Archive for June, 2011

Give ‘Em What They Want – Not What You Want

Tuesday, June 28th, 2011

Over the past few weeks there have a number of reports and studies released about the types of communications advisors want from managers. The results are similar and not surprising – less is more (fewer e-mails) and performance isn’t everything. Duh!

It never ceases to amaze me that so many people fail to understand that communications have changed. Whether you embrace social media or not, it has changed the way that people interact. In order to be successful and develop long-term relationships, you have to deliver to people the content that they want, and you need to deliver when they want it and how they want it – period. If you don’t, someone else will.

How do you know what to deliver, how to deliver it and with what frequency? Ask the question. We all get too many emails. We all get tired of self-promotion. So why do so many people in our industry not get that? While these studies looked at managers and advisors, the message is germane for all industry participants. While you may not get it – the person you are trying to reach certainly does. And the fact that you don’t hurts your chances of success.

Even if you have a long-standing relationship with someone, it’s always helpful to periodically ask if they want any change to the types of information that you provide them, how frequently you provide it and how you provide it. If nothing else, they will appreciate that you asked.

Communications 101 in today’s world – give ’em what they want – not what you want – embrace it or be left behind.

AK in the Press: Why New Morningstar Ratings Are No Sea Change

Thursday, June 23rd, 2011

My new opinion piece “Why Morningstar Ratings Are No Sea Change” was published in today’s Ignites; Click here to read the complete piece.

In essence, it’s my belief that the introduction of Morningstar’s new predictive rating program, to supplement its star rating system, will not have a significant impact on the mutual fund industry. In effect, there is not much new in the announcement. Morningstar is essentially trying to emphasize its other research capabilities because they, like most in the industry, know that the stars, while popular, are too often used incorrectly as a gauge of a fund’s future performance.

In reality, the stars are much more about a fund’s past performance, and should only be one of the criteria used in making future fund-buying decisions. A lot of this “new” qualitative information has for a long time been in the fine print of Morningstar’s research reports.

Morningstar is not going away from the system that has helped it build its reputation; it’s merely trying to protect it and extend its life.

I also find the timing of the announcement interesting. The growth of ETFs has put a lot of pressure on the mutual fund industry, as in many cases the flows into ETFs come directly from mutual funds. So perhaps more than shaking up the industry, Morningstar’s announcement is an offensive PR move by the firm to help protect the mutual fund industry.

Just a thought … What do you think?

Not So Fast – Predicted Movement Among Wirehouse Advisors Overstated

Wednesday, June 22nd, 2011

There has undoubtedly been a lot of movement of advisors over the past few years. And there is no question that the wirehouses have been among the losers. But a recent prediction by Aite Group that 4,500 advisors at the four largest brokerage firms will strike out on their own seems way overblown.

The number of advisors surveyed? 151 – their prediction is quite an extrapolation! Now, I agree that as the lock-in effect of current contracts expire, as do some of the benefits of retention packages offered in the wake of the financial crisis, there is sure to be movement. But striking out on your own is not an easy proposition. It takes years of planning and a willingness on the part of the advisor to become a business owner – to work harder and longer for the promise of a larger payout at the end.

So there will be movement – but a great deal of it will be advisors switching from one B/D to another – and perhaps jumping between a regional and a wirehouse or vice verse. But all to the independent channel? Not likely. In addition, a number of the wirehouses have announced plans to reduce the overall number of advisors and to raise minimum production requirements. Being the largest is not viewed as being as important as it was in the past. So there will be movement, and advisors will leave the business. But not everyone who moves will go independent.

Another interesting fact from the survey is that most wirehouse advisors are either “satisfied” or “very satisfied” with their current employer, and the number of advisors who plan to stick to their current employer has doubled since a 2000 survey by Aite.

So beyond the headline is the reality that there will always be movement among advisors – and yes, money and retention bonuses and lock-ins matter – but advisors who are contemplating moves must do so keeping in mind where they will be mostly likely to succeed. And for many traditional B/D advisors, that model works just fine.

Do Your Clients Understand Their Fees?

Monday, June 13th, 2011

If you’re an advisor, you should quickly determine if your clients understand the fees that they are paying. Why do I say this? Because a recent survey by Cerulli & Associates indicated that 33% of investors do not understand how they pay for the investment advice that they receive. And those who did not understand how they were being charged were more than likely to be unhappy with their advisors – and given recent market volatility and uncertainty, why take the chance?

Almost 8,000 households were interviewed for this survey. Another interesting result of the survey was that 47% of those surveyed said that they preferred paying commissions, while only 27% indicated that they preferred paying a fee based on assets under management. Pretty interesting results considering the overall move in the industry toward fee-based compensation.

Now, we don’t know how good or accurate this survey is. But Cerulli has a good reputation and there was a large sampling size. The results really caught my attention because the survey highlights the issues of fees at a time when clients are apt to be a little testy when their next statements come and their account valuations are down.

While explaining fees is one of the first things that you should do in a new client presentation, now presents a great time to revisit the issue of fees with clients. They should appreciate your taking the time to ask. Even when you are confident that clients understand the fees that they are paying, its always good to periodically review how you get paid and how you add value.

Take the initiative – because you don’t want to get that phone call from a client that just got approached by another advisor and is now questioning you and the fees that you charge.

For a primer on fees, click here to read our White Paper entitled “The Truth About Fees.”

AK Press – Can Regional B/Ds Maintain Their Momentum?

Tuesday, June 7th, 2011

Regional B/Ds, along with independents, have been the winners of the past few years, certainly as compared to the wirehouses. There has been a lot of press lately about whether or not this momentum can continue. My answer is that yes the regionals B/Ds can maintain this momentum, but they have to be careful not to be undone by some of their traditional weaknesses.

I wrote an article on this topic which was published in today’s FundFire. Click here to read the full article, entitled “What Slows Managed Acct Growth at Regionals? In the short- and medium-term, there is no reason that this momentum will not continue. Many long-standing advisors at regional B/Ds are not going to go independent for many of the reasons that they traditionally haven’t – namely it takes a lot to run a business. They are also unlikely to go to the wirehouses in large numbers.

And the recruits that have just joined the regionals are under contract for a number of years. To me, the danger to regionals will appear as these contracts expire. Regionals have often lagged in the fee-based area not because their recruits don’t do the business – but rather that the advisors that have been at a regional firm for the majority of their careers don’t tend to do as much of this business.

While strives have been made in the quality of the fee-based platforms at the regionals, many still lag. They have time to rectify this situation – especially on the training side, where significant investments are not necessary. The successful regionals will use the growth in their fee-based revenues generated by recent recruits to invest back into their businesses and to broaden the reach of the programs to advisors who have traditionally not done the business. This should make their platforms extremely competitive and provide the newest recruits little reason to jump ship again when their contracts expire.

Regionals have the time to do this – the only question is whether or not they will. My guess is that some will and some will not. But overall, I think the momentum will continue.

Manager Turnover Slows – A Double-Edged Sword?

Friday, June 3rd, 2011

A newly released study by Mellon Transition Management (a branch of BNY Mellon Asset Management) shows that manager turnover in the institutional marketplace is slowing back to historical, pre-financial crisis levels. (Click here to read the Fundfire article about the study.) On the surface, great news, right? Maybe – maybe not.

On the bright side, this trend could be an indicator that now that the dust has settled, and the market has been on an uptrend , committees are taking more time in evaluating their managers before deciding to make any switches. It could also be reflective, as the article points out, of the fact that changing managers can be costly and time-consuming. There could also be compliance reasons for this slowing of manager changes.

In addition, even if managers are underperforming their peers, there is less of a “rush to judgement” in up markets.

On the flip side, the negative here for the investment management industry is that whatever the reason Рtime, cost, compliance, performance or some combination Рits going to be harder to grow your AUM and  get new clients. In a zero sum game like manager changes, one manager typically wins at another managers expense, a slowing trend is good for protecting what you have but not so good for growing your business.

The upshot is that if indeed manager transitions are slowing and taking longer when they do happen, then the importance of your marketing message and value-added proposition becomes more important than ever. In addition, client service takes on an increasingly important role in client retention.

To me at least, this slowdown in manager turnover is a net negative for most managers. What do you think?

Winning and Losing Clients

Wednesday, June 1st, 2011

In a recent survey of advisors conducted by IMCA and Cerulli Associates (the two organizations team-up each quarter to present industry research), the top reasons were given for both how advisors acquired new clients as well as why they lost others last year. (I give these reports a lot of validity since both of these organizations are top notch and the advisors they survey – IMCA members – tend to be high quality advisors.)

The top two ways clients were acquired? REFERRALS – coming in at number one were referrals from friends/family/existing clients and at number two were referrals from other professionals. These results are not surprising, and reinforce the notion that if you don’t have a formal referral program in your practice, and if you are not actively seeking referrals, then you are missing out on perhaps the best and surest source of new business.

The top reason why clients were lost? They passed away. (Clients unhappy with performance came in at number two and client has relationships with other advisors came in at number three.) While it is inevitable that clients die, this does not mean that you have to lose their family as clients. This result reinforces another notion that a lot of people in this business talk about, but not a lot of them do well – cultivating multi-generational relationships.

Just as referrals should be easy – a happy client should be more than willing to refer others to you – so should getting to know your client’s family so that they too become clients. Do you know your client’s children? Their birthday’s? If you don’t, there is no time like the present to start.

In a way, these results should be heartening because both the best way to get new clients AND not lose current ones, are relatively easy things to do – if you do them!