Archive for August, 2009

What Are the Risks of a Wirehouse-to-Regional Move?

Saturday, August 29th, 2009

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

The market turmoil of the past year has certainly benefited the recruiting efforts of many regional firms at the expense of the wirehouses. In fact, many regionals have alreadysurpassed their annual recruiting goals. For regional firms, what was once a disadvantage in recruiting advisors – having to explain to clients who you are – has turned into an advantage as shell-shocked advisors look to escape the bad publicity of the wirehouses.

But advisors who are interested in moving from a wirehouse to a regional need to do so with their eyes wide open. Moving is never easy and the grass is never as green as you think. I am not taking sides on which type of firm is better; remember that in many cases, an individual advisor’s success and fit with a firm is specific to his or her personality, and the firm’s ability to support their client base. However, there are a few items that advisors contemplating this move should consider and factor into their decision-making process:

  • Product development. Wirehouses have traditionally introduced products sooner than regional firms, in many cases by several years. While the firm that you are being recruited by will try to accommodate your business and add investment platforms to accommodate you, be realistic in your assumptions. Remember that at a regional, differences may exist in how much of this will happen, how quickly and how the quality will compare.
  • Service. Regional firms have traditionally been able to “sell” the fact that you will be a bigger fish in a smaller pond. They have been able to convey how the advisor will receive more personalized service and have access to the firm’s top executives and support staff. You should confirm that the recent market crash has not resulted in staff reductions that will cancel out this benefit.
  • Culture. Mergers among the wirehouses have undoubtedly changed many cultures. If the regional firm you are considering is independent, you need to remember that further overall industry consolidation is likely. Consider, too, that it’s not out of line for the trends of a few years ago to reappear.
  • Technology. Historically, wirehouse have had a large advantage in technology. Their IT budgets are larger as are their internal staffs. This has made their product development and enhancement initiatives more efficient and timely.In a case where the regional has been purchased or merged in the recent past, ask questions about the senior management. In these circumstances you will probably hear thateven though the firm has been purchased by another regional firm, the management is intact and the firm has been left alone. You need to consider what happens when these executives retire or leave. Keep in mind that the likely succession will include more day-to-day involvement by the parent company.

For all of these issues, it is important to take the long-term view. Contemplate what might change in each of the above areas over the next one to five years and how such changes might impact your business, your clients and your quality of life. By doing so, you make the decision with your eyes wide open. You will not be overly influenced by current negative events at your present firm or by over-enthusiasm garnered from the people recruiting you.

What’s Best Way to Frame Poor Performance?

Friday, August 14th, 2009

Published in FUNDfire – 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 today’s environment, where the confidence of investors has been shaken by many nonperformance issues, how investment managers frame poor performance is more important than ever. Above all else, honesty and full transparency are necessary.

Remember that a lot of money is in motion these days. Many investors feel the need to make a change for change’s sake, not necessarily for any rational reason. In this environment, when investors are more likely than not to become spooked, underperforming managers must be clear and confident in their conversations with clients.Clients appreciate honesty. So rather than try to mask poor performance, underperforming managers should begin with a simple statement of the facts. They must explain that they did underperform and then explain why. Further, they must make it clear upfront that their goal in explaining their performance is not to make excuses. Rather, the objective is to make surethat the client has a very clear understanding of why the underperformance occurred. You might go so far as to tell the client that you do understand if they make a change – as long as they are doing it for the right reason and with a full grasp of the facts.

Give specifics about why you underperformed – a missed stock pick (or two), poor sectorallocation, too much cash, etc. This explanation may very well be the same whether you are talking about your relative performance as compared to a benchmark or relative to your peer group. Next, it’s important to explain to the client what you learned from the mistake, what you will do to prevent identical mistakes in the future and how this knowledge will make you a better manager.

It’s also appropriate for you to describe some of the things that you did well, in order to reinforce why they hired you in the first place. Also, frame the quarter’s performance in along-term context. Importantly, if you believe that your portfolio may continue to underperform for a quarter or two, let the client know this as well. Remember that, above all else, clients do not like surprises.

End by thanking the client for their business, show empathy for their position and help them leave the meeting with a positive attitude about you and your firm regardless of what they ultimately decide to do with their investments.