Archive for the ‘Investment Managers’ Category

AK In The News: How Federated Turned Its Flows Around: ‘Consistency’

Tuesday, 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

Wednesday, 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: F-Squared Settles Fraudulent Advertising Charge With SEC

Tuesday, December 23rd, 2014

I was asked to comment on an article in today’s Fundfire (A Financial Times Service) about F-Squared Investment’s settlement with the SEC. The firm, a very large exchange traded fund (ETF) strategist, agreed to pay $35 million and admitted wrongdoing in the case concerning false performance advertising.

The firm advertised real performance which was in fact hypothetical back-tested data. They also made a performance calculation which inflated performance by 350%, and the former CEO has also been charged with making false and misleading statements to investors.

I was asked how this would affect the firm’s distribution. Simply, I think it will be fatal. This is not simply a case where the SEC has alleged something, which may or may not be true. The firm has admitted that it has done what it has been accused of. From a due diligence point of view, and considering fiduciary responsibility, how can a sponsor firm, who is after all making recommendations to its advisors, who is in turn making them to investors, allow this firm to remain on their platform?

Many firms put the firm on “Watch” when the allegations surfaced – the correct move – and did not allow assets to be added. But now, the only correct move is to terminate F-Squared and help clients move the assets elsewhere. The firm obviously lied in the due diligence process, so this seems like a very clear case of sponsor’s being better off moving on. I personally can not see any rationale for not terminating this relationship.

To quote from the article: “The result of the investigation, and the fact that F-Squared admitted wrongdoing, could have serious consequences for the firm’s distribution prospects, says Andrew Klausner, a strategic consultant with AK Advisory Partners.

It could be “a kiss of death in terms of distribution through broker-dealers and RIAs,” Klausner says. Since the firm admitted wrongdoing, “I don’t know how [broker-dealers and RIAs] could justify keeping them on their platform.””

The firm does have new management,and in time, they should be allowed to present their case, but I would be hard pressed if I was in charge of a sponsor’s due diligence to allow them in now. I would much rather be competing against a sponsor who continues to use the firm than to be that firm!

Thoughts?

How Did I Do? A Review Of My Top 10 Predictions For 2014

Tuesday, December 9th, 2014

I will unveil my Top 10 Predictions for 2015 next week, but for now, lets see how I did this year. Original text is following by my comments in bold.

10 – The Republicans will keep the House of Representatives but fall short of capturing a majority in the Senate (although they will pick up net seats). The Republicans should be able to pick-up enough seats to take control of the Senate, but self inflicted primary wounds, led by Tea Party challenges, will hurt them once again. I was half right here, as the Republicans actually did pick-up the Senate because they avoided the pitfall of having extreme candidates. I guess I should be a pollster in my next life, as they didn’t do much better!

9 – Riding off of the momentum of the budget agreement, there will be no threats of government shutdown next year, there will be a small increase in bipartisan cooperation, but given that it is an election year, there will be no far reaching immigration reform or gun control legislation passed. The only progress I see next year, and it would be in the Republicans best interest to pursue this course, would be some smaller pieces of immigration legislation. On the gun control side, momentum only seems to be on the side of an overall of the mental health system. The debt limit discussions will be contentious, but will be solved without the US defaulting. I was pretty on target here except that even small pieces of legislation were not passed on immigration or gun control. The President has taken executive action on immigration, the impact of which we will feel next year – you’ll see my take on it next week.

8 – The problems with the Obamacare website rollout will seem minor next year as the reality of the totality of the massive law and its implementation move forward. The benefits of the program will be outweighed by younger people not signing up, choosing instead to pay the penalty, growing anger at not being able to keep doctors, and as the year progresses, the reality that costs will go up in 2015 as insurance companies lose lots of money. I was pretty on base here. Rates have increased for 2015 and the website has been a non-issue. The Supreme Court has some decisions to make next year, and it is still not clear how many people opted to pay the penalty. We will have to stay tuned for the conclusion of this number!

7 – The Federal Reserve will begin to taper in the first quarter, although I don’t think the taper will be significant early on. The overall path of the Fed will remain the same under Chairperson Yellon. (It is a little dangerous making this prediction now since there is a chance that the Fed will begin the taper this week, but I fall in the camp that says they will wait – they may announce something, however.) The Fed remains dovish and the quantitative easing program ended in October. While the US economy is relatively strong, the rest of the world continues to be mired in slow growth, with Europe and perhaps Japan set to potentially go back into recession. This will limit the range of actions available to the Fed.

6 – The stock market will have an average year. I think the markets have, to a large extent, priced the taper in already, so I don’t think Fed actions will significantly impact the market. Coming off of a banner 2013 (which I did not predict), it is only natural that the market revert to more normal returns. There will be a natural bull market correction during the year, and by next December I see the S&P 500 up a modest 7% – 10% for the year. I was right here – a relatively good year for the market with only that minor almost 7% correction during the first two weeks of October. Volatility was tame most of the year, but re-emerged in the fourth quarter.

5 – Europe will continue to grow modestly and I don’t foresee any large crises within the EU or the Euro bloc. The worst seems to be behind most of these countries from an economic standpoint. No countries will exit the Euro – there won’t even be much or any talk about that anymore. The Euro was really a non-issue with no talk of countries leaving the currency. There was however a crisis that I missed – as do most other people – the Russian interference in The Ukraine/Crimea. And to say moderate growth would be generous – the threat of a triple dip recession in 2015 is very real.

4 – Hillary Clinton will finally signal that she will run for President in 2016. While it is too soon to make any predictions about how that will go, I think her record as Secretary of State will come under increased scrutiny, and while she will remain the front runner, my only preview of my thoughts on the actual election is that the campaign will be a lot tougher than people think. There is no certainty that she will actually get elected. Kind of right. She has done just about everything but declare already, and her book tour, which was meant to be a pre-cursor to her campaign did not go as smoothly as she would have hoped. The reality here is that she is not the world’s best campaigner…..More to come on Hillary next week!

For Financial Services:

3 – Elizabeth Warren will continue to raise her public profile and try to “stick it” to banks and other industry participants. This will be part of the Democratic election strategy – along with helping the middle class – that will be utilized to overcome the Republican’s continued slamming of Obamacare. Actual progress on new legislation will be slow. I was right here as in the aftermath of the election Elizabeth Warren was elevated into the Democratic leadership and she has continued to bash Wall Street. The strategy did not help the Democrats in the election – nothing really did – but her elevation makes it pretty certain that these issues will be front and center in the run-up to the Presidential election.

2 – It will be a good year for the wirehouses as they continue their comeback from 2008. There will be less negative news about them in the press. The RIA and independent markets will continue to grow – but there is room enough for both! I think this was true – I saw more positive stories about the wirehouses than negative ones, and the industry as a whole had a good year. 

1 – ETFs and retail alternative investments will start to get some negative press. As first ETFs and then alternative investment mutual funds have grown, they have received generally favorable press. I have been leery of both, particularly retail alternatives, and I think the press will finally start to raise some questions. I think this is also true, although not to a significant extent. People are beginning to questions retail alternative investments more than ETFs, but they do remain popular. Stay tuned on this issue as well – I see more happening in 2015!

Finally – sports. (I usually go over 10!). Florida State will win the collegiate national championship, ending the dream season of Auburn. The Seattle Seahawks will beat the Denver Broncos in the Super Bowl – yes, Payton and his pals will choke again. I nailed these! And choke the Broncos did in the Super Bowl – actually put a large damper on my Super Bowl Party. And as of this writing, Florida State has still not lost a game! We’ll see about the first college playoff series though …..

AK In The News: Consultants Tighten Grip on Inst’l Manager Selection

Monday, November 10th, 2014

I was asked to comment in an article published in today’s Fundfire (A Financial Times Service) about the increasing presence of consultants in the institutional asset management business. According to Cerulli Associates, in 2013 consultant-intermediated new business jumped to 68.4% of the total, an increase of almost 10% from the year before.

There are a number of reasons for this jump, increasing product proliferation and complexity and cost.

We continue to see a large increase in the number of products being offered – and their complexity – in the face of the reality that it is getting increasingly difficult to “beat” the market in the traditional asset classes (large cap, mid cap, growth, value, etc.). In the constant race to beat the market (or in a goals-based scenario meet your funding goals), institutional investors have increasingly turned to alternative investments to supplement their asset allocation strategies.

There are a wide range of alternative investments, however, and finding qualified analysts to evaluate them is difficult. Let’s not forget that a traditional stock analyst is in most cases not qualified to analyze REITs, commodities, etc. Firms must hire new staff – which takes resources and brings us to the discussion of cost.

But first – plan sponsors have the fiduciary responsibility under ERISA that requires them to meet an expert threshold. You either have to build an organization that can stand up to regulatory scrutiny or outsource to a consulting firm that has such expertise. As the number of available products increases, so does the cost of building it yourself. The reality today is that you have to be very large to even think about having your own in-house capabilities if you want to consider investing in the plethora of new products.

To quote from the article: “The trend is probably reflective of how expensive it is to do it yourself,” says Andy Klausner, principal at AK Advisory Partners. “It’s much cheaper to hire a consultant and rely on them to help fulfill your fiduciary responsibility. You have to be relatively large to be able to afford the same level of resources in-house.”

Build it or buy it – which do you think is better?

The V-Word Is Back

Tuesday, October 7th, 2014

This the name of our 4th quarter newsletter. The V-Word is of course volatility. After a long hiatus we are back to seeing +/- 100 moves in the DJIA on a daily basis. But this is not necessarily a bad thing, as perhaps the market is finally acknowledging that is all not well in the world.

The newsletter also contains an article on “Creating A Buzz To Grow Your Business.” It talks about ways that you can act as your own publicist to grow your business.

Click here to see the entire newsletter.

AK In The News: Gross’ PIMCO Exit Throws Door Open For Institutional Competition

Monday, September 29th, 2014

I was asked to comment on an article in today’s Fundfire (A Financial Times Service) about the departure of Bill Gross from PIMCO last Friday (he left the firm to go to Janus Capital).

Frankly, I was not surprised by this move and think that it is a longer-term positive for both firms. Ever since PIMCO’s former CEO Mohamed El-Erian left in March, the firm has been in turmoil and Gross’ future there has been in question. Stories have emerged of erratic behavior, mistreatment of employees and most recently a threatened exodus if Gross stayed.

While we will never know the true inner workings of the firm, perception is reality as they say, and it had become increasingly clear that if Gross stayed so would the turmoil. His abrupt departure reinforced the animosity between the parties and the untenable nature of the relationship. From that perspective, it is good for PIMCO to get this negative attention behind them and focus on the future. They have moved swiftly to name replacements and try to begin anew.

The negative for PIMCO is that Gross’ departure will trigger automatic mandate reviews by institutional investors, and analysts expect the firm to lose billions of dollars. But this increased scrutiny (being put on “Watch” lists) was already increasing with El-Erian’s departure and underperformance. At least the departure of Gross allows the firm to position that all of the changes are over and allows it to look to the future. Already the California Public Employee’s Retirement System (CalPERS) has announced that it has no plans to move the approximate $1 billion they have invested through PIMCO.

For Gross, the move is one which allows him to try and save his reputation, which has been hurt by not only the turmoil and negative press that has been coming out, but also by the recent underperformance of his Total Return fund. There can be no question that the unraveling situation had to be affecting his ability to manage effectively. While he is leaving to manage a much smaller fund, he does have the opportunity to reestablish himself at Janus Capital and grow his influence at the firm over time.

To quote from the article: ““There’s been such a negative cast on Gross since El-Erian left the firm, [with] people blaming him,” says Andy Klausner, principal at AK Advisory Partners. “It was becoming harder and harder for him to stay,” he says, adding he wasn’t surprised to hear Gross was leaving. “All in all, it’s probably positive for PIMCO,” says Klausner. And the move isn’t bad for Gross either, as he can still ride his strong reputation as a fixed income expert, says Klausner. “It’s a good PR move for [Janus],” he says. Gross’s name will lend himself well to be a spokesperson for the firm.”

AK In The News: The Wirehouse Cost-Cuttting Conundrum

Thursday, August 28th, 2014

I was asked to write an opinion piece on recent announcements by UBS and Morgan Stanley that they were undertaking measures to reduce costs. UBS chose to lay-off a small number of client service and support staff, while Morgan Stanley chose to pass along some additional costs to its advisors. So, is one way of cutting costs better than the other? The piece was published in today’s FundFire (A Financial Times Service).

In reality, I don’t think that one method of cost cutting is better than the other. The fear these and other sponsor firms always have is that they are going to “piss off” their advisors with such moves and that this may result in defections. The reality is that when you look closely at these cuts, they effect only a small number of advisors -generally  those at the lower end.

Management has an obligation to shareholders to run efficiently and smartly; they also need to foster a positive environment for their employees. Attempts to become more efficient can keep everyone happy. Often times it is the headlines that make the cost cutting efforts seem “bad” and far-reaching when in reality they are minor.

UBS, for example, laid off 75 client service associates. This is out of thousands of such associates at the firm, and you can bet it did not impact their top producers. One can argue that cuts aimed at the lower end help weed out lower producing advisors who are probably not adding much if anything to the bottom line. The financial crisis helped firms see that being the biggest is not necessarily a goal they need or want to pursue. They rather have the most efficient advisors.

And Morgan Stanley, while passing along more costs to advisors, in fact gave their top producers a pay out increase at the beginning of the year, so net-net, the effects are not that great.

All firms must cut costs at certain times. It just seems that everyone still likes to forecast the demise of the wirehouses, when in fact they have made great strides in becoming more competitive over the past few years.

Contact me if you would like me to send you a copy of the article.

 

AK In The News: Managed Acct. Platform Mergers Crucial To Wealth Success

Tuesday, July 29th, 2014

I was asked to comment on a poll conducted by FundFire (a Financial Times Service) in which 80% of the respondents felt that sponsor firms (broker/dealers) must consolidate their managed account platforms in order to remain competitive. Merrill Lynch has just undergone such a consolidation, and the person who helped them do this was hired away by another firm to do it for them.

I am in total agreement that there are just too many fee-based program offerings at many firms today – it makes it confusing to understand for the advisor as well as the client, and expensive for the sponsor because of the operational and research duplication. I have advocated for more transparent pricing and easier program-to-program comparisons for a long time; technological advances have now made this a possibility for more firms.

To quote from the article:”For strategic consultant Andrew Klausner, the poll is a reminder of how, “sometimes, too much choice is not a good thing.” Overall, the proliferation of managed account products on separately managed account (SMA) and unified managed account (UMA) platforms makes it more difficult for advisors to make investment decisions, says Klausner, founder and principal of AK Advisory Partners. Unnecessary duplication and too many different platforms add to the confusion while creating inefficiency and higher expenses, he adds.”

Smaller sponsors, many of the independents for example, might be at a resources disadvantage here, and this could lead to further consolidation in the industry over the longer-term.

Any thoughts?

Unlocking Real Value Newsletter – Avoiding A Summer Slump

Thursday, July 10th, 2014

Our 3rd quarter newsletter is out! The lead article is entitled “Avoiding A Summer Slump.” Click here to read it.

The stock market is doing its best – helped by a dovish Federal Reserve – to avoid a summer slump. It has already made those who “sold in May and went away” regret it.

How about you? We all know that summer is a slow time in the financial services industry; clients are away, colleagues are away and three-day weekends scream for our attention. We can’t stop our clients from going away – as much as we would like to sometimes – but we can make our time as productive as possible by doing some of the things that we claim we don’t have the time to do the rest of the year.

Why not revisit your competitive positioning strategy, including your value proposition and other tools that help differentiate you from the competition? Can a few revisions make you even more competitive moving forward?

We have a lot of great resources on out website, and specifically, here is a link to our updated White Paper Can You Articulate Your Value Proposition?

Take some time to review the White Paper and strengthen your position vis-a-vis your competition.