Archive for the ‘Uncategorized’ Category

Don’t Apologize Goldman Sachs

Monday, October 22nd, 2012

Greg Smith is the proverbial straw that broke this camels back!  Having endured constant criticism of the financial services industry and its participants since 2008, I have had enough. Goldman Sachs is not perfect. The industry is not perfect. But Greg Smith is an opportunist, and I wouldn’t waste a penny on his book or a minute more watching him on TV.

Yes I’m mad. As with everything in life, the truth of this situation probably lies somewhere in the middle. Goldman Sachs has made mistakes and employees probably talked about some of their clients behind their backs in less than flattering terms. But let’s be realistic – it happens in every industry and every company. Capitalism is not always pretty, and yes we need to have effective regulation – but the free enterprise system is the best one out there.

And Mr. Smith was probably a decent employee; if he wasn’t, he wouldn’t have lasted a year in that environment. And we will never know if he did in fact ask for $1 million during the financial crisis and when others were being laid off (he didn’t answer that question when directly posed to him on 60 minutes).

What we do know is that he took his $500,000 a year in compensation for a number of years, don’t we? He was able to stomach the environment long enough to make some money. I guess he was able to put his disgust aside…..

I was upset when he first quit via a New York Times editorial – I thought then, as I do now, that it was grandstanding and self-serving. The release of his book is more of the same. I understand that American’s love gossip, and everyone loves to hate Wall Street and Goldman Sachs. But there is nothing earth-shattering in this book according to the reviews and interviews. It’s just part two of his plan to make himself more money.

I see nothing more than an opportunist here looking to take advantage of an anti-financial services environment to his own benefit. Period. Angry? Yes I’m angry. What gets lost again are all of the honest people. Goldman Sachs is not the enemy. Financial Services is not the enemy. Lets fix things – not try to make them worse and more divisive.

Mr. Smith – you have done yourself and the industry a disservice. I hope that your 15 minutes of fame is soon over for good.

A Look Back At My Top Ten 2011 Predictions – How Did I Do?

Wednesday, December 14th, 2011

As the year draws to and end, and before I release my predictions for 2012, I thought that it would be fun to look back on my predictions for this year. Here is the list with updated comments (which are in bold).

10 – Stocks will once again have a better year than the economy as a whole. I am “mildly optimistic” heading into 2011. The one thing that I have learned is that you can’t fight the market’s momentum. The market is essentially flat and the economy  remains weak with a few bright recent employment reports. Mild optimism was perhaps warranted, but not rewarded.

9 – Housing will continue to struggle in 2011 and unemployment will remain stubbornly high. The jobless recovery will continue, but there will not be another recession. This predication proved to be pretty accurate. We are pretty much where we were a year ago (wasted year?).

8- The much-talked-about municipal bond crisis may develop, but will not be as bad as the doomsayers predict. Increased municipal failings will not be surprising – but this will not be another crisis of the magnitude of the housing crisis. I was wrong here – this crisis never really developed even though a number of large bankruptcies occurred. 

7 – The bipartisan spirit of the lame duck Congress will end quickly – particularly over spending – and the gridlock predicted after the election will begin. This is not necessarily a bad thing for the markets – just the reality. Here I was correct – the political environment is worse today then it was a year ago. More on this in my 2012 predictions.

6 – The Federal Reserve will not raise interest rates (that will happen in 2012). Interest rates have not been increased and if anything, whatever inflation threat there was has abated.

5 – The crisis in the Euro zone will continue and the PIIGS will continue to give us heartburn – but the Germans will lead the EU to the rescue and the crisis will not negatively impact the US (maybe on particular days, but not overall). Kind or right – kind of wrong. The Euro crisis has gotten worse and the German leadership has been less than stellar. The jury is still out as to what the impact on the US will be – that again is more of a 2012 prediction at this point. But Europe = heartburn was certainly true!

As for the financial services industry:

4 – It will be another year of net advisor losses for the wirehouses. The allure of going independent coupled with continued negative press will be the straws that break the camels back and influence advisors to make the change. Yes and no – the trend toward independence continues but slowed more than I thought. However, this slowdown was do more to general inertia caused by economic uncertainty than by anything positive that the wirehouses did to make themselves more attractive. Few advisors are willing to make changes that will affect their clients when there is so much uncertainty already.

3 – UMAs will continue to grow at the expense of SMAs and ETFs will continue to grow at the expense of mutual funds, although ETFs will continue to fight negative press surrounding the plethora of derivative-type ETFs that are being developed. UMAs did continue to grow as did ETFs. The negative press about ETFs is still out there, although did quiet down somewhat during the year. Surprising was the growth of advisor-managed accounts – didn’t see that one coming!

2 – Fidelity will have at least one reorganization (not hard to predict based on past trends!) and Schwab will continue to grow its managed accounts AUM and surpass at least one, if not two warehouses. Of course Fidelity made news with changes in staff and strategy and Schwab continued to grow. 

1 – Consolidation among money management firms and RIAs will continue as firms continue to cut costs and search for synergies to help them distinguish themselves from the pack. Consolidation did continue, although slower than I thought – another symptom of a year in which economic and market uncertainty caused many people to sit on their hands and wait for the dust to clear.

All in all, I would say many of my predication were accurate. But the year was a frustrating one in that we find ourselves pretty much exactly where we were a year ago – the markets are pretty much at the same levels, the economy is growing at the same rate, unemployment remains high, etc. etc. etc.

I think 2012 is going to be a little more exciting – look for my new predictions next week!

Early – Very Early – Thoughts on the Election Results

Tuesday, November 2nd, 2010

The election results are starting to roll in – and regardless of whether or not the Republicans win the Senate, it seems pretty obvious that there will be split power in Washington for the next few years. That is good news for the markets, because split power – gridlock – means that it will be very difficult if not impossible to enact major – and expensive – legislation. This is good for the deficit. Now, obviously we need to make some serious progress on the economy over the next few years. But this gridlock scenario helps put a ceiling on spending – and that is a positive. Read more from our last newsletter article entitled Political Gridlock Looms … Markets Cheer!

New Account Fees – Are You Kidding Me?

Wednesday, August 11th, 2010

My mouth is still open in amazement after just reading that Ameriprise Financial is imposing a new annual account fee on accounts between $100,000 and $500,000. ARE THEY KIDDING? The fees will be between $40 and $80  per account each year and oh, the good news – household fees will be capped at $200 per year. I ask again – ARE THEY KIDDING?

Many firms including Ameriprise charge smaller accounts (generally under $25,000) an annual fee; and honestly, such accounts are often times inactive and unprofitable. But to impose this new fee on accounts of up to $500,000, especially now, seems incredibly short-sighted (I’m almost at a loss for words for once!). I’mm sure that our friends at E-Trade and the like are salivating!

Yes, it is likely that advisors will “eat” these fees for their top clients and pay the fees themselves. In these cases, instead of unhappy clients you will have unhappy advisors. And lets not forget recruits – this is going to go over like a lead balloon with them! And while I don’t subscribe to the whole main street v. wall street rhetoric, I have to imagine that there will be negative press associated with this move.

Ameriprise is certainly making it easier for other advisors to compete against them; I would certainly use it to sell against them!

The only winner from this – if you want to call them a winner – is presumably the company itself, as they certainly will be collecting some new fees. But I certainly hope their revenue forecast considered losing some combination of clients and recruits for sure, and potentially some advisors.

Can you say – short-sighted ill-timed move?

Top 10 Observations on The Future of SMAs

Monday, August 9th, 2010

Hilliard Lyons (a Louisville, KY-based regional brokerage firm) announced last week that it was migrating its entire book of SMAs (separately managed accounts) onto its UMA (unified managed accounts) platform. While when UMAs were introduced many, including myself, felt that they would be extremely popular, their relative growth has been disappointing at many firms. Does this move by Hilliard signal that other firms will follow and that the long-forecast death of SMAs is near? Here are my top ten thoughts on this topic:

10 – I’ll start with the conclusion – no, we are not near the death of SMAs. The relatively small size of Hilliard’s managed accounts business ($100 million) makes such a change easier for them than it would be for larger firms;

9 – Other regionals will try to emulate Hilliard, and again, because of their relatively manageable size, they may be able to accomplish this task;

8 – Hilliard is keeping its dual-contract program – so while its “packaged” version of SMAs is going away, they are not abandoning the idea of separately managed accounts altogether;

7 – While I am a fan of UMAs, high-end advisors (especially on the institutional side of the business) religiously undertake the two main benefits of UMAs to clients manually – rebalancing and tax optimization – and will not be willing to give up these responsibilities;

6 – Money managers will continue to fight UMAs – not only because they get paid less but because they lose control over the trading of the accounts – and to many, while the jury is still out, the potential impact on performance worries them;

5 – The push to model portfolio-driven programs (like at Merrill) is not the same as the push to UMAs. Top advisors are still averse to programs where they lose control over making the asset allocation/investment decisions;

4 – If firms do consolidate their programs under fewer umbrellas, a single sleeve UMA is equal to an SMA. If the drive is to decrease the number of products, then perhaps the SMA as we know it today may fade – but the concept will not;

3 – When the growth of SMAs began, we saw money managers making the distinct choice of whether or not they wanted to be in that market. I think we will see the same again, with some managers deciding that it is not the place they want to be, while others will embrace the fact that they are relieved of administrative responsibilities;

2 – Any wholesale shift on the part of sponsors that will entail inconveniencing clients (and advisors) will be met with stiff resistance, especially in this environment; and

1 – You can’t force advisors to do what they don’t want to do! Or you can, but don’t be surprised if the results are not what you want.

I think the bottom line is that there will always be a place for SMAs. Top advisors thrive on differentiating themselves from others in the services that they provide. If a platform becomes too “product-like,” they will not use it. While automatic rebalancing and tax optimization sound nice, many advisors recognize that part of their value-added comes in providing these services themselves. Don’t expect them to give up that freedom without a fight.