Unlocking Real Value Blog

It’s All About Your Clients - July 13th, 2012

This is the title of our third quarter Unlocking Real Value newsletter. Given today’s economic, financial and political uncertainty, there isn’t a better time to focus on your client relationships and reinforce in their minds why they hired you in the first place. Let them hear from you, lest they focus on the negative press about JP Morgan, which has indirectly tarnished all of us who work in the industry.

Our newsletter focuses on two of our White Papers that can help you in this endeavor:

Click here to download the newsletter, or click on either of the links above to download a White Paper.

Take advantage of the usual summer lull to fine-tune your menu of offerings and your client servicing strategy. Make sure that you’re giving your clients what they want – or someone else will.

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The Danger Of Selling Proprietary Products - July 5th, 2012

When it rains it usually pours, but the last thing that JP Morgan needed was more bad press this past week, not only in industry publications but the New York Times as well. A number of former financial advisors claim that they were encouraged to favor JP Morgan’s own products even when there were better-performing and/or cheaper options available.

The issue of selling proprietary v. non-proprietary products goes deeper than JP Morgan however, and had been around for years. As an example, last year’s internal disagreement that became public at Bank of America/Merrill Lynch over whether or not pressure was, and should be, put on advisors to sell bank products to clients.

This latest focus on JP Morgan is bad timing for financial advisors – coming at a time of continuing anti-Wall Street sentiment and an investing environment where returns are hard to get. In football, they call it piling on!

(I’m going to focus here on how advisors should react to this ongoing stream of bad press. I’m not going to pass judgement on JP Morgan and others for their actions. Undoubtedly, pressure exists within certain financial institutions to sell proprietary products; one would have to be naive to assume otherwise. But the burden falls on advisors as well to resist this pressure; there is enough blame on all sides to go around.)

So what should advisors do? As with any potentially negative issue, they need to get in front of this one and proactively demonstrate to their clients that they always act in their best interest.

For advisors that have sold proprietary products, I suggest that you devise a plan to show clients how the investments that you have recommended to them made sense for, and fit into, their portfolios. Talk to them before they start asking questions. Take responsibility for your actions and don’t blame the company or anyone else for putting pressure on you – that’s a sure way to lose credibility.

If you haven’t sold proprietary products, discuss this issue with clients as well, because if you don’t, they will wonder about your motives (sad but true in the world we live in). Whether individually or through your social media outlets, reiterate how you work with clients and how your process is unbiased and your product choices holistic rather than profit-driven.

You have to and should defend your choices – why not turn it into a positive?

 

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AK In The News: Poor Returns Top Reason For Manager Firing - June 28th, 2012

Fundfire, a Financial Times Service, today published results of a poll in which financial services professionals were asked what they believed was the top reason that institutional money managers get fired. They asked me to comment on the results.

55% or respondents said that institutional investors and consultants fire managers based on poor performance more than any other reason. The second most popular answer, at a distant 20%, was personnel turnover, followed at 12% by poor client service/communications.

These results are somewhat surprising and somewhat not surprising. The answer makes sense emotionally, as poor performance is something that is hard to ignore and hits you where it hurts! The results were somewhat surprising, however, in that Fundfire just published a study by Towers Watson that concluded that institutions are better off staying with managers during poor performance – all things being equal – in part because of the cynical nature of the investment business.

All in all, however, the results were not surprising for two reasons. First, we don’t know the make-up of the respondents, because Fundfire is read by a wide variety of industry participants. I would guess that if the poll were limited to consultants and fiduciaries, the results would have been somewhat different. Also, they asked “why” managers get fired instead of why they “should” get fired – there is a big difference.

What is my take on the question? To quote the article: “Klausner ranks change in investment process or style drift as the most important reason why managers should get fired, followed by personnel turnover and then poor client servicing. However, institutions should not ignore under performance either. “Poor investment performance is always a concern, especially if it is over extended periods of time, but should be looked at in the context of these other factors as well,” he says.”

Poll semantics aside, an interesting topic to think about. What do you think?

 

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AK In The News: Facebook Is An Overvalued Bust - May 23rd, 2012

I was asked to comment on a poll taken by Ignites (a Financial Times Service) on whether or not Facebook stock, in the face of its bungled IPO, is a near- and long-term bust. 47% of the respondents to the poll said that Facebook is a “bust all the way around.” This contrasts to 20% who gave the same answer to a similar poll question at the end of January.

There’s no question that the IPO has a left a bad taste in many people’s mouths – witness today’s announcement of several shareholder lawsuits against Facebook, its CEO and the banks which underwrote the deal. I think it’s generally agreed that the near-term outlook for the stock is cloudy at best – valuation arguments aside. The relative merits of the long-term outlook are less clear, and there are wide divergences of opinion here. I side with those that believe the long-term outlook for the stock is not pretty either.

There is no question in my mind, however, that the mess that has been made of the IPO is a black eye for both Facebook – although they will recover from a brand perspective over time – and the financial services industry (again). Morgan Stanley is in the cross hairs this time over whether or not they were open with the public about their downgrade for the outlook for the company prior to the IPO. The underwriters are also being criticized for raising the offering the price and number of shares – can anyone say greed?

My quote from the article: “I think both the near- and far-term outlook for the stock is bad. The valuation seems ridiculously high, as the market capitalization is — or was — above many blue-chip stocks with real earnings. We have been here before… and I think people are more reluctant to pay this price given what has gone on the past few years. Skepticism about the company and its future itself have emerged as well as a result of the road show and the IPO.”

Facebook will remain a popular social media tool for the foreseeable future. The company will regain some of the luster that it has lost once this mess fades into the background. The financial services industry will remain under scrutiny for its practices – again. And investors are better served investing in other stocks.

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AK In The News: Managers Must Gauge Damage From JP Morgan News - May 18th, 2012

I was asked to write an opinion piece for Fundfire (a Financial Times Service). My thoughts were published in today’s edition. The focus of the piece is on how the brands of both JP Morgan and other asset managers have been affected by the trading loss and what both JP Morgan Chase and asset managers should do at this point. Here are my thoughts.

How bad is the damage to JP Morgan’s brand as an asset manager? I believe it’s significant. However, this is only one of the issues today. In this partisan world, only one misstep can give the opposition an opening to exploit. Nonstop bad publicity can and will erode a lot of the goodwill that JP Morgan has built up in the past.

By downplaying these losses a few weeks ago on an earnings call, Dimon violated the most important best practice that asset managers must adhere to following a crisis – that of being 100% transparent. Many wonder if there’s another shoe waiting to drop and whether we can trust JP Morgan Chase any longer. Already, indications are that the trading losses are at least 50% greater than the $2 billion first thought.

These losses also revealed the violation of other important principles that the industry should always follow – the importance of compliance, oversight and institutional control.

While high-net-worth retail investors might ask, “Is my money safe?”, institutional investors will ask, “Is there an institution-wide lack of control?” The fiduciary responsibility cast upon investment committees mandates that they must ask the right questions – and JP Morgan Chase better have the right answers.

What about the implications for other asset managers, and what should they do? First, if they haven’t done so already, they must proactively address what has happened and emphatically illustrate that they have control of their own business.

Asset managers must, in essence, protect their brand, because fiduciaries will be asking the same questions of them that they are currently asking of or about JP Morgan Chase; they have to. Silence is not an option, and other asset managers will be found guilty by association if they don’t straightforwardly answer the questions on their clients’ minds.

Their answers and other communications should focus on:

  • Transparency
  • Compliance oversight
  • Operational capabilities
  • The strictness of the parameters that dictate their process
  • The strength of their people

Asset managers must remind clients why they chose them as their asset manager in the first place. Asset managers must highlight their unique value proposition, and the soundness and stability of their organization.

Finally, what is important to clients now will also be important to future prospects. Asset managers should use social media, their websites and blogs to proactively showcase their brand as well as all the efforts they make to ensure that client assets are protected to the greatest degree possible. Executives not fluent in social media should use whatever their normal means of communicating are – whether it is the phone, email, a whitepaper or a newsletter.

We live in an extremely viral world – which is exactly why this mess has cascaded out of control the way that it has. Asset managers must use this as an opportunity to reassure investors of their integrity and the soundness of their firm’s compliance oversight and investment principles.

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Why The JPM Mess Matters: What YOU Need To Do About It - May 14th, 2012

If you’re in the financial services industry and have or work with clients, you must proactively address the mess at JPM – lack of action will be detrimental to you and your business – guaranteed.

More on this in a minute. Last week was like a bad dream. And a recurring one at that. It makes you shake your head – over and over. The person leading the public fight against more regulation and Dodd-Frank, the bank that made it through the financial meltdown virtually unscathed, just gave its opponents the greatest gift imaginable. Politicians are salivating and the sound bites have been flying.

Among other things, it makes you wonder yet again whether bank CEOs really understand how the markets interact with the financial instruments that they have created. I have a lot of respect for Jamie Dimon – but this one is bad. Really bad.

Importantly, it affects every person in the industry, and not in a positive way. Frustrating is that we are all tainted, because in today’s political environment it’s easier to blame entire groups of people than to pinpoint the real culprits. “Main Street” never got over its hatred of “Wall Street,” and now people are once again asking “Is my money safe?”

If you haven’t already, you must communicate with your clients about what is going on at JPM – it’s not too late, but soon will be, because this controversy is not going away quickly.

My general advice is to 1) explain without defending what happened; 2) reassure that this in and of itself is not an event that will lead to another systematic meltdown; and 3) acknowledge that it has demonstrated weaknesses in the system and the need for some common sense reforms and/or regulations.

And specifically to you and your business 1) reiterate your stated or unstated code of ethics and commitment to client service; 2) remind how you demand and ensure complete transparency and accountability in your business; 3) emphasize how client assets are protected and safeguarded; and 4) make yourself available to answer questions and personally address any client concerns.

This too shall pass – but only if you stay in front of it.

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AK In The News: Industry Remains Skeptical About Social Media - May 2nd, 2012

But I don’t!

Ignites, a Financial Times Service, just completed a poll of readers on social media, and surprisingly the results, which are negative overall, are pretty much the same as similar polls taken by Ignites the past two years: 33% or respondents said that social media is “useful only for certain roles and business functions,” while 29% voted that the hype is “a lot bigger than its usefulness.”

Only 10% of respondents thought that social media was a game changer, and 24% said that it was “important” and that “everyone should use it.” These results are in contrast to most other studies I have seen lately, which show the industry beginning to embrace social media.

For example, kasina is about to report that 87% of asset managers and insurers are using social media. The results of this study complement my comments in the Ignites article – while firms are seeing increased brand awareness and engagement with clients and prospects, few are seeing increased sales.

This lack of sales is probably what accounts for most of the skepticism. But I don’t think it is warranted. First, it takes time – a long time to get actual sales from social media. Be patient. And second, increased sales is not the best and only indicator of social media success.

As I said in the article, “It is evident that there still might be a misunderstanding in the financial services industry about just where social media fits. Unlike some other industries, where more tangible products are involved, social media is not just about getting new business, it is also about providing added value content and client servicing. Since the benefits of such strategies are harder to measure, perhaps that is why there seems to be frustration among the respondents.”

In addition, “Clients are increasingly adopting the mantra that they want what they want, when they want it and delivered how they want it. This is what social media allows you to do. It does not replace other things one does, like face-to-face communications, but complements it.”

Finally, part of social media success is having a conversation with your clients – not just a one way conversation. Firms that do not feel the they are having social media success might not be engaging clients and prospects the right way.

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Do Advisors Still Need A Website? YES! - April 18th, 2012

Hardly a week goes by that you don’t see an article questioning whether or not advisors need to have a website. This question has become especially prevalent as blogs have grown in popularity. Is a blog enough? My answer is an emphatic no! Blogs are great and I recommend them to those with the discipline to commit to one – but your blog should complement, not replace your website; you still need a high-quality website.

(While I am focusing on Advisor websites, the same general principles hold for other financial services companies as well – investment managers, mutual fund companies, sponsors, etc.)

Most prospects and clients utilize the internet – at the end of the day, not having a website sets off more of a red flag than anything else. In this age of full transparency – let’s not forget Madoff – the last thing you want is for someone to question your legitimacy. For prospects, a good website is a great way to set your credibility before they even meet you. For clients – who are likely to want on-line access to their accounts – why not provide the portal so that they can always see what is new on your site when they sign into their accounts? What a great – and free – way to highlight your latest newsletter for example.

A 2011 survey by Fidelity found that 44% of millionaires looked to the internet when searching for money managers. 75% of Morgan Stanley Smith Barney’s advisors now have websites as do about 80% of Merrill Lynch advisors. Especially for an independent RIA, how do you explain not having one when so many of your competitors do?

Now, some advisors think that not having a website has a certainty aura and mystery in and of itself. They prefer to have clients give prospects a verbal referral. To me this thinking is outdated. It assumes that the prospect can find you without the internet, which may not be the case. There might be some exceptions – advisors who get all of their clients from one small geographic area for example – but this to me is more the exception than the rule.

Finally, and importantly – your website has to be very good – it has to be both visually appealing and have top-notch content which differentiates you from the competition.

Remember all of those articles I alluded to up front? It drives me crazy when they say that the website can be a simple electronic business card, or that you can do it yourself for around $500. No. No. No. If you are going to have a website – it needs to reflect the same high quality of your entire business. Remember the old saying, if you can’t do it right…..

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How To Win A Finals Presentation - April 11th, 2012

In today’s increasingly competitive institutional marketplace, where the number of overall searches has declined over the past few years, and it has become harder and harder for many managers to differentiate themselves from the competition, it’s more important than ever to take full advantage of every new business opportunity that you are presented with. Getting to a finals presentation is hard enough, but there are several keys to winning the finals once you are there.

(This is from a presentation I gave last week at IMI’s Consultant Congress in San Francisco; while it is geared toward money management firms, many of the concepts can be used in any finals presentation – including those with high net worth individuals.)

Click here to see my Top 10 List – Winning the Solutions-Oriented Finals (I’m no David Letterman, but I try!)

A few highlights:

Conventional wisdom used to be that you always brought either the portfolio manager or principal with you to a finals presentation. In my opinion, however, this notion has changed. Who you bring to the finals should depend on the client and what your research and the consultant tell you are the prospects hot buttons. Sure, if it is a stock-picking firm, it might be prudent to bring one of the portfolio managers. But if the prospect has bad client experiences, of example, and is more interested in meeting the people that they will be interacting with on a regular basis, then that should dictate your choice of presenters. This is especially the case if the manager or principal is not a very good presenter!

The above point is only one of many of the top ten which are linked by the reality that your chances of winning are much better if you do your research upfront and make the presentation as customized and personal to the prospect as possible. Even the simple gesture of putting their logo next to yours on the cover of the presentation shows effort on your part.

A few of the old conventional wisdom’s about finals presentations have not changed however. Never talk about or bad mouth the competition – this should be about you not them. And don’t forget – you have to ask for the business at the end. Let them know how important this mandate is to your firm – you can be sure that your competition will.

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Can You Articulate Your Value Proposition? - April 4th, 2012

This is the title of our latest White Paper, and the title assumes that you have a value proposition. Perhaps it’s better to ask: Do you know why clients choose to work with you over the competition? And if so, can you articulate this competitive advantage and use it as a tool to help you grow your business?

The White Paper will help you answer both questions by outlining what a value proposition is, why they are important, how to create one and how to utilize it in your marketing efforts. Click here to download the full piece.

To highlight, a strong value proposition will help you connect emotionally with people, and people are more likely to do business with people that they can relate to. It will also create a strong point of differentiation between you and the competition, will help you define your target market as a precursor to developing (or redeveloping) your asset gathering strategies and marketing plan, and can help you:

  • Increase the quantity and quality of leads and referrals
  • Gain market share in your targeted markets
  • Enhance your presentation and close more business
  • Improve your operating efficiency
Finally, it’s a great way to jump-start your referral activity. Many clients are probably willing to make introductions for you, but may be reluctant because they don’t know exactly what to say. Arming clients with your value proposition gives them the ammunition and confidence to make a concise yet powerful statement to people that they know.

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