Unlocking Real Value Blog

A Look Back At My 2012 Top 10 Predictions - December 11th, 2012

It’s time to look back at my predictions from a year ago and see how I did. All in all, a mixed bag of results. Next week, I’ll have my 2013 predictions. (Each predication is followed by comments in bold.)

10 – The Presidential election is the Republicans to lose. I retain this view even as the Republicans (led by the House) are self-destructing and opening the door for Obama. If the candidate is Romney, Huntsman or someone with similar moderate views that can attract independents AND there is no third-party candidate, then Obama is out. If, on the other hand, the candidate is Gingrich, Paul, Bachman or some other candidate who can not attract independents AND/OR a third-party candidate emerges, then we will have four more years of Obama. I know that that is a lot of “ifs,” but we are still early in the race. My money is on a Romney presidency starting in 2013. I was wrong on this one. The Republicans did pick a candidate that could have won, however, I think it’s fair to say that he didn’t run a very compelling campaign – he let his opponent define him from the beginning of the campaign. I think over time, Republicans will view this as one of their greatest disappointments ever – if was their election to lose, and they did.

9 – The Democrats will retain control of the Senate, although with a smaller majority, in part because like in 2008, the Republicans will put up some unelectable candidates (can anyone say Rhode Island?). The Republicans will retain the House of Representatives, which will look pretty much the same as it does now. Sorry Nancy. Pretty much right here except that the majority is a little larger in the Senate although that doesn’t make a whole lot of difference. Again, this was more the Republicans losing than the Democrats putting up a compelling case.

8 – The Supreme Court will uphold the legality of Obama’s Health Care plan, but this will make it an even more polarizing issue in the election (since the decision should come in the Spring). If a Republican is elected President, it will be continue as an even more contentious subject in 2013 and beyond, as the legislative branch will take the lead in repealing parts of the plan. I got this one right – but since Obama was reelected it won’t be as contentious next year as it would have been. There will be no repeal.

7 – The stock markets will end slightly up for the year, helped by a year-end relief rally after the election. Volatility should be relatively low, as many investors will stay on the sidelines because of all of the political uncertainty. Another “lost” year like this one. It will remain a stock pickers market – driven largely by earnings in the few sectors of the economy that will do well. Pretty close here – although the year-end rally has been held in check by the fiscal cliff discussions. It has definitely been a stock pickers market though.

6 – The U.S. economy will not go into recession, though following continuing turmoil in Europe, will get dangerously close. Unemployment will dip somewhat then increase again to about 9% at election time because there will be no significant job bills enacted and political gridlock will dampen demand. Housing will remain in the dumps. The positive economic news of the past month is deceiving. Kinda right, kinda wrong. No recession in the US, but problems do remain in Europe. Unemployment has not gone back up – but it hasn’t gone way down either. Housing, however, has made a good recovery, which bodes well for the future.

5 – Europe will go into recession (maybe not all countries but as a whole). There will have to be a number of emergency summits once again, as everyone realizes that the actions enacted in 2011 were only band-aid measures and that real problems remain. The divergence between the stronger Northern European countries and weaker Southern European ones will continue. Many of the European countries have gone back into recession, and Euro problems are far from being solved. 

4 – The Euro will survive 2012 – barely – and I imagine a year from now the outlook for its continuation past 2012 will be very bleak. Back to those summits for a second – hopefully there won’t be 8 or 9 like there were this year! The Euro did survive. I’m not sure how many summits there actually were, but it does seem like there were fewer than last year.

3 – The Occupy movements will continue sporadically throughout the year as economic conditions stagnate. I don’t think they will pick-up significantly, however, and absent the emergence of any real leadership – to voice a unified concern or theme in a cohesive manner – the November elections might signal their end. I was on target here – the Occupy movement has pretty much disappeared from public view. I do have to say, however, if you walk in front of the Trinity Church, by Broadway and Wall Streets, there are still people there. However, the only reason I know that is because I was there recently – it has faded from media interest.

As for the financial services industry:

2 – At least one major brokerage firm will be sold or spun off by its bank-parent (this excludes Morgan Keegan; in this case, if MK is not sold by the end of the first quarter, I predict that Regions Financial itself will be gobbled up by a larger bank). The bank/brokerage marriages have in large part not worked, so 2012 could be the beginning of the end for many of these relationships. Hint – ML. I am a little early on this one – didn’t happen in 2012, but… On Morgan Keegan, the sale to Raymond James was a good strategic fit, but the jury is still out if Regions survives.

1 – The wirehouses will continue to lose advisors to the independent, RIA and semi-independent channels. The attractiveness of working for one of the big four is just not what it used to be – both from a reputational point of view as well as an ease of doing business one. The wirehouses aren’t going to disappear though – just continue to become less dominant. I was right on target here. The RIA space did continue to grow – but as I have said many times, the wirehouses aren’t going anywhere.

2012 was an interesting year from both political and economic prospectives. Can’t wait to see what 2013 holds.

 

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AK In The News: UBS, Wells Fargo Best Positioned For 2013 - December 7th, 2012

I was asked to comment on a survey in today’s FundFire (a Financial Times Service) about which of four wirehouses – Bank of America Merrill Lynch, Morgan Stanley Wealth Management, UBS Wealth Management America and Wells Fargo Advisors – is best positioned for 2013.

First, the poll results. Interestingly, respondents were pretty equally split in their predictions – with 26% for UBS and Wells Fargo and 24% for each of the other two. (UBS actually had four more votes than Wells Fargo even though the percentages are the same.) This is much different than the results a year ago, where Morgan Stanley garnered the support of 46% of respondents and UBS only 16%. Unquestionably, the general feeling is that UBS has recovered from a lot of the negative press that has hounded it for the past few years.

UBS may also have gained from reports that ranked its advisors as the most productive of the wirehouses in recently released third quarter data ( Wells Fargo was not included in this study). Additionally, dropping the Smith Barney might have hurt the results for Morgan Stanley, as many of the old Smith Barney advisors were not happy with this change and they may have participated in this survey and voted against their own firm.

Overall, however, the results reflect my general feeling that entering 2013, all of the wirehouses are pretty much on equal footing. A lot of the negative press that has hounded them since 2008 has abated (although that could have been a by-product of all of the press that was concentrated on the election). A potential negative facing all of them next year is Elizabeth Warren’s apparent appointment to the Senate Banking Committee. She will be a pain for all of the banks.

From the article: “Andy Klausner, founder and principal of AK Advisory Partners, agrees with the 27% of FundFire readers who say that Wells Fargo is best positioned. “I don’t see a clear-cut winner right now based on relative strengths, but almost by process of elimination, Wells Fargo has had the least amount of negative press surrounding them, and they have done well in the recruiting wars, so I would have to give them a slight edge over the others,” he explains.”

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Why Are More Investors Going It Alone? - November 30th, 2012

So much of the focus today in the advisor world is on the relative growth of RIAs vis-a-vis their competition at wirehouses and other traditional B/Ds, what often gets lost is the investors that they are all going after. And recent statistics show a worrisome trend – the trend of investors deciding to “do-it-themselves” has taken on momentum.

This trend favors banks and self-directed firms and the expense of full-service firms. According to a recent study by Hearts & Wallets, most firms showed a decline between 2011 and 2012 in investors “intent to invest more” and “intent to recommend.” (Two exceptions were Vanguard and T. Rowe Price.) Full-service brokerages share of households with $1 million or more to invest fell from 36% in 2011 to 32% in 2012. On the other hand, banks share increased from 13% to 17% during the same period of time; the survey data used included 5,400 households. According to the results, less than 2/3 of investors now use an investment professional.

The question is, why are investors so frustrated? The study indicates that investors:

  • Don’t understand their advisors’ (or potential advisors) value proposition
  • Don’t understand the pricing models; and
  • Don’t feel that they have a way to evaluate advisors other than using absolute return.

I actually see some good news in this. All three of these frustrations, while understandable, are easily addressed. Let’s take them one at a time.

If an advisor doesn’t have an easily understandable and visible value proposition which they can articulate, then they don’t deserve the business. Whether you have an elevator speech, a tag line or a mission statement, you better make it clear very early on why you are different from the thousands of other advisors out there. If you don’t, shame on you.

As for pricing, if you aren’t upfront about your pricing, and if it isn’t fully transparent, then you have a problem. This is another issue that if addressed head-on early in the relationship can actually be used as a selling and differentiating point. If you wait until the client has to ask about it, then it’s probably too late.

And on the measurement issue, advisors would be well served to adapt some version of goals-based analysis. If you take the time upfront to learn about the client, help them define goals and milestones, and show them a pathway to get there (and measure progress along the way), you should have a long-term client; if you don’t, then maybe you’re in the wrong business.

There is great opportunity for those advisors that rise to the occasion – because I have no doubt that many of these investors who try to go it along are going to be very unhappy with the results and will be looking for an advisor again very soon.

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AK In The News: Wealthy Fear Fiscal Cliff Tax Hikes - November 26th, 2012

I was asked to comment in FundFire (A Financial Times Service) on the results of a poll seeking to find out what high net worth individuals feared  most about the fiscal cliff. 56% of respondents feared increases in income taxes and capital gains taxes the most (the top two answers), following by 21% fearing equity market turmoil.

My thoughts on the matter, to quote the article: “Even if a deal is made, and more progress is made next year, it’s likely that the many deductions the wealthy have enjoyed will vanish, says Andrew Klausner, founder of New York, N.Y.-based AK Advisory Partners. “The mortgage interest deduction may be trimmed or eliminated. Taxes on dividends are likely to increase,” he says. “The poll reflects the growing realization that taxes in some form are going up for investors.””

Political views aside, the only way to solve this country’s fiscal problems will be a balanced approach – revenue increases and spending reductions. Nothing else will work – despite what the politicians are saying.

Some taxes are already slated to go up with the implementation of some aspects of Obamacare next year. The implications for advisors is that they should be meeting with clients now to review their individual tax situations. Planning and taking appropriate action now will reduce the number of negative surprises your clients will face next year.

I don’t see any reason to panic, or make rash decisions about your stock portfolios. But prudence dictates that you at least take a look, weigh your various options, and act appropriately. You still have about a month!

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What Do Successful Advisors Have In Common? - November 19th, 2012

PriceMetrix, a leading industry think tank, recently issued a new report entitled “Moneyball For Advisors.” The study’s name is a takeoff on Michael Lewis’ book which detailed how the Oakland A’s used statistics – rather than high priced players – to assemble a championship-caliber baseball team. If you would like a copy of the study, please contact me.

The question PriceMetrix set out to answer is whether or not analytics can be used to gain an informal advantage in recruiting and advisor development. Their answer – and the data do seem to support it – is definitely yes. While I will focus on how advisors can learn from this study, PriceMetrix also analyzed the data in a way that should help recruiters and companies hire advisors who have a better chance of succeeding in the long-run (and thus in many cases justifying the paying of a large up-front bonus).

So, according to the statistics, what should advisors do to maximize their future production?

  • Maximize the percentage of fee-based business in their book;
  • Have a high number of households with more than $250,000 in assets;
  • Have a willingness to “fire” households with less than $250,000 (and to minimize the number of them);
  • Have deep client relationships (measured by multiple accounts per client and having a large number of retirement accounts); and
  • Be experienced – all other things being equal, past success bodes well for future success.

Advisors can control every aspect of their future production except for the last one. While there is little new in these results, they do reinforce much of today’s conventional wisdom.

As advisors consider their 2013 business plans, unless they have a natural niche that goes against conventional wisdom (and I will be the first to admit that some advisors do and can do well in these areas), they should target larger clients where there is the potential to build a deeper relationship by capturing more assets (and more family members if possible), and they should focus their sales and asset management on fee-based (or recurring) assets.

Food for thought to any advisor looking to the future.

(As a side note, one of the reasons I like to use PriceMetrix, and have confidence in their reports, is the breadth of their sample size. This study use aggregated retail brokerage data representing 6 million investors, 500 million transactions, 1.6 million fee-based accounts, 7 million transactional accounts and over $3.5 trillion in investment assets.)

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AK in the News: Mutual Funds and the Election - November 7th, 2012

I was asked to comment for an article in today’s Ignites (a Financial Times Service) which indicated (not surprisingly) that people in the mutual funds industry prefer Romney to Obama. (The ignites poll indicated that 58% preferred Romney to 39% for Obama.) The comments were made before we knew the results of the election.

My quote from the article: “Wall Street obviously would prefer a Romney victory because he is perceived as being pro-business. The hope is that business confidence would increase more quickly under a Romney administration which would translate into more hiring. If investor confidence increased, that would also be good for fund flows, as some of the money sitting on the sidelines might flow back into the equity markets.”

Further, “Regardless of who is the next president, a split Congress is likely, which makes earth-shattering legislative changes unlikely, according to Klausner. Regarding regulation, “Romney would push quicker for a reform of Dodd-Frank reform — not no regulation, but less strenuous regulation. Even some Democrats might agree that the legislation needs to be reformed — but again, under either scenario, large changes are unlikely,” he explains. Due to the fiscal cliff — expiring tax cuts, new taxes and automatic spending cuts that start in January if lawmakers can’t reach an agreement by the end of this year — Congress and the president probably will have to make a short-term deal on taxes, Klausner notes.””

So, now that Obama has won the election, businesses will remain jittery until there is some resolution to the fiscal cliff. The lame duck Congress is likely to come-up with a short-term solution to get us through the end of the year. Then – who knows. If the President can show some real leadership – leadership that was lacking in his first term – perhaps a grand deal can be struck next year. If not, the proverbial can will be kicked further down the road.
And on regulation – any changes to Dodd-Frank just became far less likely and the cumbersome nature of the legislation will continue to be a drag on business moving forward.

 

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Don’t Apologize Goldman Sachs - October 22nd, 2012

Greg Smith is the proverbial straw that broke this camels back!  Having endured constant criticism of the financial services industry and its participants since 2008, I have had enough. Goldman Sachs is not perfect. The industry is not perfect. But Greg Smith is an opportunist, and I wouldn’t waste a penny on his book or a minute more watching him on TV.

Yes I’m mad. As with everything in life, the truth of this situation probably lies somewhere in the middle. Goldman Sachs has made mistakes and employees probably talked about some of their clients behind their backs in less than flattering terms. But let’s be realistic – it happens in every industry and every company. Capitalism is not always pretty, and yes we need to have effective regulation – but the free enterprise system is the best one out there.

And Mr. Smith was probably a decent employee; if he wasn’t, he wouldn’t have lasted a year in that environment. And we will never know if he did in fact ask for $1 million during the financial crisis and when others were being laid off (he didn’t answer that question when directly posed to him on 60 minutes).

What we do know is that he took his $500,000 a year in compensation for a number of years, don’t we? He was able to stomach the environment long enough to make some money. I guess he was able to put his disgust aside…..

I was upset when he first quit via a New York Times editorial – I thought then, as I do now, that it was grandstanding and self-serving. The release of his book is more of the same. I understand that American’s love gossip, and everyone loves to hate Wall Street and Goldman Sachs. But there is nothing earth-shattering in this book according to the reviews and interviews. It’s just part two of his plan to make himself more money.

I see nothing more than an opportunist here looking to take advantage of an anti-financial services environment to his own benefit. Period. Angry? Yes I’m angry. What gets lost again are all of the honest people. Goldman Sachs is not the enemy. Financial Services is not the enemy. Lets fix things – not try to make them worse and more divisive.

Mr. Smith – you have done yourself and the industry a disservice. I hope that your 15 minutes of fame is soon over for good.

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The Future of the Wirehouses – and its Advisors - October 10th, 2012

There’s been a lot of talk over the past few years over what the future holds for the wirehouses – Morgan Stanley, Merrill Lynch, UBS, Wells Fargo, etc. If the future is indeed as negative as many believe, what are the implications for advisors?

A recent report by Cerulli Associates, Inc. indicates that these firms will lose 7% more market share over the next three years; today their market share is 41.4%, and they are expected by Cerulli to lose market share more quickly than other segments (such as RIAs).

Here’s an interesting, yet often overlooked, part of the equation. While no one disputes that the wirehouses are losing advisors to RIAs and regional brokerage firms, a large percentage of this market share loss has occurred at the lower end – the wirehouses have been shedding these advisors both by choice (in order to increase profit margins) and to competitors.

The Cerulli report does not split the losses between these groups. The conclusion that these losses are a large negative for the wirehouses is conjecture at best in my opinion. While I believe that the wirehouses are losing some top producers, the situation is not as dire as many have concluded from this and other studies.

At the end of the day, there are certain advisors who will flourish at wirehouses and others who are more suited for either smaller brokerage firms or independent firms (which they either join or start). The case can be made that products and services offered to advisors might actually improve at the wirehouses as they’re able to focus on a core group of higher end advisors and their needs.

Whether an advisor flourishes or not depends mostly on his/her personality. Becoming an RIA is akin to becoming a business owner or partner, which would take some personality types out of their element. Likewise, some personality types will flourish under the freedom that is gained by leaving the restraints of the heavily compliance-oriented, less entrepreneur brokerage firms.

Neither type of firm is going away. An advisors ultimate success is less dependent on what type of firm they work for, and more dependent on them working in the type of firm that best suites their personality and skill set.

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Preparing for 2013 and Beyond - October 3rd, 2012

Our 4th Quarter Unlocking Real Value newsletter is out and features our latest White Paper: “Preparing for 2013 and Beyond.”

As 2012 enters its final months, it’s time to either start planning your marketing for 2013 and beyond if you haven’t done so yet, or, if you have, review your marketing plan to ensure that it remains on target.

The competitive landscape within financial services remains tough. Bad press continues to plague the industry, individual investors remain skeptical and the fiscal cliff looms.

Against this backdrop, successful planning is one of the best ways to hedge yourself and your business against the unknown, and to increase the odds that you’ll be successful. Your marketing plan must be detailed yet flexible.

For each section of your marketing plan, make sure that you:

  • Detail specific activities;
  • Identify the audience each activity is targeted to;
  • Know who is responsible for each activity;
  • Know how you’re going to measure success; and
  • Are prepared to make adjustments if necessary.

This White Paper contains tips for helping you adapt to this changing environment as you develop or revise your marketing plan. As you go through this process, be sure that you have the time and resources to implement it without negatively impacting your business.

Click here to download the White Paper.

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Investors Are Worried – What Should Advisors Do? - September 27th, 2012

Many individual investors, still spooked by the 2008 financial crisis, have remained out of equities, and have missed most or all of the rebound. With many indices at or near multi-year and/or all time highs, it’s even harder to get these investors back into the markets now, as they fear a correction.

A new study released by Hearts and Wallets confirms the fear among individual investors. There is little appetite for risk-taking in general, and 41% of the 5,400 households surveyed say that they are “inexperienced” when it comes to investing. This number is up more than 50% in just one year. The results were consistent across all ages and lifestyles. Only 25% of respondents said that they were comfortable accepting investment risk in order to achieve higher returns.

As an advisor, what do these results mean? Well, I need to tell you one more thing to complete the story – along with this reluctance to take risks among investors is a continuing lack of trust in financial services firms. The authors of the study, who have been tracking this trust issue for a number of years, have identified three unmet needs. Investors want answers to the following questions:

  • What do you do?
  • How do you get paid?
  • How do I evaluate you?

It’s all about developing the relationship and earning the prospective clients trust first. Part of this process includes educating them on the markets, which will hopefully help them to overcome their fears of investing over time. Once they understand concepts such as diversification and asset allocation they should be more willing to dip their toes back into the markets.

Ultimately, they need to feel comfortable with you, view that you are in it for the long-term and trust that you have their best interests in mind. The consultative sales process does this – but it takes time and multiple meetings. And patience on your part.

Additionally, a large part of developing this relationship is taking the time to learn about the prospect and their family on a personal level – what they like to do, what their values and dreams are, etc. This is part of building a relationship and being seen as being on their side, as opposed to being seen as a product pusher. Unfortunately, there is no quick easy solution; but no one ever said this business was easy!

(As an aside, since the distrust seems to be leveled at firms as much as advisors, those of you with your own firms or who work for smaller lesser-known firms have a leg up. If you work an as advisor for a larger firm, especially one that has received bad press, you need to work extra hard to separate the value that you add from that of the company; the prospect needs to feel comfortable that the firm will not get in your way.)

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