Unlocking Real Value Blog

AK In The News: The Bill Gross Saga Continues – Does It Matter? - October 22nd, 2015

I was asked to comment for an article in today’s Ignites (A Financial Times Service) about the $200 million law wrongful termination lawsuit filed by Bill Gross against Pimco, his former employer. Ignites conducted a poll asking who has the most to lose from this lawsuit. 42% of respondents said that the suit shines a negative light on both parties, 22% said that Gross could be the biggest loser, 19% say Pimco stands to lose the most while 17% said that Janus (where Gross works now) could lose the most.

My take on the law suit is that it is much ado about nothing. Unlike the frenzy, gossip and media spotlight that Gross’ departure garnered last September, the filing of this lawsuit has been quietly reported and caused barely a ripple. To me, this  indicates that people are over the saga and don’t really care any more.

Sure, if it goes to trial, there could be some ugly gossip spread and the media might get back on the bandwagon. This possibility makes it most likely that some type of settlement will occur. But in any case, all of the parties except perhaps Janus were hurt significantly by this very public divorce last year. The damage has already been done.

Some investors left Pimco with Gross, others stayed and still others probably decided to move somewhere else all together. But that was over a year ago. I highly doubt that this rehashing of this very public breakup will change many minds, or cause a great deal of money to move at this point in time.

Obviously feelings were hurt and a lot on anger still exists – at least on the part of Gross. But I think most everyone else has moved on.

AK In The News: Why All Planning Firms Could Use a Robo-Advisor - September 17th, 2015

My opinion piece on Robo-advisors was published in today’s Financial Advisor IQ (A Financial Times Service). My general assessment is that advisors and advisory firms should embrace the concept where it fits into their businesses, rather than fight the trend. Three potential fits include:

Assist with client segmentation. As many advisors grow their businesses, they face the issue of having too many clients — and they often have to grapple with the issue of what do to with smaller, less profitable clients. They also have to turn down prospective new clients who don’t meet their account minimums.

Advisors can use robo-advisor services as an alternative for clients or potential clients who don’t fit into their current business model. Rather than turning them away, advisors will be able to keep them.

As client assets grow over time, and these clients need more-sophisticated services, they can be migrated into the advisor’s core business. And at that point they become more-profitable clients. Or, if they are happy, they remain as robo-type clients — the advisor’s revenue from them might be smaller, but they are spending a lot of time or money on client service.

Attract family members of clients. Advisors often struggle to effectively attract the family members — typically children — of current clients. This is a serious setback, as developing such relationships is crucial to building a longer-term sustainable business. But a robo-advisor service component can mitigate this threat, as such systems allow these family members to become part of the firm even before they amass assets. As a result, these new clients will learn the basics of investing and be more apt to remain long-term clients.

Attract millennials. Similar to the matter above, as advisors grapple with the issue of how to service the newest generation of investors, they are offering them what the competition is offering — again without disrupting their current business model. Over time, as advisors attract more millennials through the robo-advisor model, they will learn more about them and their long-term needs and traits. Indeed, they will be better prepared to adjust their entire business model in the future if necessary.

If You Thought August Was Bad … - September 3rd, 2015

August was a rough one for stock market investors – no doubt. This should not have come as a great surprise, however, as August is usually volatile, with many traders on vacation and volume typically very low. And this year the economic slowdown in China and concerns over when the Fed will tighten added to the overall level of anxiety and uncertainty.

Hopefully, you have already communicated to your clients the value of patience and of not exiting the market in a panic. But your job is not done. September and October are usually bumpy months in the market as well; witness what has happened this week already.

If this week and history are any indication, clients are going to need to be reminded again (and perhaps again) of the need to remain patient and focused on their long-term objectives.

But make no mistake – your job is not to get caught up in the turmoil and to commiserate with clients and help them feel sorry for themselves. Your job is firmly hold their hand (at least figuratively), be somewhat sympathetic, but more importantly be the voice of reason and rationality. Your job is also to educate, and to reinforce the fundamentals of the market that you have instilled in them.

Here is one of the best charts that I have seen to keep clients focused on the long-term. Use it, and other similar materials to calm clients and demonstrate your value added to them. This more than anything will prevent them from doing the wrong thing, and ensure that they remain clients for the long-term.



Is Your Brand Still Relevant? - July 14th, 2015

Times change. Your business changes. Even your target market(s) may change. Perhaps it’s time to review how you currently brand yourself and your business and see if some changes are in order. A refreshed brand (if necessary) provides you with an opportunity to re-contact prospects and to solidify and potentially grow relationships with clients; confirming that your current brand is still relevant, on the other hand, can instill you with confidence that your market positioning remains appropriate.

The easiest way to determine if your brand is still relevant is to undergo a two-pronged analysis:

1)! Inward Looking Analysis: To begin, you have to confirm to yourself that your current brand reflects who you are and what your business is in a way that highlights your competitive advantages and targets the appropriate target market(s). Over time, your skill set may have changed, for example, or perhaps your hobbies have changed, exposing you to a potential new set of clients. If a refresh of your brand is in order, then there is no time like the present to get to it!

2)! Outward Looking Analysis: Once you have either decided to refresh your brand, or you confirmed to yourself that your current brand remains relevant, then it is time to see if your messaging – the way you present your brand to the outside world – is also still appropriate. Once you make any necessary changes here, you’re ready to go.

Click here to download the complete White Paper.

Does Greece Matter? No, Maybe and Yes - July 6th, 2015

The question of the day is Does Greece Matter? While much uncertainty remains after yesterday’s election, the simple answer to that question is No, Maybe and Yes.

No because Greece is not going to be the world’s next “Lehman” and precipitate a world-wide financial meltdown. Europe will be more directly effected than we will, especially if Greece exits the Euro, but I think European leaders are prepared to erect financial walls to prevent a contagion.

Maybe – if any only if – other Southern European countries like Spain and Portugal follow in Greece’s footsteps and default on their loans. While possible, I don’t think this is likely. But certainly something to look out for.

Yes not because of Greece being that important in and of itself, but because investors are nervous and looking for an excuse to sell. Remember, perception is reality. We are in the midst of the third longest bull market in history, and most of us are just waiting for a normal bull market correction (which of course will present a great buying opportunity).

Greece – or perhaps the Fed – or both together – may provide the “excuse” to finally ignite the fuse. Make sure that your clients understand this, and provide them with the insight to separate the wheat from the chaff. The summer months are usually bumpy ones in the market, and expect this year to be no different.

A Merrill Spin-Off Could Be Bad For Business - April 16th, 2015

I was asked to write an opinion piece for today’s Financial Advisor IQ (A Financial Times Service) on whether or not a spin-off of Merrill Lynch from Bank of America would be a good thing or not. Here it is:

Despite the bureaucratization of the legacy Merrill Lynch culture, the wirehouse is still better off in Bank of America’s hands, as any spin-off would put it structurally on much weaker footing, says wealth-management consultant Andy Klausner.

Last Friday, General Electric showed how easy it is to break up a big business, as the firm sold off parts of GE Capital to help lose its title as a systemically important financial institution.

Bank of America shareholder Bartlett Naylor wants the bank to shed that distinction too, by divesting business units including Merrill Lynch.

But although the SEC has rejected Bank of America’s request to ignore Naylor’s recommendation, don’t count on another breakup, either there or at other banks with sizable wealth shops.

To start off, management will oppose the move. Executives will argue that the bank-and-brokerage combination diversifies revenue streams and that cross-selling has helped their wealth-management clients.

And if management opposes these spin-offs, only a few things could eventually force the banks’ hands: increased regulation or legislation — both of which seem unlikely with both chambers of Congress under Republican control — or mass advisor defections that would severely impair profitability. While this second idea is intriguing, it too seems highly unlikely.

So let’s focus on the advisors. We have all heard complaints from legacy Merrill Lynch FAs that the firm’s culture has changed since the merger and that they are under pressure to sell bank products. And frankly, they are probably right. But it’s important to remember that advisors are free agents. They can move to another firm anytime.

While some advisors have left, most have not. And the firm is recruiting new, larger producers at a steady clip, despite increased competition from alternative channels. In addition, like many of the large wirehouses, Merrill has shown steady overall financial improvement. And some of Merrill’s products, like its fee-based programs, continue to lead the industry in innovation.

Also, let’s not forget that Bank of America did save Merrill from probable bankruptcy. Many of these same legacy advisors were pretty happy back at the beginning of the financial crisis. Then, the bank helped reassure nervous clients and protect the reputation of the Merrill brand.

It’s human nature to complain about your boss and your company. But for those who are really unhappy or feel their businesses are threatened, the option to leave is always there. The fact that many Merrill advisors have stayed is a telling story in and of itself.

Wealth unit spin-offs could have negative side effects. Clients who like the security of having a large, stable parent in the background might get nervous and move their assets. They could become fearful that another crisis would bring the smaller, potentially less financially stable firm down.

And change is always difficult. There would be systems conversions, changes in the way accounts are handled and changes in personnel policies. The advisors who have stayed despite their misgivings would have to begin explaining such changes to clients. If they really thought about it, they might not be so vocal. Ultimately, shareholders, advisors and clients alike should be careful what they wish for.

AK In The News: Shops Charge Ahead With Sales Hires As Bull Market Runs On - March 18th, 2015

I was asked to comment in an article in today’s Ignites (A Financial Times Service) on the hiring of sales professionals. A recent Cerulli report found that 41% of fund shops expect to add to their distribution sales forces this year. The question is, are these hires simply a reaction to the continuation of the bull market or are they more strategic in nature?

I take the view that they are more strategic, and a response to the expansion of the independent and quasi-indepenent advisor networks. There are more advisors out there working for varied types of sponsor firms. You need to be able to provide support to each of them.

To quote from the article: “RIAs’ and quasi-independent advisors’ growth has driven fund firms’ enhanced sales efforts in those channels, says Andy Klausner, founder and principal of AK Advisory Partners, in an e-mail response to questions. This has led to strategic distribution build-outs rather than full-scale expansions, he says.

“I think a lot of firms learned from the 2008 crisis and have been a lot more prudent in their hiring decisions; the old ways, of always hiring too many people during good times, has changed,” Klausner says.

Fund companies should create three- to five-year strategic plans when expanding their intermediary distribution teams, and adjust those according to firmwide assets, profitability and the effect of market fluctuations, Klausner says. Such planning helps protect against “knee-jerk” staffing cuts, too.

“Distribution is still needed during lean years — to train advisors, meet new advisors, hold hands, etc.,” Klausner says.”

Do you agree, or do you think fund companies are over-hiring?

AK In The News: How Federated Turned Its Flows Around: ‘Consistency’ - March 3rd, 2015

I was asked to comment on an article in 929.com (a new on-line website geared toward portfolio managers) based on comments made by the CEO of Federated Investors, where he credited the consistency of the performance of many of their funds as the reason that they have seen a turnaround in flows from negative to positive.

Is ‘consistency’ the new buzz word? While it may not be the only driver of fund flows, I do believe that many investors are looking for the safety that consistent, steady returns promise. To quote from the article: “Fund industry consultant Andy Klausner adds that wirehouses and other distributors find the promise of modest but consistently positive returns appealing because investors are still skittish about the markets.

“Nobody wants hot money,” he insists. “Everyone wants longterm investors, and the best way to attract longterm investors is to outperform in a slow and steady manner.””

Transparency still matters, but in the wake of the financial crisis so many firms have addressed this issue head on that has now become the norm – the expected – rather than the exception. Again, quoting from the article:

“While it’s true that transparency is important to financial advisors, it is so common that most FAs take it for granted, says Klausner. “So when a firm like Federated makes announcements about performance, it makes sense to focus on something like consistency – something that really resonates.””

Especially now with the long expected normal bull market correction still somewhere over the horizon, not losing money becomes as important as making money.

What are your thoughts?

AK In The News: Stifel Boosts Advisor Count, Taps Indie Market With Acquisition - February 25th, 2015

I was asked to comment on Stifel Financial’s announced  acquisition of Sterne Agee, particularly on the effect that it will have on asset management firms that work with the two firms. The article appeared in today’s Fundfire (A Financial Times Service).

In general, this seems like a good move for Stifel, as it allows it to pick-up a high quality firm and add a reasonable number of advisors. I say reasonable because it is not the number of advisors that you have that matters – biggest is not best – but the quality. This allows the firm to widen its footprint and solidify its market position.

As with all mergers, the proof will be in how the integration goes – if the firm retains top producers, if they become more efficient and reduce overhead, if costs are contained, etc. Stifel also now is able to enter the independent channel without having to develop their own from scratch. In some cases, buying it is better than building it.

How will the merger affect asset managers that work with the two firms? That is hard to say for sure right now. To quote from the article: “The impact on asset managers distributing through the firm will depend on how integration eventually shakes out, says Andy Klausner, a strategic consultant with AK Advisory Partners. “From the asset manager’s point of view if they can get to more advisors through fewer gatekeepers, that’s always a positive,” Klausner says.

Mergers can provide opportunities for some managers already working with the firms to gain wider distribution with a new group of advisors. But it can also result in some managers losing shelf space.

“This would be an opportunity to look at the product sets of both firms and condense them,” Klausner says. “Let the best platforms survive.”

For managers doing business with the firm, the best approach is likely to wait and see how the integration plays out, he says.”

Any thoughts?

AK In The News: For Advisors, Regional B/Ds Are The Goldilocks Model - January 30th, 2015

I was asked to write an opinion piece for Financial Advisor IQ (A Financial Times Service) on the relative merits of regional broker/dealers versus the competition – larger B/Ds as well as the independent or quasi-independents. Contact me if you would like a copy of the entire piece.

To summarize though, overall. regional B/Ds have done quite well since the financial crisis, helped by cheaper technology which has allowed them to compete with fewer resources.

To quote from the piece: “Key ways in which regional brokerages are positioning themselves as a happy medium between the wirehouse and RIA models include:

  • Access. Advisors who are large or even moderately large producers will probably have the ear of the decision-makers in the home office. They will be more important to these people than if they were large producers at a wirehouse or at an RIA using Charles Schwab’s or Fidelity’s investment platforms. They will have access to people when they need them and be on a first-name basis with key executives. They’ll also have better access to support staff. And advisors with friends in the back often receive service that has a personal touch.
  • Influence. As a result of their access, advisors can influence product and platform decisions. For example, large producers will likely be invited to serve on an advisory council, where their opinions will count more than those of their peers.
  • Freedom. Regional brokerages generally have fewer proprietary products than their larger counterparts do. Therefore, advisors are under less pressure to offer in-house products to clients, who often perceive a conflict of interest in such sales. This independence appeals to advisors attracted to the objectivity and fiduciary status associated with RIAs. Additionally, regional brokerages are not associated with banks, which reduces the pressure to cross-sell bank products.”