetrix, Inc. President Doug Trott, is that advisors “need to continue to increase the value of their service, by working with fewer households, deepening client relationships and increasing their capacity to service their remaining clients. Advisors also need to ensure that their pricing reflects their increase in value.” I concur with Mr. Trott.

Finally, and perhaps most useful to advisors, three areas of unrealized potential were identified by PriceMatrix in their analysis:

1 – 39% of households had less than $50,000 in investable assets, with the implication that advisors should consider dropping these smaller households if they can’t deepen these relationships. My guess is that the most successful advisors have a lot smaller proportion of these size accounts in their books of business.

2 – 42% of households have only one account with their advisors – somewhat surprising in the aggregate. Successful advisors leverage their relationships to open-up multiple accounts per client, including retirement accounts, and with multiple family members when possible.

3 – The average equity trade was priced at a 35% discount, meaning that the average advisor gave-up $46,000 in discounts last year. While these results are for equity trade, I think the same principle holds for fee-based business as well. The most successful advisors know their value and know how to price it without having to discount deeply.

Some good food for thought – every advisor should ask him or herself what changes they can make to their client mix to increase their productivity and spearhead growth in their businesses.

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AK In The News: Another Blow To Wirehouse Advisors? - March 7th, 2013

I was asked to write an opinion piece in FundFire about recent developments that seem like another slap in the face to wirehouse advisors by their own companies. Here is the text of the piece:

Last week’s Fundfire article about Merrill Lynch and Goldman Sachs letting a limited number of registered investment advisors (RIAs) tap their research capabilities raised some hackles.

It also raised some questions: Is this another blow to financial advisors working at wirehouses, regionals and other traditional broker-dealers? Should these advisors feel slighted that some of their competition is now going to have access to resources that were heretofore considered to be a competitive advantage? And rightly or wrongly, will it accelerate attrition of wirehouse advisors?

Personally, I don’t think so. Sure, one could argue that the firms are arming the competition with some of the same weapons their own advisors have at their disposal. But at the end of the day, high-net-worth and ultra-high-net-worth clients select their advisors based on relationships more than individual products. It would be a stretch to think that client relationships would be endangered by this move alone. In fact, large broker-dealers could use it to their advantage by pointing out to clients and prospects that their firm conducts such good research that many of their competitors value it.

Building and maintaining a top-notch research infrastructure is expensive, and frankly, out of reach for most RIAs and other independent advisors. This is the case for both traditional investment research as well as alternatives, which have become increasingly popular as clients search for income and return in today’s investment environment. Especially as the breadth of product offerings continues to expand, when it comes to sophisticated research, “building it yourself” becomes harder and harder, even for firms of substantial size.

From an RIA’s perspective, partnering with a wirehouse can bring instant credibility, since clients are more apt to have heard of large broker-dealers than they are of the many smaller, newer turnkey providers offering similar products. Even though their reputations have taken a hit since 2008, Merrill and Goldman are still big names.

So why shouldn’t Merrill Lynch, Goldman Sachs and other large broker-dealers look for ways to increase distribution and therefore the profitability of these areas? Especially in Merrill’s case, it’s perhaps partly a recognition that the number of advisors moving away from the wirehouses and other traditional broker-dealers continues to grow. More advisors are going independent, and wealth management firms need to go where the distribution opportunities are. Outsourcing investment research is an opportunity to boost revenue.

This is not to say that the wirehouses won’t continue to be a force in the industry, because they will. According to Cerulli Associates, wirehouses will still control more than a third of the assets in the advisory market at the end of 2014.

Additionally, there are many differences between RIAs and independents on the one hand and traditional broker-dealer advisors on the other. The former are running their own businesses in addition to providing financial advice. This is a huge undertaking. Wirehouse advisors do not want the hassle of the day-to-day minutiae of running a business – they just want to concentrate on their clients.

There are myriad issues that make an advisor leave his or her firm and go independent. It’s unlikely that advisors will be sufficiently angered by this alone to jump ship.

Advisors have gotten mad at their own firms in the past; for example, the uproar last year at Merrill Lynch when Bank of America tried to increase pressure on cross-selling. That to me was a more significant issue that this research one, and I don’t think that caused a significant run for the exits.

All in all, this issue of outsourcing investment research capabilities seems to be nothing more than a natural development in the wealth management business. While a few advisors might feel that their employers are slighting them, both the traditional broker-dealer firms and the RIAs have the potential to benefit.

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Do Your Clients Use Social Media? - March 5th, 2013

Usually when I talk about social media – and advocate for its use – I focus on the benefits to you the financial services professional – the ability to provide better client service, the longer-term goal of obtaining new business, etc. But, an interesting study caught my eye the other day – it focused on the fact that 90% of high net worth investors use social media. What better way to convince you to use social media than to know that the odds are really good that your client is using it as well?

First, the study. Cogent Research, teaming with LinkedIn, surveyed mass affluent, affluent and ultra-affluent investors with more than $100,000 in investible assets, and specifically honed in on their use of social media, as well their perceptions of social media. The results are quite interesting:

  • Over 90% participate in social media in some form or another
  • Only 4% currently interact with their financial advisor on social media, but 52% said they would if their financial advisor utilized social media
  • 67% visit LinkedIn and Facebook on a monthly basis
  • 46% of investors using social media do not have a financial advisor
  • 28% perceive a financial company as “innovative” and “on the cutting edge” if they utilize social media

In the spirit of giving clients what they want, these statistics should at least provoke some serious thinking about how you use social media. Of course, just knowing that your clients utilize social media is not enough – you need to know what their preferred media are and a little more about what they are looking for.

When in doubt, the best thing is to always ask. Why not conduct a survey of your clients/prospects geared toward seeing how you can provide better information to them – timely information provided when they want it and how they want it. Clients will appreciate that you are soliciting their opinion and trying to improve your deliverables. You’ll be able to garner invaluable information in planning your client servicing efforts moving forward as well.

If you don’t want to do a survey, then incorporate social media into your next quarterly review with clients and/or conversation. Informally ask them their opinions – you can accomplish many of the same goals as a survey. Use whichever format makes you and your clients feel more comfortable. You will be glad that you do.

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Does Going It Alone Increase Risk? - February 26th, 2013

We have talked in the past about the growing trend of investors deciding to “go it alone” – forgoing developing relationships with financial advisors to invest directly through intermediaries like Fidelity and Schwab. In all likelihood, investors likely to fall into this category probably have under $10 million to invest; those with more – considered by many to by ultra high net worth investors, are probably more likely to seek advice due to the complexity of their finances.

In many cases, the meager returns of the past ten years have frustrated investors who have been paying a fee. Intermediaries have responded by offering more investment options. Unfortunately, and what makes me nervous is that the increasing complexity of some of these investments make it hard for many investors to truly understand them – and the associated risks.

Many investors are seeking more income – and many funds have for example increased their allocations to equites to try and accommodate these needs. Many firms have also entered the alternative investment spaces, either by developing their own products or by partnering with hedge fund providers. One example is the large increase in long-short mutual funds over the past few years.

Firms expanding recently in the “retail” alternatives space include Janus, BlackRock and Franklin Templeton.

But do investors really understand the inherent risks associated with these investments? In most cases, I would argue that they don’t. Additionally, many of these new products have substantially higher fees than traditional mutual funds – are investors aware of this fact? Probably not. Interestingly, the SEC just announced the increasing use of alternative and hedge fund strategies by mutual funds, ETFs and variable annuities as a new and emerging risk.

This disturbing trend has a positive side in that it presents an opportunity of advisors to educate clients – and to promote educational materials that they produce to perhaps sway some of these “go it aloners” to come speak with them and allow them the opportunity to show them that partnering with a financial advisor may well be a sound risk-reducing strategy.

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AK In The News: Challenges Facing The Mutual Fund Industry - February 20th, 2013

Ignites (a Financial Times Service) asked me to comment on the results of a poll that they just conducted on what industry participants feel is the biggest challenges facing the mutual fund industry. Respondents believe that the two biggest challenges are market volatility and overall economic uncertainty; competition from ETFs was also a popular answer.

While I agree that these are large concerns, I was surprised that two other choices – regulation and equity flows – were not ranked higher.

To quote from the article: ‘Yet, market volatility and ETFs should not be the only concerns on mutual fund professionals’ minds, according to Andy Klausner, founder and principal of AK Advisory Partners. Though he is not surprised that overall market uncertainty and competition from ETFs lead the list of concerns in the Ignites poll results because of the amount of press both issues have received, he says he is surprised that regulation and flows into equity products are not bigger concerns.

“Especially after last week when Elizabeth Warren made her first appearance on the Banking Committee, there is growing concern within the industry that regulatory issues will once again take center stage. While the first target may be banks, the fear is that other financial institutions will eventually be targeted as well,” he writes in an e-mail response to questions.

“As to equity flows in general, with bond yields so low, and the long-term return on stocks having been stagnant, more attention has been given to alternative investments,” Klausner continues. “I think that they, [like] ETFs, pose a threat to the mutual fund industry.””

What do you think?

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