I was asked to write an opinion piece on recent announcements by UBS and Morgan Stanley that they were undertaking measures to reduce costs. UBS chose to lay-off a small number of client service and support staff, while Morgan Stanley chose to pass along some additional costs to its advisors. So, is one way of cutting costs better than the other? The piece was published in today’s FundFire (A Financial Times Service).

In reality, I don’t think that one method of cost cutting is better than the other. The fear these and other sponsor firms always have is that they are going to “piss off” their advisors with such moves and that this may result in defections. The reality is that when you look closely at these cuts, they effect only a small number of advisors -generally  those at the lower end.

Management has an obligation to shareholders to run efficiently and smartly; they also need to foster a positive environment for their employees. Attempts to become more efficient can keep everyone happy. Often times it is the headlines that make the cost cutting efforts seem “bad” and far-reaching when in reality they are minor.

UBS, for example, laid off 75 client service associates. This is out of thousands of such associates at the firm, and you can bet it did not impact their top producers. One can argue that cuts aimed at the lower end help weed out lower producing advisors who are probably not adding much if anything to the bottom line. The financial crisis helped firms see that being the biggest is not necessarily a goal they need or want to pursue. They rather have the most efficient advisors.

And Morgan Stanley, while passing along more costs to advisors, in fact gave their top producers a pay out increase at the beginning of the year, so net-net, the effects are not that great.

All firms must cut costs at certain times. It just seems that everyone still likes to forecast the demise of the wirehouses, when in fact they have made great strides in becoming more competitive over the past few years.

Contact me if you would like me to send you a copy of the article.

Today’s Fundfire (A Financial Times Service) has an article on how U.S. asset managers rank first (and U.K. firms second) in effective marketing – both defending their home turf from foreign competitors and competing abroad – according to a new survey by FS Associates; I was asked to comment on these results.

The results are not surprising, given the maturity of the pension markets in the two countries. To quote from the article: “The marketing domination by U.S. and U.K. firms should be expected, says Andy Klausner, principal and founder of AK Advisory Partners.

“It’s a size issue,” he says. Both the U.S. and U.K. are home to the world’s largest asset managers, and have more developed institutional investor markets, he says. “It’s the bigger players that go overseas,” he says. Available resources are important for strong marketing.”

The article also discussed how managers could grow their businesses abroad. Again, quoting from the article: “But marketing for institutional investors is inherently different than for retail investors, says Klausner. “You’re marketing yourself to that consultant,” as opposed to directly to a client, he says. Institutional managers need to focus on building their brand through relationships with consultants, particularly the large, global consultants.

If a manager can have a strong relationship with a consultant in the U.S., it’s likely that the consultant will also look at the manager for its institutional clients in other countries as well, says Klausner.

“It’s very rare that a manager would be brought into [an institutional] relationship not through a consultant,” says Klausner. But, asset managers can still focus on building brand awareness with institutions. While a consultant may drive a manager selection process, institutional clients may still request the consideration of certain managers they’re familiar with, says Klausner.”

Today’s Fundfire (A Financial Times Service) featured an article on FolioDynamix adding a new client in the bank trust department space. I was asked to comment on whether or not this signals a new trend – banks turning more toward third-party providers of investment platforms rather than developing them on their own – and what effect this has on SMA managers.

I don’t think that this signals the beginning of a new trend, because in fact, their has been growth in outsourcing for many years. It may be new for FolioDynamix, and signal a new direction for their business, but banks that have expanded into the fee-based business arena have for many years faced the issue of building it v. buying it.

And frankly, if you don’t have the expertise, personnel or resources in-house, it is easier to buy it. While ultimately the end fees to clients may be higher because you are paying a third party, it has been a way for banks to get up and running faster and quicker.

As to the question of what this means for SMA managers, to quote from the article:

“As the shift away from proprietary offerings toward more open architecture continues, turnkey platforms, like FolioDynamix can pose an opportunity for model SMA managers to expand their distribution without having to deal directly with small bank research teams, explains Andrew Klausner, founder and principal of consultancy AK Advisory Partners.

“If a bank or trust is new to the business they’re not used to managers having to come through,” Klausner says. “From a marketing point of view it’s easier to get in with these [turnkey] firms that will showcase you.”

“It’s definitely a way that you can reach a lot of bank trusts through a single platform, as long as you’ve got the product that they want,” he says. “Getting on a platform like FolioDynamix will help, but [managers] have some work to do on their own to differentiate themselves and make their options valuable for a bank trust.”

For banks, “it makes sense to hire these third party TAMPs [turnkey asset management platform] that offer models as well,” says Klausner, the consultant. “The easiest thing to do is go out and buy the whole bundle.””

I was asked to comment on an article which appeared in today’s GatekeeperIQ (A Financial Times Service) on Baird bringing research on mutual funds in-house (and terminating its relationship with consultant Wilshire).

There can be many reasons why a B/D hires an outside firm to conduct due diligence and also why they would end such a relationship. Often times, as it seems to be in this case, it has more to do with the client’s ability to conduct the research  in-house, perhaps because of growth of staff or maturation of its programs, than it is dissatisfaction with the consultant.

To quote from the article: “The decision of whether to outsource some aspects of manager research is often a question of staffing and numbers, says Andrew Klausner founder and principal of consultancy AK Advisory Partners.“When you’re building a platform or expanding a platform, it’s easier to hire an outside research shop,” Klausner says. “As you mature, add staffing and add assets, it becomes easier to justify bringing it in-house.” Taking greater control over the process provides the home office greater say over the timing of research and the ability to decide whether to include affiliated products, he says. “You have a little more control over how things get done,” Klausner says.”

A sensitive topic is affiliated managers/funds. Hiring an outside firm to conduct due diligence on these products – even if you have the ability to conduct it in-house – is often a smart move to remove any potential (or perceived) conflicts of interest. I am a firm believer that adding this level of third-party oversight, especially on affiliated mangers/funds, sends a great signal to advisors and clients that you are serious about having only the best products available.

(The following opinion piece written by me appeared last week in Financial Advisor IQ (A Financial Times Service):

One of the most discussed issues in the financial-services industry over the past few years has been the competition for advisors between traditional broker-dealers (wirehouses and regionals) and independents or RIAs. Everyone is speculating over which type of sponsor firm will be the ultimate winner.

Last year reaffirmed the position I have held for a long time — namely, that it’s a false rivalry. Each group is now well positioned to succeed. Sure, the market share of each type will fluctuate, and some observers will see any gains as one business model’s victory over another. But we have come a long way since the midst of the financial crisis, when many traditional B/Ds changed ownership and the very existence of some was in question.

Over the past few years, traditional B/Ds have made a pretty miraculous comeback, while independents and RIAs have simultaneously seen impressive growth. The bad press aimed at the wirehouses has largely dissipated, as has a lot of the investor anger targeted at them. According to InvestmentNews’s 2013 year-end ranking of firms that were the biggest beneficiaries of advisor moves during the year (as measured by net new AUM), the top five firms were Wells Fargo Advisors  (adding $7.6 billion in assets) , UBS ($5 billion) Raymond James ($3.1 billion), Baird ($2.3 billion) and LPL Financial  ($2.3 billion). Quite a diverse group, don’t you think?

So rather than ask whether one business model will dominate, I think the more important question is: How does each firm position itself to be as successful as possible? The real winners will be those that make their advisors the most productive, not necessarily those that become biggest.

Let’s first talk about the traditional B/Ds. Advisors in these organizations typically rely 100% on their firms to provide office essentials, investment products, training, due diligence, reporting, etc. In general, these firms are also very restrictive in what advisors can do that might be considered “outside the box.” Individual websites and marketing materials are discouraged, for example, with guidelines so limiting that many advisors decide not to bother.

While some advisors find that atmosphere too restrictive, others like the comfort of showing up at an office where all the infrastructure is in place. It’s a good environment for those who want to serve clients more than they want to run a business.

As to the difference between the wirehouses and the regionals, I think it’s fair to say that advisors at the regional firms often have a greater ability to influence strategy — for example, via product offerings. Upper management and product heads tend to be closer to advisors at the regionals, especially the larger producers. Compared with a wirehouse FA, an advisor at a regional can be a bigger fish in a smaller pond.

Advisors who want to participate actively in running and building a business are generally more likely to join an independent B/D or an RIA. They certainly have more freedom, but they have to worry about things like office space and health insurance. Most advisors in this world tend to be a little more entrepreneurial.

Within these broad generalizations, the firms that will be successful are those that offer the services their advisors need to grow AUM. For independents, that means providing the best support team to help advisors organize their businesses when they first join. For traditional B/Ds, it means offering new and innovative product choices and trying to keep compliance as business-friendly as possible. These are the firms that will wind up with the most satisfied and productive teams, regardless of their business model.