Advisors | AK Advisory Partners LLC

Archive for the ‘Advisors’ Category

Are You an Alpha Advisor?

Thursday, May 5th, 2011

At the end of March I blogged about the rebellion of wealthy investors, and the growing trend of these investors hiring multiple advisors. (See March 28th blog entitled “The Wealthy Rebel – Advisors Beware.”) The issue continues to get more and more press as additional studies with similar results continue to be published.

If you aren’t an Alpha advisor – beware – your business might be at risk. Unless you want to focus on smaller investors – those that tend to be a lot more fee-sensitive and who don’t have enough assets to hire multiple advisors – your marketing strategy MUST include a way to position you as the leader of the group of advisors you clients are likely to hire. The Alpha advisor acts as the client’s financial hub, is aware of the other relationships, has the ability to report on these other assets (and is given access to the information) and is likely to take a holistic approach – having the capability to address the client’s most in-depth financial issues.

The latest study I referenced above was released by State Street Global Advisors and Knowledge@Wharton. 55% of respondents indicated that their primary advisor was unaware of the decisions and performance of their other advisors. What does this mean? It means opportunity for advisors who can explain the downside to such a isolationist strategy. Without someone overseeing the client’s entire investment portfolio, investors who are trying to protect themselves by diversifying across advisors are actually increasing their risk – overlapping sector or individual investment exposures for example could result in an overall portfolio which does not match the client’s investment goals and risk tolerance levels.

In addition to being able to charge for oversight – adding a new revenue stream to your practice – you greatly increase your chances of keeping clients by being the Alpha advisor. But you won’t know the answer to the question of whether your clients have multiple advisors unless you ask – why not make if part of your regular quarterly meeting/referral process?

One other interesting result from the study to keep in mind – the best practices of Alpha advisors usually includes transparency of fees, open architecture and solid rationale and documentation to back-up their recommendations.

Posted in Advisors, General Interest, Sponsors | No Comments »

What Type of Wealth Manager Are You?

Monday, April 25th, 2011

Every quarter, Cerulli Associates partners with IMCA to produce a research piece of interest to the industry. The latest is entitled “Understanding Wealth Managers: Practice-Type Analysis.” The study differentiates advisor/wealth manager practice types that exist today. Categories generally vary by the amount of advice offered that is not directly related to investment management. In general, the more services you provide above and beyond traditional investment management, the more sophisticated and wealthy the clients that you are serving.

Are these categorizations perfect? No. Are they always adapting? Yes. The lesson to be learned here, however, is to get a general idea of whether your practice and your resources match your target audience and your business plan. If there are mismatches, there is no time like the present to make some adjustments.

Cerulli’s categories – from least comprehensive to most are:

Money managers – desire to be valued solely on their investment performance
Investment planners – work with investors larger financial needs on an as-needed basis – typically would use modular planning tools
Financial planners – strive to deliver comprehensive financial advice, but still many clients do not receive comprehensive financial plans
Wealth Managers – additional services included to meet the wider needs of high net worth individuals, including philanthropic giving and concierge-type services

Which type of advisor are you? Now, here are some of the results of the study to see if your practice is in sync:

The percentage of fee-based business is higher as you move up the scale from money manager to wealth manager, as wealthier clients are more likely to understand the-based arrangement and are used to paying that way
Wealth managers tend to work in team practices and provide either in- or out-house resources for the specialized and more sophisticated services that they provide (advanced planning and wealth preservation)
Wealth managers utilizing a holistic approach are more likely to be the Alpha advisor
Wealth managers are more likely to have larger books of business – fewer clients with larger amounts of assets

And last but certainly not least – wealth managers are more likely than other types of advisors to get referrals – from either clients or other professionals. On average, according to this report, 55% of the new business of wealth managers comes from referrals.

All in all, these results are very interesting. While there is compelling evidence to strive to become a wealth manager, it’s important that you make sure that you have the capabilities, finances and resources to do so. If not, create your own compelling reason for choosing the type of business that you become. There is enough room for advisors to be successful in a number of ways – but it’s always good to know what the competition is doing.

Posted in Advisors, General Interest | No Comments »

AK Quoted: Fund Industry Article – Usefulness of Social Media Grows

Wednesday, April 20th, 2011

Ignites today published results of a poll which indicates that fund industry professionals are increasingly embracing social media and recognizing its applicability; click here to read the complete article.

More than 58% of the almost 250 respondents characterized social media as either “important” or “useful,” up from 51% a year ago. The number of respondents who indicated that they believe the hype around social media is greater than its usefulness dropped to 26% from 35% a year ago.

My two cents as cited and quoted in the article:

Social media oriented strategies will only gain more ground in the future. Fund companies and other sponsor firms are ahead of advisors and RIAs because of continuing monitoring/compliance issues.
“For those who think the hype is bigger than usefulness and to those that bemoan the end to face-to-face communications, I would say you are looking at social media in the wrong way. Social media should not replace anything — the heart of all relationships remains personal. Social media should not replace the handshake or anything else. It should supplement it and deliver more value to the client or prospect, and deliver in a way that they want. Social media should increase your reach, improve your communications and help attract new prospects and cement relationships.”

Posted in Advisors, General Interest, Investment Managers, Press | No Comments »

Investment Managers: Stability Continues to Top Performance

Monday, April 18th, 2011

Another survey has confirmed what has been the “new” conventional wisdom post-Madoff and post-financial crisis: institutions are weighing organizational stability more heavily in deciding their manager mandates than they are performance. We all know that past performance is not necessarily an indicator of future performance. Organizational instability, on the other hand, will most certainly lead to future under performance.

This latest study is entitled “Institutional Investor Brandscape” and was conducted by Cogent; 590 institutions were questioned for the survey.

A staggering 88% of respondents placed organizational stability at the top of their list as the most important criteria they use when selecting a manager. While I would have expected stability to top the list, I was surprised at the magnitude of this number.

Institutions have clearly become much more focused on the long-term – whether a manager can retain its people, whether its systems capabilities can match its growth and whether the future level of service and performance will be adequate.

Other answers that ranked highly in the survey in the decision process included strength of investment philosophy, investment team and risk management practices. While investment philosophy is important, respondents indicated that just as important if not more so is the process by which that philosophy is implemented. Institutions want to make sure that the philosophy is repeatable over a long period of time.

Respondents also consider consultant recommendations, a firms research and though leadership, fees and reputation. Interestingly, service and support models, relationship management and product innovation were at the bottom of the list.

This seems a little counter intuitive to me – after all, the relationship management and service teams are the ones that communicate and articulate what makes the firms stable in the first place, they the ones who update clients if and when changes take place, and they explain and how the firm is dealing with it. Perhaps respondents were making the assumption that good investment managers have good relationship management and service teams; to me, these are two distinct areas and firms might not necessarily excel in both.

So while I am confused by some of these results, I do think the survey clearly once again confirms that performance, while important, is certainly not the deciding factor for institutions when hiring investment managers.

The important implication for these results is that investment managers must be able to articulate their entire firm story during both good and bad performance periods. In fact, viewed from this perspective, these results should be somewhat comforting to managers – it means that if clients are comfortable with the organization and its stability they are less likely to fire them during the inevitable periods when they do under perform.

Posted in Advisors, General Interest, Investment Managers | No Comments »

If You Don’t Know Your Own Value – Who Will?

Tuesday, April 12th, 2011

It never ceases to amaze me that so many advisors are so willing to discount their fees – no questions asked – as a regular course of business. PriceMetrix recently conducted a study of advisors across North America, and the findings are based on data which includes the books of 15,000 advisors, 2.3 million investors, one million fee-based accounts and more than $850 billion in assets. A few of the findings of the study include:

Discounted management fees are taking an average of $20,000 a year out of the pockets of financial advisors
The top 25% of advisors charge an average fee of 2.01% while those in the bottom quartile charge an average fee of 0.81%.

I find this last statistic very interesting indeed. To those who say that competition has increased and therefore fees must come down, I would counter with the question, do you want to be in the top 25% of advisors or the bottom quartile? Yes – competition has increased. But that does not necessarily mean that price is the only way to compete.

Successful advisors typically have the fee discussion with clients up-front, at the beginning of the conversation, as they describe their value-added proposition and unique perspective on the business. If the conversation is successful, discussions about discounts and quelled even before they begin. On the other hand, if the client brings up fees it’s probably too late.

The study also validates that point that once you have begun to discount, it’s very hard to end the precedent. According to PriceMetrix, only 5% of advisors increased their prices on existing fee-based account by more than 10 basis points in the years studied (2007-2010).

Few surgeons or attorneys to lower their fees – why should you? If you are confident in your ability to add value to your clients, then the fee discussion should be easy. In fact, turn the question around and ask the client “Would you want to do business with someone that has so little confidence in their ability to add value that they automatically offer a discount? If I help you define and reach your goals, the fee charged would be more than justified, wouldn’t it?”

Take control of the fee issue – and don’t discount you own worth! After all, if you don’t know your own value, you certainly can’t expect someone else to know it.

Posted in Advisors, General Interest, Investment Managers, Sponsors | No Comments »

Create a Buzz to Grow Your Business

Tuesday, April 5th, 2011

Click here to read our newest White Paper – Create a Buzz to Grow Your Business.

The perception is that the only way to become better known is to spend a lot of money hiring a public relations firm. The good news is that there are ways that you can act as your own publicist without spending a lot of money. In fact, the best publicity is often free, and easier to get than you might think.

The White Paper talks about some of the ways that you can create your own buzz now:

Focus on a niche or target market
Be proactive and promote yourself
Be accessible and newsworthy
Be “Social Media” visible
Be Patient

The article was featured in our second quarter Unlocking Real Value Newsletter. Click here to see the complete newsletter, which also includes an exciting new Crisis Management program we have introduced via one of our strategic partnerships.

I hope that you enjoy the article and the newsletter.

Posted in Advisors, General Interest, Investment Managers, Sponsors | No Comments »

Hallmarks of an Effective Social Media Strategy

Friday, April 1st, 2011

This is the title of an opinion piece that I wrote for yesterday’s Ignites; click here to read it.

The article discusses the things that will separate the winners from the losers among firms that decide to enter the social media arena. (These same principles are germane to advisors entering this foray as well.) Bottom line, those firms that succeed will be those that have a strategy to attack this ever-influencial channel and then execute on this strategy. Those that enter with no strategy, and act accordingly, are probably wasting their time and money.

Key principles firms should consider in developing their approach to social media include:

Be informative and educate – pull people in with value-added content; do not try to sell something
Be consistent with your delivery – if you’re not going to have fresh content on a regular basis – don’t start!
Be accessible – give people multiple ways to follow your company, link them together and make them easy to use
Have an opinion – it’s okay to be outspoken and a little controversial
Be patient – Rome wasn’t built in a day – it will take time to build a sizable following

Roughly 80% of asset management firms recently survey by Kasina expressed interest in developing a social media strategy. Some will and some won’t. Some will be successful and some won’t.

You can be sure that the winners will plan, allocate resources and personnel and treat their entry into social media as a serious endeavor. Because it is – and if not done right can hurt your reputation and leave you behind the competition.

Posted in Advisors, General Interest, Investment Managers, Press, Sponsors | No Comments »

Press: AK Quoted in Social Media Article

Wednesday, March 30th, 2011

Ignites today reported the results of its latest survey on social media. Click here to read the article and see comments by AK Founder and Principal Andy Klausner.

The surprising headline in the survey is that a greater percentage of respondents said that Facebook is their main social media tool; LinkedIn came in second (45% to 30%). The question did not distinguish between business and personal use, however, which is probably why Facebook placed higher. While among companies the use of Facebook is increasing, as they develop company-specific pages, I think the number of advisors using LinkedIn as opposed to Facebook is still far greater.

Encouraging was that only 16% of respondents said that don’t use any social media; a similar survey by Ignites last year indicated that 33% of respondents did not use social media. The message here is that the financial services industry is not as far behind in the social media race as previously believed.

Finally, not surprisingly, Twitter trailed significantly in the survey, with only 4% using this tool. Twitter remains a much more social tool than a business one.

Bottom line, despite the results of this narrow survey, I still believe that LinkedIn remains the primary social media tool of individuals in the financial services industry, followed by Facebook and Twitter. Companies are increasingly turning to Facebook but remain active in LinkedIn as well.

Posted in Advisors, General Interest, Investment Managers, Press, Sponsors | No Comments »

The Wealthy Rebel – Advisors Beware

Monday, March 28th, 2011

A new Cerulli Associates Inc. survey of 400 affluent households with at least $10 million in investable assets has some very sobering news for advisors:

57% of these households are working with at least five or more advisors
64% are working with at least four advisors (compared to 16% in 2008)
18% are working with only one advisor
44% changed their primary advisor over the past 12 months

I am frankly surprised by these results. Two or three advisors makes sense – but four or five? We have all heard reports that the financial crisis resulted in large client moves from advisor to advisor – but the fact that almost half changed their primary advisors should make advisors sit-up and take notice.

The report also talked about the needs of these clients. On average, these households have more than 13 in-person meetings and 18 client-initiated phone conversations per year. Add advisor-initiated telephone contact and the number of annual contacts approaches fifty. We all know how important services is – but this many contacts per client is a little surprising – and obviously requires a lot of time and resources.

If I were an advisor reading this, I would ask myself the following questions if I either am or are thinking about targeting this niche:

1) Do I really want to serve this niche, or am I better off going after clients with fewer assets? Focusing on clients with lets say $1,000,000 to $5,000,000 in investable assets is still a huge marketplace and client expectations might not be as high.

2) If you do want to serve this niche, you need to ask yourself questions such as a) How do I become the “Alpha” advisor – the primary advisor?; b) How do I altar my marketing approach to demonstrate that I have the ability and experience to help evaluate the client’s entire portfolio, not just the portion they have entrusted to me? In other words, if I take as a given that clients will test me and use other advisors from time to time, how do I establish my role as the person that helps them in their overall evaluation and monitoring process? Often times, helping rather than fighting this trend will distinguish you from the competition; and c) Is my service organization and team capable of servicing clients that are demanding so much attention? Do I need to re-jigger my service strategy to accommodate these trends?

3) Is my message and value added proposition clear? Money has been in motion and the odds are that some of these clients will not be happy with their new advisors. How do I highlight my differentiating characteristics to take advantage of today’s trends?

This study highlights the fact that competition has increased (we all knew it had – but not to this extent). Use this information to make yourself and your business better.

Posted in Advisors, General Interest, Sponsors | No Comments »

Book Review – The Devil’s Casino (Re: Lehman Brothers)

Wednesday, March 23rd, 2011

I just finished reading The Devil’s Casino: Friendship, Betrayal, and the High Stakes Game Played Inside Lehman Brothers by Vicky Ward. I bought the book awhile ago, but frankly needed a break from reading about the financial crisis. But I’m glad that I finally read it, if only to remind myself of the lessons that I learned from the crisis and how such lessons remain relevant.

The book was enjoyable, and a quick read. Like many of the books on the crisis, it was filled with gossip and stories about the main characters involved. While this type of stuff is always fun to read, I do take the gossipy parts with a grain of salt knowing that the truth probably lies somewhere in the middle….

I always ask myself when I read books if there are lessons that I can use in my day-to-day business – and there were here.

I have three main takeaways from the book:

1. Don’t let success breed arrogance – I hadn’t realized the extent to which Lehman had successfully navigated the Long Term Capital Management (LTCM) crisis. Lehman emerged from that crisis better than most of its rivals, but this success gave them a feeling on infallibility which probably led to their ultimate demise (by over-leveraging and over-committing to real estate and other illiquid assets). Success once does not guarantee it again.

2. Always hire on merit not feelings – Though certainly not unique in this or any other industry, Lehman made countless personnel decisionsthat were seemingly not made on merit – and most of these decisions turned out poorly. We all have egos, but the more we let them interfere with rational decisions, the worse off we will be. Always try to take a step back before making important personnel decisions.

3. Thoroughly understand what you are getting yourself into before you do it – It still amazes me how companies such as Lehman amass huge exposures to instruments that they really don’t understand. The derivatives world has gotten so complicated and in the case of Lehman at least, the sophistication of its people and its ability to understand derivatives, leverage and risk did not keep up with the instruments themselves. In many senses, Lehman is the classic story of getting in over one’s head – and not realizing it until it is too late. In fact, I’m not sure if many of the Lehman principals even understand today why the firm failed. The lesson here is that you should stick to what you do well and only expand after a thorough and unbiased review.

Gossip aside, it seems apparent to me that ego and mismanagement above all else destroyed Lehman Brothers. Reading books such as this are good reminders of what not to do and how to keep yourself grounded and on track. And they provide a little entertainment as well.

Posted in Advisors, Book Reviews, General Interest, Investment Managers, Sponsors | No Comments »