When it comes to ethics, there seems to be a pretty significant disconnect between investor perceptions of the financial services industry and those of industry participants. Advisors,  managers and sponsors who ignore this divide could be asking for trouble!

The above conclusion comes from two studies sponsored last year by the CFA Institute. One survey sought the views of a broad spectrum of financial services professionals, while the other focused on investors. While both groups view ethics as critical for the industry, part of the disconnect is that the professionals surveyed were far less likely to view their own firms as a source of distrust.

First the studies and results; and then some perspective. The industry study is entitled “A crisis of culture: valuing ethics and knowledge in financial services,” and was produced by the Economist Intelligence Unit (EIU). While 59% of respondents believe that the financial services industry has a positive reputation, 71% feel that the ethical reputation of their firm is better than the industry overall and that the actions of their peers was not as ethical as their own.

The survey of investors was entitled the “CFA Institute & Edelman Investor Trust Study,” and included more than 2,100 retail and institutional investors from all over the world. Only about half of those surveyed (52%) said that they trusted the industry to do what is right. Only 19% of respondents “strongly agreed” that they had a fair opportunity to profit from participating in the capital markets. (A majority felt that they had a “fair” chance of success.)

While these results are not surprising given the beating the industry has taken over the past 5 or so years, industry participants would be well advised to keep this disconnect in mind when speaking to prospects and clients. Acknowledge their discomfort and give them specific examples of what you do to be ethical, to always look after their interests AND how this benefits them and gives them a fair chance at success.

Neglect to do so at your own peril!

It’s a new year, and while many of you are probably like me and no longer make New Year’s resolutions (which we wouldn’t have kept anyway), the kick-off to a new year is a great time to think about how to refresh and extend your brand. Sure, we all talk about doing our planning at the end of the year, but in reality, the period between Thanksgiving and January 1st usually turns out to be pretty unproductive.

Come January, however, everyone seems to be more focused. So it’s not too late to make some changes to your business that will not only help you grow in the long run, but also still have an impact this year.

What Is Your Brand? Before we talk about refreshing you brand, it’s important to understand what your brand is – because it’s much more than a logo or the color of your marketing materials. Your brand is what you are to the marketplace and more importantly to your clients – it’s your reputation and the value that you bring to clients and the reason that they do business with you

An effective brand will:

• Associate you with a value-added service;
• Distinguish you from other market participants; and
• Be viewed as being meaningful and beneficial.

Click here to download the entire White Paper.

2014 is shaping up to be a very interesting year- both politically and economically. A few months ago, this did not seem to be the case. But the recent government shutdown, launch problems with Obamacare, the rise of Elizabeth Warren and other events have combined to set-up an intriguing year ahead. So here I go with my top predictions for 2014 (they are in no particular order of importance):

10 – The Republicans will keep the House of Representatives but fall short of capturing a majority in the Senate (although they will pick up net seats). The Republicans should be able to pick-up enough seats to take control of the Senate, but self inflicted primary wounds, led by Tea Party challenges, will hurt them once again.

9 – Riding off of the momentum of the budget agreement, there will be no threats of government shutdown next year, there will be a small increase in bipartisan cooperation, but given that it is an election year, there will be no far reaching immigration reform or gun control legislation passed. The only progress I see next year, and it would be in the Republicans best interest to pursue this course, would be some smaller pieces of immigration legislation. On the gun control side, momentum only seems to be on the side of an overall of the mental health system. The debt limit discussions will be contentious, but will be solved without the US defaulting.

8 – The problems with the Obamacare website rollout will seem minor next year as the reality of the totality of the massive law and its implementation move forward. The benefits of the program will be outweighed by younger people not signing up, choosing instead to pay the penalty, growing anger at not being able to keep doctors, and as the year progresses, the reality that costs will go up in 2015 as insurance companies lose lots of money.

7 – The Federal Reserve will begin to taper in the first quarter, although I don’t think the taper will be significant early on. The overall path of the Fed will remain the same under Chairperson Yellon. (It is a little dangerous making this prediction now since there is a chance that the Fed will begin the taper this week, but I fall in the camp that says they will wait – they may announce something, however.)

6 – The stock market will have an average year. I think the markets have, to a large extent, priced the taper in already, so I don’t think Fed actions will significantly impact the market. Coming off of a banner 2013 (which I did not predict), it is only natural that the market revert to more normal returns. There will be a natural bull market correction during the year, and by next December I see the S&P 500 up a modest 7% – 10% for the year.

5 – Europe will continue to grow modestly and I don’t foresee any large crises within the EU or the Euro bloc. The worst seems to be behind most of these countries from an economic standpoint. No countries will exit the Euro – there won’t even be much or any talk about that anymore.

4 – Hillary Clinton will finally signal that she will run for President in 2016. While it is too soon to make any predictions about how that will go, I think her record as Secretary of State will come under increased scrutiny, and while she will remain the front runner, my only preview of my thoughts on the actual election is that the campaign will be a lot tougher than people think. There is no certainty that she will actually get elected.

For Financial Services:

3 – Elizabeth Warren will continue to raise her public profile and try to “stick it” to banks and other industry participants. This will be part of the Democratic election strategy – along with helping the middle class – that will be utilized to overcome the Republican’s continued slamming of Obamacare. Actual progress on new legislation will be slow.

2 – It will be a good year for the wirehouses as they continue their comeback from 2008. There will be less negative news about them in the press. The RIA and independent markets will continue to grow – but there is room enough for both!

1 – ETFs and retail alternative investments will start to get some negative press. As first ETFs and then alternative investment mutual funds have grown, they have received generally favorable press. I have been leery of both, particularly retail alternatives, and I think the press will finally start to raise some questions.

Finally – sports. (I usually go over 10!). Florida State will win the collegiate national championship, ending the dream season of Auburn. The Seattle Seahawks will beat the Denver Broncos in the Super Bowl – yes, Payton and his pals will choke again.

I would love to hear your thoughts on my predictions. Have a great rest of 2013 and an even better 2014.

It’s time for my annual review of my predictions for the year. In a few weeks, I’ll try again to predict what will happen next year. Overall I did okay for the year – the big miss being my negative outlook for the stock market. Who knew? More reason to be thankful that I don’t make my living looking into a crystal ball!

(See bolded comments after each prediction)

As 2012 comes to a close, it’s time to make predictions for next year. With no election, I at first thought it might be difficult to come up with predictions, but as I began to write down some ideas, I found that there is indeed a lot going on worthy of discussion. Unfortunately, I am anticipating a difficult 2013, in large part driven by political uncertainty here and abroad. Here goes:

10 – Regardless of how the current fiscal cliff negotiations end (I am thinking there will be a small deal to get us through either just before or just after Dec. 31), no grand bargain will take place next year – on either tax reform or entitlement reform. Obama’s continued campaigning to rally public support for his ideas has ensured that Republicans will do almost anything to block him next year. Not saying that this behavior is right – it’s just inevitable. I turned out to be right on this one – there was no grand deal, but we got through the fiscal cliff alive with less negative impact on the economy than predicted, and virtually no impact on the stock market.

9 – The one area where we will see major legislation is immigration reform. The Republicans desperately need an image boost here, and so this is the one exception where the two parties will work together to pass something. (Given the events in Newtown next week, there will be some movement on gun control, perhaps a ban on assault weapons, but more far-reaching gun control will be hard to attain.) Half right here – nothing on either front as we had a Congress that did almost nothing (but fight!). We have passed on major reforms once again. Immigration could hurt the Republicans next year – more on this in my 2014 upcoming predictions blog.

8 – The Euro crisis will deepen once again after a relatively quiet 2012. Italian elections could become a farce, and Greece, Spain and Portugal remain trouble spots. I don’t see any exits from the Euro in 2013, but I do expect more dissent from the populaces of the Northern European countries. Kinda right in that no countries exited from the Euro, but overall the crisis did not deepen. I will say, however, it did not get much better! Southern Europe remains a problem, and well Italian politics, what can you say? Greece’s credit ratings were recently raised, providing some hope for the future.

7 – By the end of 2013 Hillary Clinton will strongly signal (if not outright declare) her intention to run for President in 2016. Not sure what to say here – she kinda did and kinda didn’t – but her husbands recent criticism of Obamacare does signal a break from the current Administration – which does signal a run …..

6 – Merkel will win re-election in Germany, but her victory will be very small and her party will be weakened as German voters show their displeasure over the continued drain the Euro crisis is having on the country. She won – and rather convincingly on the public vote – but she had trouble putting a coalition government together, and just did so after months of negotiation; her new government will certainly be weaker than her current one. But she is regarded as the strongest European leader (by far).

5 – The stock market will be down for the year, perhaps by 10%. I think January is going to be a very tough month as realty sets in that the country’s finances are in real trouble. Even if the fiscal cliff is partially solved, it will hit home that tax rates are going to go up (in part because of some of the provisions of Obamacare going into effect) and people will realize that the recovery is not as strong as believed. Encouraging employment numbers will reverse, and the reality will set in that the numbers have been skewed by more people leaving the work force – which is not a positive sign. I was dead wrong here! Despite a still struggling economy, the markets have had a great year. I still am somewhat surprised by this – but luckily I only bucked the trend for part of the year – admitted my mistake and moved on!

4 – The US economy will not go into a major  recession, though it may come close and may even technically experience a minor recession. As stated above, I see growth slowing. I also see declines in consumer sentiment and business confidence, but I don’t think the slowdown will be enough to push us into a major downdraft. We did not go into recession, but overall growth has remained weak – we are stuck in a slow growth economy that still needs Fed intervention to keep it moving. That is and of itself is not a good sign.

Specifically for financial services:

3 – I do see a major deal being announced among the major wirehouses – Bank of America Merrill Lynch, UBS, Morgan Stanley and Wells Fargo. I’m not sure what it’s going to look like – perhaps a bank selling off its wealth management division – but something major is going to take place. This did not happen either. There were no major deals among the wirehouses, although there was quite a bit of movement in the RIA space. Overall, wirehouses have been experienced somewhat of a renaissance, as a lot of the negative press about them has abated. Banks are now the real bad guys!

2 – I see continued consolidation in the asset management arena, with a number of major deals being announced. Firms will continue to find it hard to go it alone, and will benefit from the operational synergies of combining forces. Perhaps it was the good stock market that encouraged many firms to stay independent – nothing like growth in AUM to increase optimism!

1 – RIAs will continue to make news by taking advisors from the wirehouses, but I think the wirehouses will hold their own and have a pretty decent year. The negative news about the brokerage arms of these institutions will continue to abate. This did happen – as mentioned above. 

Those are my top ten – but as I am doing them – I realize that I have to add two more:

11 – While I don’t see major changes to Dodd/Frank, I do think the banks are going to be beat-up on by Elizabeth Warren in her new role on the Senate Banking Committee. Bashing banks seems to be in vogue, and perhaps if my other predictions of other major legislation getting bogged down come true, the Democrats might use the banks as their way to show how tough they are. This definitely happened – and how scary it is to the financial services industry to think of her rise in the party – some even thinking she could challenge Hillary. More on this to come in 2014 and beyond.

12 – Alabama will win the BCS Championship and the 49ers the Super Bowl. You can’t have predictions without sports, now can you? One for two on this one – although the niners almost pulled it off.

Hardly a day goes by that you don’t see another fund company jumping further onto the retail alternative investments bandwagon. While this news is not all negative, as some firms are upgrading their educational capabilities along with their product offerings, I still fear that we are seeing the newest bubble in the financial services industry.

When everyone climbs on board to avoid presumadly being left behind, my worry antenna rises. I have nothing against alternative investments; they have been a very successful diversifier for many institutions and institutional investors for years. But I have also seen my share of very sophisticated investors who don’t understand them.

The latest onslaught of retail alternative investments news included:

1) AllienceBernstein has begun its largest ever alternative investments marketing campaign – which includes a road show targeted at major broker/dealers and investment advisor firms. On the positive side, their new website does include a quiz to test financial advisors on their knowledge of liquid alternatives.

2) In the past year, according to Cerulli Associates, fund companies added more sales positions related to alternative investments than any other area. More than 40 firms were interviewed for the study. The general belief is that more salespeople are needed to sell alternatives because it is a more difficult sale than more traditional investments.

But these trends back the idea that supply is leading demand. Despite all of the efforts of fund companies to grow this marketplace, with large numbers of new funds continuing to be introduced, growth remains slow. Again according to Cerulli Associates, alternatives represent just 2% of mutual fund assets.

Lack of track records and high fees, explain part of this phenomenon, along with the previously mentioned lack of advisor and investor knowledge in this area. But it worries me that fund companies continue to push and push, and invest and invest, and the question remains what the demand really is.

I don’t doubt the efficacy of the asset class, particularly for institutions. I do, however, question whether this retail push is indeed positive for individual investors. There are enough alternative investment funds out there for those investors who understand them and desire them. There is no lack of supply. Shouldn’t the lack of demand be telling us something? Are we going to listen to what the market tells us? Or are we going to strive to increase profitability at the expense of doing the right thing (again)?

I fear that the answer is not the one that is best for investors.

I was asked to write an opinion piece for Ignites Asia (A Financial Times Service) on whether Nomura’s exit from the open-ended mutual fund is the start of a trend in the Asian asset management business or an isolated incident. I believe that it’s an isolated incident and that growth opportunities still exist. To quote from the article:

“Nomura Asset Management (Nomura AM) had a number of things going against it when it entered the U.S. in 2008, as it:

• Entered just before the fall of Lehman Brothers and the onset of the financial crisis
• Overestimated the awareness and marketability of its name
• Failed to make the necessary investment in distribution and
• Chose to concentrate its offerings in the open-end mutual fund business rather than in alternatives such as exchange-traded funds. (It is continuing to operate two closed-end funds.)

I would find it hard to see any firm succeeding when faced with all those impediments. Some of the impediments were out of the firm’s control, such as the financial crisis, while others were certainly avoidable. And therein lies the lesson. I am not saying that it is easy to enter or succeed in the highly competitive U.S. mutual fund market or even Europe’s retail fund market. But there are still opportunities if firms enter the market with their eyes wide open, have a long-term time frame and have a sound distribution strategy.

Below are some of the key factors that will have the biggest influence on whether or not a firm succeeds outside the Asia-Pacific region.

Distribution – A key decision to be made upfront concerns whether asset managers are going to go it alone in distribution or partner with a more established firm in the given territory. There are, for example, opportunities to subadvise funds with proven distribution power as an alternative to putting the asset manager’s own network together in a foreign region.

Product choice – There will always be opportunities; managers just have to give the market what it wants. Nomura AM’s decision to primarily offer open-end mutual funds, particularly when any market observer could see the growth trend was in ETFs [exchange-traded funds], was in retrospect a mistake.

Patience – Especially if asset managers decide to go it alone on the distribution side, they must be patient in the best of times, let alone in the midst of a crisis and recovery.

Performance – I haven’t mentioned performance yet, but obviously you have to have good performance with a solid track record. I don’t believe performance is what caused Nomura AM to fail in this case. I hate to put it this way, but there are plenty of poor-performing funds out there that have amassed significant assets.

All in all, for all of the reasons cited above, I don’t see Nomura AM pulling out of the U.S. open-end mutual fund market as a signal of a change in the Asian asset management business. Instead, it should be looked at as a failed strategy on Nomura AM’s part coupled with bad timing and perhaps a tinge of impatience. Others should not take this move as an indication that the U.S. markets, or other foreign developed marketers, are over-saturated or too mature to explore. One can find promise in comments made by Nikko Asset Management’s CEO, Tokyo-based Charles Beazley, after news emerged about Nomura’s departure. Beazley told Ignites Asia that his firm is “extremely happy” today with its place in the North American market.

Nomura AM’s experience should be a wake-up call to other Asian firms wanting to enter the U.S. markets and should offer some guidance on what to do – and not to do – to be successful.”

Only time will tell.