Archive for the ‘Advisors’ Category

Giving Advisors What They Want

Friday, January 7th, 2011

I’ve read a number of articles over the past few days analyzing why communications between advisors and wholesalers break down. Many mutual fund companies and investment managers continue to struggle with the best way to earn the trust of advisors, and in turn become one their core investment offerings.

Well – I have a news flash – it really is not all that complicated! The one caveat is that good performance must be there – because if an investment firm is consistently under-performing, it will be very difficult for any wholesaler to establish a long-term relationship with any advisor. Let’s not be naive – this is all about business. The wholesaler wants to help the advisor, but if no business comes his way, this support will inevitably diminish.

I don’t view this as a conflict of interest as much as a reality of life. Top-notch advisors do business with multiple providers of investments, and it’s fine that the level of support and communication is a factor in the decision-making process. After all, they need to provide their clients with information on an on-going basis.

So, what are the keys to success in this advisor/wholesaler relationship?

The first key to success is one that does not have a lot to do with the wholesaler per se. It’s important that the firm that the wholesaler works for communications openly with the home office of the advisor so that the rules of the road are clear and that the priorities of the sponsor become those of the investment provider (and in turn the wholesaler). Advisors do not want to do business with firms that will potentially bring him into conflict with the powers that be at his firm. A strong firm-to-firm relationship makes the job of the wholesaler easier from the start.

Then it is up to the wholesaler. Begin by asking what the advisor wants  – not by telling them what you offer and can do for them. The best salesmen – and wholesalers are after all salesmen – listen more than they talk. While there will be a lot of common answers – like value-added presentations or financial support for seminars (if allowed by the firm) – each advisor will want to get information and communicate with you in his own way.

Make the advisor feel like the services you area providing, and the way that you are providing them, is unique and custom to his needs. Treat him like the client that he is. Ask how often he wants to hear from you and in what form. Ask for permission to contact him in case of “emergencies” that need to be communicated quickly.

In other words, treat the advisor as a partner. Advisors spend a lot of time making sure that their clients are happy – wholesalers should do the same. The most successful wholesalers understand that advisors want this same level of attention given to them in their relationship. See – its not that complicated! But it does go beyond having the best value-added training modules.

Its the relationship, the relationship, the relationship. And communication, communication, communication.

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Top Ten Predictions for 2011

Wednesday, December 29th, 2010

First, I want to wish everyone a Happy and Healthy New Year and a great 2011. I thought that I would end the year with some predictions about what I see happening next year. No guarantees here – just having some fun before I head out on vacation.

I’ll start with the macroeconomic picture, and then talk about the financial services industry.

10 – Stocks will once again have a better year than the economy as a whole. I am “mildly optimistic” heading into 2011. The one thing that I have learned is that you can’t fight the market’s momentum.

9 – Housing will continue to struggle in 2011 and unemployment will remain stubbornly high. The jobless recovery will continue, but there will not be another recession.

8- The much-talked-about municipal bond crisis may develop, but will not be as bad as the doomsayers predict. Increased municipal failings will not be surprising – but this will not be another crisis of the magnitude of the housing crisis.

7 – The bipartisan spirit of the lame duck Congress will end quickly – particularly over spending – and the gridlock predicted after the election will begin. This is not necessarily a bad thing for the markets – just the reality.

6 – The Federal Reserve will not raise interest rates (that will happen in 2012).

5 – The crisis in the Euro zone will continue and the PIIGS will continue to give us heartburn – but the Germans will lead the EU to the rescue and the crisis will not negatively impact the US (maybe on particular days, but not overall).

As for the financial services industry:

4 – It will be another year of net advisor losses for the wirehouses. The allure of going independent coupled with continued negative press will be the straws that break the camels back and influence advisors to make the change.

3 – UMAs will continue to grow at the expense of SMAs and ETFs will continue to grow at the expense of mutual funds, although ETFs will continue to fight negative press surrounding the plethora of derivative-type ETFs that are being developed.

2 – Fidelity will have at least one reorganization (not hard to predict based on past trends!) and Schwab will continue to grow its managed accounts AUM and surpass at least one, if not two wirehouses.

1 – Consolidation among money management firms and RIAs will continue as firms continue to cut costs and search for synergies to help them distinguish themselves from the pack.

Let me know your thoughts – what you agree with and what you disagree with.

Happy New Year!

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AK Quoted in Article “Industry Gripped By Ambivalence in 2011”

Wednesday, December 22nd, 2010

Published on December 22, 2010 – Ignites – An Information Service of Money-Media, a Financial Times Company- written by Gregory Shulas

Poll: Industry Gripped by Ambivalence in 2011

The mutual fund industry foresees a mix of good and bad for 2011, predicting a rebound in equity funds but major challenges in the municipal bond and money fund markets.

That’s according to the results of an Ignites survey that polled readers on what they see as the most likely events to occur in the coming year. The answer options provided a full range of responses from the optimistic “Investors return to equities en masse” to the pessimistic “A wave of defaults sparks a crisis in the muni market.”

The results suggest a high level of ambivalence in the industry about what the future holds.

Roughly 27%, or 80 voters, said investors will move en masse to equities next year. That made it the top response.

But equity market optimism was largely muted by concerns over credit markets. The second most popular answer with about 20% of the response, or 58 voters, predicts that a wave of defaults will spark a muni bond market crisis next year. Moreover, 16% or 47 voters, believe tighter regulations and thin yields will push most money fund firms to exit that market.

Other potential trends received less support. Roughly 14%, or 41 voters, prognosticate that the Dodd-Frank Act to be overhauled by Congressional Republicans, while 12%, or 36 voters, believe 2011 will be marked by an uptick in M&A. Meanwhile, 9% believe the SEC will adopt 12b-1 reform.

The favorable equity market sentiment comes after bond products attracted massive inflows as part of a larger de-risking trend. The development boosted the profile and flows of the industry’s top bond shops during the past two years.

But signs that the so-called “flight to safety” is reversing have emerged, industry observers say.Pimco‘s Total Return Fund was among the bond funds that saw a decline in assets in the past month as investors sold off Treasurys, Bloomberg has reported. However, Pimco still enjoyed a stellar year for their products through November.

Additionally, Pimco’s Total Return Fund is broadening its investment policy to allow stakes in equity-linked securities. The fund’s portfolio manager, Bill Gross, has said he expects bonds to weaken following Federal Reserve asset purchases.

Bruce Johnston, founder of sales consultancy DBJ Associates, says firms should be asking themselves whether they are prepared for the equity market’s re-emergence.

“The balance sheets of large-cap companies are cleaned up and poised for growth. It is a clear trend,” Johnston says. “But the question is: Are firms prepared to take advantage of what is coming up? If prices for equity firms were cheap, did you take advantage of it? Did all that money saved by cutting jobs go right into the bottom line or did some of it go toward buying equity firms?”

Andy Klausner, founder of asset and wealth management consultancy AK Advisory Partners, says the poll’s mixture of optimism and pessimism is a sign of the times.

“It has been a very good year in the markets – better than in the economy as a whole,” Klausner says. “However, the high percentage of respondents thinking there are problems ahead in the muni bond market represents the part of the industry that realizes that unemployment is too high and the deficit is growing too quickly.”

“I do agree with the general consensus that with the new Republican majority in the House, that there is a chance that Dodd-Frank will face some overhaul. Overall, there is certainly a better chance here given some of the problems that have already emerged in the [Act] as opposed to other major areas of debate like health care,” Klausner says.

Dan Crowley, partner at K&L Gates and previously general counsel to former Speaker of the House Newt Gingrich, also sees the potential for Congress to revisit regulations that were hastily put together following the financial crisis.

“A bipartisan chorus of concern is already emerging about the speed with which the regulators are promulgating proposals that could have a profound impact on the economy and on U.S. competitiveness,” Crowley said in an e-mail message. “House Republicans will be particularly focused on the cost versus the benefit of proposed regulations, and we will almost certainly see corrective legislation to address unintended consequences enacted in stages in the coming Congress.”

As of 3 p.m. Tuesday, nearly 300 Ignites subscribers participated in the survey, which is an unscientific sampling of the publication’s subscribers. Readers voted only once on a voluntary basis. Ignites’s audience consists of financial advisors, money managers and service providers.

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What are Advisors Thinking Today?

Friday, December 17th, 2010

IMCA’s latest Research Quarterly contained some interesting results from three surveys that Cerulli Associates conducted with IMCA members. The surveys include data that span a three-year period – 2008-2010 – so the results reflect both pre- and post-crisis attitudes. (While the survey included advisors as well as other industry participants, I’m going to focus on advisors in my comments.)

1) Advisors are increasingly questioning the validity of modern portfolio theory. This has caused many to do two things – a) gravitate more toward tactical asset allocation strategies and b) turn increasingly to alternative investments. The survey results indicate that money has been pulled from sponsor-managed accounts (i.e., SMAs and UMAs) into advisor-managed accounts (i.e., rep as portfolio manager) to increase flexibility and allow for more tactical switches. This trend seems dangerous to me, and could actually benefit advisors that stay the course and don’t try to manage the money themselves (unless part of a team where they are the investment specialist). And while a believer in alternatives in theory, many clients don’t understand them – advisors need to be careful not to move clients into investments that they don’t understand.

2) The percentage of advisors utilizing individual securities increased from 16% in 2008 to 28% in 2010. This trend scares me as well. Again, the previous trend had been for advisors to position themselves as the relationship manager, and leave the management to others – witness the growth of the managed accounts area overall. Increasing an advisor’s role in the investments purely as a response to the markets seems dangerous to me, especially if it signals a change in business philosophy. Are clients better served? Are these advisors in fact opening themselves up to lose clients?

The messages here? For those advisors that are switching their philosophies because of the markets of the past three years – be careful that you don’t disrupt your business models unnecessarily and set your business back. For other advisors – target the clients of those advisors that are making wholesale changes. Emphasize your process, consistency and continue to deliver as you have in the past. I think this latter group of advisors will prove to be the long-term winners.

Posted in Advisors, General Interest, Sponsors | 1 Comment »

Referrals Are Not Free

Tuesday, December 14th, 2010

Well, actually they are free – but you have to ask for them! I am reacting to the headline of a recent article “Satisfied Clients Don’t Make Advisor Referrals: Schwab, Texas Tech Study.” The article referenced the results of the 2010 Economics of Loyalty survey, which surveyed more than 1000 investors.

The good news is that 74% of respondents were “extremely likely” to stay with their current advisor for at least the next year, and 88% had not even “considered switching.” The seeming bad news is that only 29% of clients have referred someone to their advisor in the past year, even though 91% of them said that they are “somewhat or very comfortable providing a referral.”

Why the disconnect? The missing link is pretty simple – you have to ask for the referral – either directly or via a client appreciation event where clients are encouraged to bring someone they know. In spite of the article’s title, the results of the survey are in fact very good for advisors, as the survey shows that overall investors are happy with the service that they are receiving and willing to make the introduction.

Advisors should be encouraged that a large majority of clients are willing and/or comfortable giving referrals. Now it is the job of the advisor to “pay” for that referral. And in this case, paying means quite the opposite – it actually means asking to be “paid back” for all of the great things that they have done. The disconnect is that many advisors never take this next step. Advisors do all of the hard work, spend all of necessary time providing good client service and then they drop the ball. The study uses the phrase that engaged clients = thriving practice. The advisor has to engage the client.

There are many nice and non-threatening ways to ask for referrals. The most successful advisors incorporate these into their operating protocol on a daily basis. A satisfied is client is the ideal referral candidate – if only if you make them so.

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Have You Surveyed Your Clients Lately?

Thursday, December 9th, 2010

A recent Wells Fargo survey of its clients about retirement yielded some very interesting results – Wells’ clients on average said that they would need $300,000 to retire and that they had only saved $20,000. My first reaction was that these clients are probably bank clients – as opposed to brokerage clients – so the $300,000 number seems low. But what is more noteworthy is how little the average person seems to have saved for retirement – in this case less than 6% of what they think that they will need. While the goal will be significantly higher for wealthier clients, I would venture to guess that most of them are also behind in their retirement savings efforts due to the economic events of the past two years.

I start with this story because it got me thinking about both issues – surveys and retirement. Most people are becoming increasingly worried about retirement. Hardly a day goes by that you don’t see an article about either retirees going back to work, or people extending their working years. There is little question that issues revolving around retirement will be prominent in clients’ minds moving forward.

Now surveys. When is the last time that you surveyed your clients? In many cases, I would guess the answer is never. But surveys are a great way to accomplish a number of goals:

1) Get a feel for how your clients are really feeling

2) Give clients a chance to tell you what they want

3) Make clients feel like you really consider them partners and respect their opinions

Oh yeah, you might get some real good client service and business-building ideas in the process!

Think about developing a client survey on retirement to kick-start your 2011 – at the very least it’s another “touch.” But it also might bring you some added credibility and business in the process. Oh, and make sure to include your prospects in the survey as well!

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Schwab Managed Accounts – Top 5 and Rising

Tuesday, November 30th, 2010

There is probably no greater evidence of how the managed accounts sponsor world has changed then the recent statistics released about the growth of the Schwab managed accounts platform vis-a-vis its competition:

* According to Cerrulli Associates, the Schwab managed accounts platform has had the highest growth rate of the top 10 programs this year;

* It is currently the 5th largest platform, and accounted for 52% of the $6 billion total of net new flows during the first six months of 2010; and

* At $44 billion, the Schwab managed accounts platform has increased its AUM by 31% over the past year.

And, UBS at $48 billion in managed accounts AUM and Wells Fargo at $49 billion in managed accounts AUM, are certainly in danger of being surpassed by Schwab if the current growth rates continue.

While the wirehouses have fought back over the past year, they still are the favorite targets of both media criticism and of the recruiting efforts of RIAs and hybrids. And the bank programs are still suffering from the problems that their parents are experiencing.

These numbers are illustrative of two main points:

1) The quality of advisor leaving the established wirehouses and banks continues to increase (as advisors who participate in the managed account world typically have larger and more stable books of business); and

2) It won’t be long before Schwab becomes one of the, if not the largest managed accounts sponsor.

I am not forecasting the death of traditional broker/dealers. They will continue to be successful and they will continue to have top quality advisors. They will just become the bottom 5 of the top 10 rather than the top!

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Why ETF Criticism Stings – but Won’t Stick

Tuesday, November 23rd, 2010

Published on November 23, 2010 – Ignites – An Information Service of Money-Media, a Financial Times Company- written by Andrew Klausner, Founder and Principal of AK Advisory Partners LLC.

The recent negative publicity surrounding exchange-traded funds validates the old saying that success breeds contempt. Or, put another way, all good things must come to an end. The growth of ETFs since their introduction in 1993 has been impressive. Assets under management in ETFs are approaching the $1 trillion mark; trading in ETFs equals close to 25% of all trading on U.S. exchanges today; and ETFs are gaining market share at the expense of mutual funds.

But as the product continues to grow, so does the criticism about ETFs and the different risks inherent in these products. ETFs are now being haunted by two characteristics that have traditionally been seen as positive: their ability to be sold short and to be purchased on margin. A Nov. 8 report by the Ewing Marion Kauffman Foundation claimed that short selling of ETFs can generate liquidity risks when demand for the underlying security, even if it is from authorized participants and not the asset manager itself, overtakes supply. The report also seeks to connect the rise of ETFs to the May 6 flash crash.

The ability to short and purchase ETFs on margin stems from the fact that the product can be traded like stocks, continually throughout the day, as opposed to mutual funds, which are bought and sold at the previous day’s ending net asset value. What happened with ETFs is that as they became more successful, market participants found ways to create derivatives on them. Now today’s more aggressive leveraged ETFs are designed to move two or three times more than their underlying indices. The risky characteristics of these ETFs are a far cry from those of the SPY — the iShares S&P 500 ETF. Commodity ETFs have also been getting some negative press, with detractors claiming that they distort the value of the underlying assets; the jury on this is still out.

Without a doubt, it is these newer ETFs that are at the crux of today’s controversy. And unfortunately, controversy often overshadows business as usual. Many of the conclusions of the recent negative reports on ETFs, including the Kauffman Foundation study, have been diligently and effectively disputed by industry participants. A few of the criticisms, including that ETFs are responsible for the slowdown in IPOs and the flash crash, seem to be groundless. Similarly, the arguments concerning the shorting of ETFs, namely that this might cause the funds to run out of cash in a “short squeeze,” seem unlikely given the role of market makers in creating and retiring shares as demand increases or decreases.

However, we all know that when it comes to the market, perception can be reality. Even as the industry repudiates these studies, the fact remains that as ETFs have evolved, the number of risky derivative-like ETFs is increasing. And this scares people, and rightfully so, since they are inappropriate for most retail investors.

What the public needs to know is not that ETFs are bad or structurally flawed — because they aren’t. It’s that a small number of the most aggressive ETFs, which are in large part utilized by hedge funds and day traders, are driving the criticism with the help of those authoring these scathing reports. Let’s not throw out the baby with the bathwater. Most ETFs do what they are designed to do; they mirror the performance of the underlying index or commodity that they are modeled on.

More investor education on ETFs is crucial. Advisors need to proactively educate their clients on the characteristics of ETFs — both positive and negative — and make the argument that certain ETFs are effective investment tools that can be used as part of a diversified long-term investment portfolio. ETFs such as the SPY are not the ones being heavily traded by day traders and hedge funds. With more than 900 ETFs to choose from, advisors should also stress their due diligence process in identifying those ETFs that are most appropriate for their clients.

Mutual funds have had their good days and bad days, as have most other investment vehicles. Have no fear, this too shall pass for ETFs.

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Advisor Websites – What Makes ’em Good

Wednesday, November 17th, 2010

I presented at MarketCounsel’s Member Summit today with Angela Nielsen from One Lily (Web Design) on what makes for a good advisor website (while the presentation was geared toward advisors, the material is relevant to any financial services website). The presentation was entitled Advisor Websites: The Right Design + The Right Content = Success (Last item under presentations).

The title is pretty self explanatory – in order for a website to be successful, it must have both good design and good content. You have a very short period of time to attract a visitor’s attention, so both the look and the content must “hit” the viewer immediately and compel them to explore further. The design and ease of use of the home page is extremely important. For example, if it takes time for the front page to load a large video, you’ll probably lose the interest of the reader. Make is simple – yet elegant.

Also, many people really do not like it when music starts when a website opens. Forgo some of the “glitz,” and you stand less chance of annoying the user. If you annoy the user they will go elsewhere guaranteed!

Now that you at least get them to stay on your site  a little longer – again not always an easy task – the content has to grab them. Don’t make the user work – be very clear on what you do, who you do it for and your value-added – give the user a compelling reason to look further.

If you can accomplish the above – have a site that has both a great design and great content – then you have accomplished a very important goal in creating your website – and them, as they say, Res Ipsa Loquitur!

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Hybrids Picking Up Steam

Monday, November 15th, 2010

We hear so much today about the battle between wirehouses and RIAs (Registered Investment Advisory firms), often lost in the discussion has been the growth of hybrid wealth managers. Hybrid wealth managers combine a fee-based advisory business with traditional commission-based transactional business. Hybrids enable advisors to tap into an affiliated RIA license as well as keep transactional business through a FINRA-approved brokerage.

In many respects, the hybrid model mirrors the wirehouse world, so logically it is a good potential fit for wirehouse advisors looking to make a move. Advisors who move to a hybrid model/firm don’t have to give-up their transactional business when they go independent. Even if the goal is to eventually stop doing transactional business, the hybrid model certainly eases at least this aspect of the transition. No need to go cold turkey!

While the hybrid model has seemingly not gotten much notice in the news, HighTower Advisors, one of the most successful new firms in the business over the past few years is indeed a hybrid. A recent entrant into this marketplace in Houston, U.S. Capital Advisors, was founded by a former wirehouse branch and complex manager, and the first team recruited was, surprise surprise, from that wirehouse! And other large sponsors – such as LPL – have publicly stated that they plan to expand their hybrid businesses.

I expect the growth of hybrids to continue as they are an attractive alternative for many advisors. Wirehouse advisors do have a choice between staying where they are (or moving to a similar firm) and becoming more independent – both from an investment as well as structural point of view. This very viable business model is going to receive more attention moving forward as entrepreneurial advisors realize that there are ways that they can minimize the disruptions that any moves will have on their current business.

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