Archive for the ‘Press’ Category

AK In The News: Advisor Group Dumps “Nickel-and-Dime” Fees

Thursday, September 13th, 2012

I was quoted in an article in GatekeeperIQ (A Financial Times Service) this week about a recent decision by Advisor Group to reduce the number of so-called “nuisance” fees it charges on mutual funds and on accounts with low balances and little activity. The firm also added access to many more no-load mutual funds.

This change comes at a time for the firm when it is digesting the addition of 1,400 advisors from its purchase of Woodbury Financial Services. The change, however, reflects more than just the desire to retain these advisors; it reflects the changing competitive landscape where firms are fighting hard to keep advisors.

Advisors don’t like it when their clients are assessed these types of fees; it can endanger the relationship. Would such fees in and of themselves cause an advisor to move? Probably not. But it’s part of the total package of working at a certain firm, and I think it’s smart that in this case Advisor Group sees the benefit of not imposing such fees over the potential loss of revenue from them.

Having said all this, and being fully in support of dropping such fees, I do have to say that on the flip side, such fees do help get rid of smaller, dormant accounts that are probably ones the advisor wants to lose in any case. They take up his/her time and are a distraction from other revenue-generating accounts.

Sponsors like Advisory Group would be best served by doing away with these types of fees on one hand, while also helping to educate advisors on how to segment clients and services and how to manage their businesses more efficiently on the other. This type of a dual strategy is a win-win for everyone – the client, the advisor and the firm.

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AK In The News: Bond, Index Funds Big Flow Winners In First Half

Friday, August 3rd, 2012

I was asked to comment on an article that appeared in today’s Ignites (A Financial Times Service) about the fact that bond and index funds were the top five asset gathers for the first half of the year.

These results are not surprising to me, as this reflects investors’ “overall negative mood on equities and aversion to risk. Investors in equities have not been rewarded over the past decade, and the gyrations of the past few years — where the calendar years have started out great and then fizzled — have not helped this confidence. Record amounts of money have been kept on the sidelines, and given that there is little optimism that the equity markets are going to perform very well until all of the political uncertainty here and abroad subsides, those individual investors who choose to leave cash are looking for safety. Institutional investors continue to dominate the marketplace.”

While there are risks to investing in bonds and bond funds, of course, is it typically less than investing in stocks.

The above explanation covers investing in bond funds, but why index funds as well? To quote from the article again: “The growing concern that institutions “have and will continue to have the advantage over individuals” is also partially responsible for making index funds the “vehicle of choice” for investors willing to take on the inherent risk in the stock market, according to Klausner. We all know that the stock market is a market of individual stocks, and it is becoming harder and harder for individuals to manage their own portfolios. Index funds are a good alternative,” he says.”

Do you agree?

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AK In The News: Are Small Portfolio Accounts Worth Pursuing?

Thursday, July 19th, 2012

I was asked to write an opinion piece for Fundfire (A Financial Times Service) on the question of whether it makes sense for advisors to seek smaller accounts as a business-building strategy. This comes in the wake of LPL Financial’s decision to lower the minimums in its model wealth portfolios to $25,000.

While one of the great things about being an advisor is that you can build your business any way that you want, and I have usually shied away from a small account strategy, I have come around to believe that you can be successful with such a strategy – if you build your business the right way.

There are two general principles that advisors should keep in mind when developing an asset-gathering strategy:

  • Always act in clients’ best interests; and
  • Focus on building a profitable and sustainable business.

If advisors consider both factors, they should be able to determine which clientele is best for them.

Now, having said this, and firmly believing that each advisor ultimately needs to set his or her own direction, and understanding and accepting that advisors can make a good living servicing a large number of small accounts, my bias still rests with a larger minimum built around a top-notch service organization that emphasizes a differentiating value proposition.

This leads to long-term, stable and profitable client relationships and a healthy, thriving business.

Contact me if you want me to send you the entire opinion piece.

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AK In The News: Brokers Have Affiliated-Fund Bias

Monday, July 16th, 2012

I was asked to comment last week on a poll in Ignites (A Financial Times Service) on how common in-house bias is in the industry. The question came in the wake of allegations by former JP Morgan advisors that they were pressured to use proprietary funds in the face of better performing and less expensive alternatives.

(I blogged about this a few weeks ago – The Danger of Selling Proprietary Products – posted on July 5th)

While the poll results indicated that most respondents said that bias is very common, which I agree with, what was surprising to me was that the poll also seemed to indicate that advisors/brokers tend to favor these funds. I strongly disagree with this assessment.

To quote from the article, and in keeping with my previous post:

“Andy Klausner, founder or strategic consultancy AK Advisory Partners, says the Ignites poll results are surprising given the wealth management industry’s emphasis on selecting best-of-breed money managers, as opposed to the firm’s proprietary products . “I don’t think it is true” that brokers favor in-house products, he says, “I think the reality is that most advisors don’t want any perception of conflict of interest.

However, it would be naive to think that there is no pressure put on advisors. Recently it was JP Morgan, and last year there were questions about Merrill Lynch selling Bank of America banking products.” Klausner says. “But if advisors feel pressure, they should stand up for themselves. Advisors should always be proactively showing clients how they come up with the recommendations that they make.””

What do you think?

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AK In The News: Poor Returns Top Reason For Manager Firing

Thursday, June 28th, 2012

Fundfire, a Financial Times Service, today published results of a poll in which financial services professionals were asked what they believed was the top reason that institutional money managers get fired. They asked me to comment on the results.

55% or respondents said that institutional investors and consultants fire managers based on poor performance more than any other reason. The second most popular answer, at a distant 20%, was personnel turnover, followed at 12% by poor client service/communications.

These results are somewhat surprising and somewhat not surprising. The answer makes sense emotionally, as poor performance is something that is hard to ignore and hits you where it hurts! The results were somewhat surprising, however, in that Fundfire just published a study by Towers Watson that concluded that institutions are better off staying with managers during poor performance – all things being equal – in part because of the cynical nature of the investment business.

All in all, however, the results were not surprising for two reasons. First, we don’t know the make-up of the respondents, because Fundfire is read by a wide variety of industry participants. I would guess that if the poll were limited to consultants and fiduciaries, the results would have been somewhat different. Also, they asked “why” managers get fired instead of why they “should” get fired – there is a big difference.

What is my take on the question? To quote the article: “Klausner ranks change in investment process or style drift as the most important reason why managers should get fired, followed by personnel turnover and then poor client servicing. However, institutions should not ignore under performance either. “Poor investment performance is always a concern, especially if it is over extended periods of time, but should be looked at in the context of these other factors as well,” he says.”

Poll semantics aside, an interesting topic to think about. What do you think?

 

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AK In The News: Facebook Is An Overvalued Bust

Wednesday, May 23rd, 2012

I was asked to comment on a poll taken by Ignites (a Financial Times Service) on whether or not Facebook stock, in the face of its bungled IPO, is a near- and long-term bust. 47% of the respondents to the poll said that Facebook is a “bust all the way around.” This contrasts to 20% who gave the same answer to a similar poll question at the end of January.

There’s no question that the IPO has a left a bad taste in many people’s mouths – witness today’s announcement of several shareholder lawsuits against Facebook, its CEO and the banks which underwrote the deal. I think it’s generally agreed that the near-term outlook for the stock is cloudy at best – valuation arguments aside. The relative merits of the long-term outlook are less clear, and there are wide divergences of opinion here. I side with those that believe the long-term outlook for the stock is not pretty either.

There is no question in my mind, however, that the mess that has been made of the IPO is a black eye for both Facebook – although they will recover from a brand perspective over time – and the financial services industry (again). Morgan Stanley is in the cross hairs this time over whether or not they were open with the public about their downgrade for the outlook for the company prior to the IPO. The underwriters are also being criticized for raising the offering the price and number of shares – can anyone say greed?

My quote from the article: “I think both the near- and far-term outlook for the stock is bad. The valuation seems ridiculously high, as the market capitalization is — or was — above many blue-chip stocks with real earnings. We have been here before… and I think people are more reluctant to pay this price given what has gone on the past few years. Skepticism about the company and its future itself have emerged as well as a result of the road show and the IPO.”

Facebook will remain a popular social media tool for the foreseeable future. The company will regain some of the luster that it has lost once this mess fades into the background. The financial services industry will remain under scrutiny for its practices – again. And investors are better served investing in other stocks.

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AK In The News: Managers Must Gauge Damage From JP Morgan News

Friday, May 18th, 2012

I was asked to write an opinion piece for Fundfire (a Financial Times Service). My thoughts were published in today’s edition. The focus of the piece is on how the brands of both JP Morgan and other asset managers have been affected by the trading loss and what both JP Morgan Chase and asset managers should do at this point. Here are my thoughts.

How bad is the damage to JP Morgan’s brand as an asset manager? I believe it’s significant. However, this is only one of the issues today. In this partisan world, only one misstep can give the opposition an opening to exploit. Nonstop bad publicity can and will erode a lot of the goodwill that JP Morgan has built up in the past.

By downplaying these losses a few weeks ago on an earnings call, Dimon violated the most important best practice that asset managers must adhere to following a crisis – that of being 100% transparent. Many wonder if there’s another shoe waiting to drop and whether we can trust JP Morgan Chase any longer. Already, indications are that the trading losses are at least 50% greater than the $2 billion first thought.

These losses also revealed the violation of other important principles that the industry should always follow – the importance of compliance, oversight and institutional control.

While high-net-worth retail investors might ask, “Is my money safe?”, institutional investors will ask, “Is there an institution-wide lack of control?” The fiduciary responsibility cast upon investment committees mandates that they must ask the right questions – and JP Morgan Chase better have the right answers.

What about the implications for other asset managers, and what should they do? First, if they haven’t done so already, they must proactively address what has happened and emphatically illustrate that they have control of their own business.

Asset managers must, in essence, protect their brand, because fiduciaries will be asking the same questions of them that they are currently asking of or about JP Morgan Chase; they have to. Silence is not an option, and other asset managers will be found guilty by association if they don’t straightforwardly answer the questions on their clients’ minds.

Their answers and other communications should focus on:

  • Transparency
  • Compliance oversight
  • Operational capabilities
  • The strictness of the parameters that dictate their process
  • The strength of their people

Asset managers must remind clients why they chose them as their asset manager in the first place. Asset managers must highlight their unique value proposition, and the soundness and stability of their organization.

Finally, what is important to clients now will also be important to future prospects. Asset managers should use social media, their websites and blogs to proactively showcase their brand as well as all the efforts they make to ensure that client assets are protected to the greatest degree possible. Executives not fluent in social media should use whatever their normal means of communicating are – whether it is the phone, email, a whitepaper or a newsletter.

We live in an extremely viral world – which is exactly why this mess has cascaded out of control the way that it has. Asset managers must use this as an opportunity to reassure investors of their integrity and the soundness of their firm’s compliance oversight and investment principles.

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AK In The News: Industry Remains Skeptical About Social Media

Wednesday, May 2nd, 2012

But I don’t!

Ignites, a Financial Times Service, just completed a poll of readers on social media, and surprisingly the results, which are negative overall, are pretty much the same as similar polls taken by Ignites the past two years: 33% or respondents said that social media is “useful only for certain roles and business functions,” while 29% voted that the hype is “a lot bigger than its usefulness.”

Only 10% of respondents thought that social media was a game changer, and 24% said that it was “important” and that “everyone should use it.” These results are in contrast to most other studies I have seen lately, which show the industry beginning to embrace social media.

For example, kasina is about to report that 87% of asset managers and insurers are using social media. The results of this study complement my comments in the Ignites article – while firms are seeing increased brand awareness and engagement with clients and prospects, few are seeing increased sales.

This lack of sales is probably what accounts for most of the skepticism. But I don’t think it is warranted. First, it takes time – a long time to get actual sales from social media. Be patient. And second, increased sales is not the best and only indicator of social media success.

As I said in the article, “It is evident that there still might be a misunderstanding in the financial services industry about just where social media fits. Unlike some other industries, where more tangible products are involved, social media is not just about getting new business, it is also about providing added value content and client servicing. Since the benefits of such strategies are harder to measure, perhaps that is why there seems to be frustration among the respondents.”

In addition, “Clients are increasingly adopting the mantra that they want what they want, when they want it and delivered how they want it. This is what social media allows you to do. It does not replace other things one does, like face-to-face communications, but complements it.”

Finally, part of social media success is having a conversation with your clients – not just a one way conversation. Firms that do not feel the they are having social media success might not be engaging clients and prospects the right way.

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AK In The News: Mutual Fund Industry’s Top Challenge

Wednesday, February 29th, 2012

Today’s Ignites (A Financial Times Service) highlights the results of their poll on the top challenges facing the mutual fund industry today. Respondents were given five choices to select from. The results on the top challenge were as follows:

  • Market volatility and economic uncertainty (43%)
  • Competition from ETFs (21%)
  • The proposed money market reforms (16%)
  • Tougher scrutiny by SEC, Finra (8%)
  • Encouraging flows into equity products (6%)

I was a little surprised by these results, as in my mind I have the top two answers reversed – with ETFs being the biggest threat. Interestingly, a similar poll done in February of last year indicated that 45% of respondents chose ETFs as the biggest threat, making it the most popular choice. (That poll did not include the economic uncertainty option.)

My thoughts on the results, as indicated and quoted in the article are:

“”Long-term, of course, economic uncertainty always will be a factor. But this uncertainty impacts all types of investments, not just mutual funds,” Klausner says. Competition from ETFs represents a more daunting challenge to the mutual fund industry than economic uncertainty because it is a specific, rather than a generalized threat, according to Klausner.

“Given the ongoing press about the underperformance of active management, I would think that ETFs, most of which are managed passively, would continue to be a large threat to mutual funds. This comes in conjunction with the growth of ETFs and the increase in the number and type of ETFs available: sector, industry, commodity, et ceterara,” he says.”

What do you think?

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AK In The News: Talent Contest Tightens For High-End Advisors

Tuesday, February 14th, 2012

I was just quoted in an article in Fundfire (A Financial Times Service) which focused on two main points – the hiring prospects for high-end advisors in 2012 as well as the outlook for continued restructuring (code word for budget cuts and layoffs) at home offices in the brokerage community.

While I was not asked to comment on the first question, I agree with the gist of the article that 2012 will be another good year for hiring. The brokerage firms continue to recruit, understanding that wealth management will continue to be a driver for profitability (as they see investment banking revenues decline). And the RIA world, which has been in a growth mode, will continue to be in such a mode, as they continue to attempt to take market share.

As to whether or not the home office restructuring for brokerage firms is over, I disagree with the other gentlemen quoted, who feels that this downsizing has worked its way through the system.

To quote the article: “Not everyone shares this outlook, however. Various factors – such as market competition, evolving technology that automates more processes, pressure on fees from demanding clients, and the temptation to further streamline branches in congested markets – all will encourage more big-brokerage staffing cuts, says Andy Klausner, principal of AK Advisory Partners.

How can they be more profitable without cutting more people in this environment? he asks. I don’t see any reason why you won’t continue to consolidate branch operations. If you have four branches in Cleveland with four operations centers, that’s a place [firms may target]. I think we have more to go.” (I didn’t mean to pick on Cleveland – that is where I am from – I just used it as an example! Also, by operations centers, I am referring to the cages.)

What do you think?

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