Archive for the ‘Articles / Publications’ Category

Mutual Funds and Risk

Monday, December 15th, 2008

Full Title: What can or should mutual funds do to counteract likely new attitudes about risk and the fear clients have about unexpected worst-case events?
Published in Ignites – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS, the founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

Faced with today’s uncertainty, mutual fund companies must effectively address investors’ new attitudes toward risk as well as the natural inclination to flee to seemingly more attractive investments. Most importantly, they should continue to manage as they are mandated to. Next, their marketing focus should be on counseling advisors on the types of investors and portfolios their particular offerings are appropriate for. Fund companies — as well as everyone else in our industry, for that matter — should continue to stress the importance of assuring that the clients they advise are invested correctly given their goals, objectives (particularly cash flow needs) and risk tolerance levels.

For an individual fund company, it’s crucial to clearly articulate the characteristics of the firm’s product offerings. Ensuring an advisor and end-client that a particular fund fits into a diversified investment strategy is crucial toward building and maintaining long-term relationships. If a fundstresses only performance or gets defensive in its marketing efforts in the face of alternative strategies, it will not be successful.

While it does not sound very exciting and is not flashy, stressing the fundamentals is exactly the right strategy to keep clients focused. This strategy will help reduce the likelihood that a client will seek alternative strategies that have already had their 15 minutes of fame.

Remember that the worst time to consider changing investment strategies is in the midst of difficult times such as those we face today. Frustrated by the recent failure of ―buy and hold and asset allocation- based strategies to protect assets, many investors are tempted to seek alternative investment methodologies. While success stories are rare this year, frustrated investors will naturally gravitate to them in desperation. But strategies that bet on positioning oneself to take advantage of rare events are by definition rarely successful themselves. It reminds me of Murphy’s Law — are not those investors who run to alternative strategies in the midst of uncertainty doing the exact wrong thing at the exact wrong time?

What SMA Sales Efforts Take Priority?

Thursday, October 30th, 2008

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS , the founder of AK Advisory Partners LLC., a strategic consultancy serving
the wealth management industry.

In an environment where many money managers are seeing their distribution resources cut, I believe it’s important to look at the following key areas:

  • Sponsor firms that managers have existing relationships with and multiple products with
  • Distributors with unified managed account platforms
  • Breakaway advisors and independent RIA firms, including custodians such as Charles Schwab, LPL, Pershing, TD Ameritrade and Fidelity

Remember that now is a good time to re-evaluate sponsor relationships. The ideal model is to work with fewer sponsors, but to have more products with these sponsors. This places a premium on large existing relationships where a sponsor’s advisors use a manager’s separately managed accounts, mutual funds or exchange-traded funds. Years ago, it used to be that money manager would attempt to be on as many platforms as they could. But in the current climate, having to service multiple relationships across multiple market segments can be seen as cost burden for sales and marketing teams. Increases in sponsor-related service costs also makes unified managed account programs more attractive to managers. Keep in mind that UMA programs call on the sponsor to take control over SMA operations, driving down the manager’s costs in that area. This is particularly beneficial for new managers who have not yet spent money on back-office functions.

In engaging the RIA/breakaway advisor, it can be wise for managers to allocate some resources away from the broker-dealer segment and toward the independent channel. At best, it’s wise to spread resources more evenly between the two. Remember that the quality of the RIAs going independent has increased in conjunction with the problems many large financial firms are having this year. This is another reason why RIAs should be targeted, particularly since these higher quality advisors are more likely to do fee-based business. For smaller managers who find the RIA space to be too fragmented, focusing on the custodian platforms (i.e., Schwab, LPL) is a smart move. Passing muster with the due diligence gatekeepers at these sponsors should be a top priority.