I was asked to comment on an article in today’s Ignites (A Financial TImes Service) which summarized a recent poll on staffing levels within the financial services industry. 38% or respondents said that their firms current staffing levels were “lean,” while 34% said that the firms were too lean and staff overworked. 16% of respondents felt that staffing levels are just right, and 12% that staffing levels were a little bloated but all employees were necessary.

So what are the take aways?

First, our industry has historically been known for hiring too many people in good times, then letting them go when things get rough – then hiring them right back. This time seems different, however. Perhaps it is because the economic recovery has been so shallow, or perhaps it is because so many financial services firms have been hit extremely hard, but I think this time we may have learned our lesson. To quote from the article:

“Since the financial crisis and typical of downturns in the industry, firms cut back on staff and services. While usually hiring picks up when things get better, that has not really happened this time,” says Andrew Klausner, founder of AK Advisory Partners, a strategic consultancy. “The reality is, staffing levels in the industry are down and they are going to remain down. I don’t see a hiring wave coming.””

Second, not only do the firms seem to be realizing this, but so do employees – those who presumably answered the survey. I would have expected more complaining that firms were understaffed. Again, to quote from the article:

“But Klausner sees a bright side. “It’s positive that more people said lean as opposed to overworked,” he says. “This implies a certain understanding perhaps that we do live in a resource-limited world and that as business goes, so goes the level of support.””

The other explanation for this seeming understanding of resource allocation may be the fact that more advisors have gone independent, and they, because they are running their own businesses, understand the need to run efficient operations. This is in contrast to those who work for larger companies and don’t have to worry about such things. Its hard to say without knowing the make-up of respondents if this is indeed the case.

I was asked to comment on a Fundfire (a Financial Times Service) article about which financial services firms have the best brands. Readers were polled, and the firms that came out on top as having the best brand reputation were Merrill Lynch and Fidelity; BNY Mellon came in last. I was asked to comment on two things – why BNY Mellon did so poorly, and if I thought these results among financial services professionals would be the same if high net worth individuals were asked the same question.

On the BNY Mellon question, I honestly think that since most of the respondents were probably either RIAs or B/D brokers, they probably didn’t know that much about BNY, more of a boutique firm. I don’t think it reflects any problems with the firm itself; while being associated with a bank might hurt its standing, it certainly didn’t seem to affect Merrill Lynch’s standing.

The second question was more interesting, because I do think that if high net worth individuals would have been polled, they would have had a different answer. To quote from the article:

“Experts offer differing opinions on whether firms’ reputations within the wealth management industry differ from their reputations among the client population – high-net-worth and ultra-high-net-worth investors.

Klausner sees a potential difference in public image and industry image, particularly in light of the bad press that some types of firm have received since the 2008 financial crisis. “Especially with the term ‘too big to fail’ mentioned so often, it seems logical that any financial services firm associated with a bank – like UBS or Merrill Lynch – will probably have a worse image with the public than with people in the industry who know how these firms really operate and what their relative advantages and disadvantages are,” he says.

“I would imagine that Fidelity and Schwab have good images with investors as they have escaped a lot of the bad press,” he notes.”

I would be interested to see which side you agree with!

I was asked to comment for an article in today’s Ignites (a Financial Times Service) on whether ETFs (passively managed investments) would continue to gain market share at the expense of actively managed mutual funds, as has been the case over the past few years. The article reviewed the results of a poll on whether or not investors would be putting more money into equities this year, and if so, in what types of investment vehicles.

Roughly 26% or respondents thought that investors would move back into equities this year, the most popular answer. This was followed by 23% which said that actively managed funds will lose ground to passively managed funds. These were the top two answers in a similar poll last year.

I agree more with the second answer than the first. To quote from the article: ” Andy Klausner, founder and principal of AK Advisory Partners, says that the trend of actively managed funds’ losing ground to passively managed funds and ETFs will likely accelerate somewhat this year. “Many individual investors are still on the sidelines, and there are still a lot of unknowns facing the economy this year, including the impending spending and debt limit negotiations in February or March…. I am not optimistic that overall inflows will be great this year, but whatever flows that there are should favor ETFs,” he explains.”

I continue to believe that this will be a very unsettled year in the markets, largely the result of geo-political issues here and abroad. Since there has been a lot of money on the sidelines, it is inevitable that some will come back into the market – but not nearly enough to compensate for the large outflows of the past few years.

What money does come back in, however, will favor ETFs over actively managed mutual funds for a number of reasons – including their lower fees, the ability they offer to easily diversify among sectors/countries and the fact that many brokerage/banks investment platforms have begun to include model ETFs programs to mirror their mutual fund offerings. This latter move will make ETFs more readily available to a larger number of investors.

What do you think?