Archive for March, 2010

Supreme Decision on Mutual Fund Fees … Or Was It?

Wednesday, March 31st, 2010

Both sides are claiming victory in yesterday’s Supreme Court decision about fees that mutual funds can charge investors. While on one hand the Court upheld the long-reigning standard for determining whether a fiduciary has breached its duties by charging excessive fees (called the Gartenberg standard), a victory for the mutual fund industry, it did state that courts reviewing such matters may give weight to the comparison of fees charged to institutional versus retail investors. Such comparisons, which are deemed to benefit retail investors, as institutional fees are usually lower, was seen by a victory by the plaintiffs in the case; previous decisions had not gone so far in allowing this comparison.

That there was a little bit of victory for both means that we have probably not seen the last of this issue. But investors will be the winners for sure if the opening of this door by the court – albeit a small opening – means that the Boards which run fund companies will have to keep the possibility in mind that such comparisons are possible. If these Boards take a little more time now when they review the fees associated with their funds than investors should benefit.

The issue of mutual fund fees has been in the news quite a bit lately. A recent article in the New York Times talked about the “hidden” trading costs of mutual funds. The moral here for advisors, especially if fees remain an issue in the news, is to have a policy of full diclosure of fees to clients. The total costs of investments should be explained in detail to clients before they make their investments. “Apples to apples” comparisons should be made between the total cost of one investment versus another (with this comarison including the split between what the advisor is paid versus what the investment charges).

Specifically as relates to mutual funds, such fee comparisons will help uncover whether one alternative fund is significantly more expensive than another. If an investor chooses an expensive fund, then they are doing so with their eyes wide open.

Poll: Morgan Stanley-Smith Barney on the Wrong Track

Wednesday, March 24th, 2010

Published on Mar 24, 2010 – FUNDfire – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

The Morgan Stanley Smith Barneywirehouse is headed down the wrong track as the one-year anniversary of the firm’s creation approaches. That’s the consensus of industry professionals both inside and outside the company.

FundFire asked readers in a poll Tuesday whether management is leading the combined wirehouse in the right direction. Respondents could choose yes or no and had to identify whether they work for Morgan Stanley Smith Barney or are unaffiliated with the firm.

Poll respondents in both categories expressed dissatisfaction with the path the firm is on. Of the poll participants affiliated with the wirehouse, 58%, or 155 voters, said the firm is headed in the wrong direction. In contrast, 42%, or 113 Morgan Stanley Smith Barney voters, say they think the firm is headed the right way.

Of the survey respondents unaffiliated with the firm, 60%, or 78 voters, said the firm is losing its way. About 40%, or 51 voters, disagreed, saying Morgan Stanley Smith Barney is making the right strategic moves.

The Morgan Stanley Smith Barney deal closed on June 1, 2009, after Citigroupopted to spin off the Smith Barney brokerage as part of its larger efforts to restore profitability. The wirehouse’s opening months as a merged entity were marked by a drop in both assets and advisors.

At the start of 2010, the brokerage had approximately 18,135 advisors and managed assets of $1.56 trillion. This compared to $1.7 trillion in assets and 20,000 advisors in January 2009, around the time the deal was announced.

FundFire has reported on how escalating recruiting costs are putting the brokerage under pressure, forcing officials to reduce the numbers of new advisors they plan to bring on board this year. Morgan Stanley Smith Barney president Charlie Johnstonsays due to the changing environment the firm will concentrate on producing more revenue from existing teams, rather than poaching advisors from rival firms.

Andy Klausner, founder of strategic consultancy AK Advisory Partners, says he’s surprised that more affiliated voters did not register their dissatisfaction with the firm’s direction.

“Given the circumstances of the industry when the merger commenced, and the enormity of the task of integrating two such large and diverse companies, if I were the company, I might take these results as a small victory,” Klausner says. He believes a recent lift in the financial market may have lifted the advisor force’s optimism, further dampening the negative vote.

As of 3 p.m. Tuesday, nearly 400 FundFire subscribers participated in the survey.

Participants were self-selected and were only able to vote once. The survey is an unscientific sampling of FundFire’s audience, which consists of asset managers, institutional investors, consultants, financial advisors and service providers.

Fiduciary Redux – Who Wins in the Financial Reform Bill?

Monday, March 22nd, 2010

I guess I shouldn’t have been surprised when a major industry magazine called the release of today’s Financial Reform Bill a victory for Wall Street in that it did not mandate that all people who sell securities be held to fiduciary standards. Not surprised but certainly disappointed.

This is a shallow victory at best. In fact, I dare say it is a loss – especially for those advisors who fail to see that in the minds of clients they are fiduciaries; and for those sponsor firms that will not encourage their advisors to pursue fiduciary credentials in any case because it is the right thing to do. It is a classic case of perception versus reality. If you are perceived as a fiduciary you should act like one!

And, oh by the way, those advisors who are “forced” to be fiduciaries – don’t you think they will use the fact that you are not against you? If I was in production, it would be the first thing that I would discuss with clients and the first question I would ask them to ask their current advisor.

All any one of us has is our reputation. As I have said before, holding yourself to fiduciary standards is the right thing to do regardless of the rhetoric. Separate yourself from the competition. Do the right thing – and perhaps some day financial services professionals will get some positive press!

Investment Manager Merger Mania Set to Begin?

Friday, March 19th, 2010

It was announced earlier this week that two Boston-Based investment managers – Congress Asset Management and Prelude Asset Management – were set to merge (Boston-Based Asset Managers Combine Forces). The combined firm will have approximately $6.4 billion under management.

Intriguing is the question of whether this portends the beginning of a wave of mergers in the industry. Personally, I think that it does. It was almost exactly a year ago in fact that I wrote about this topic (see blog of March 7, 2009 – Crisis Hurts Small Managers Most). I guess my timing was a little off, but in retrospect it makes sense – firms wanted to give it more time following the economic meltdown before they considered alternatives and as the market rose last year so did optimism.

But we continue to operate in a very difficult economic environment, and I think it is inevitable that many investment management firms will see the benefit of merging – certainly from an operations point of view. But these synergies will also exist in other areas such as marketing and sales. Prelude had about $1.2 million in AUM at the time of the merger. As I predicted a year ago, it is the managers below $2 billion that are the most vulnerable. Here we are a year later – get ready to see a lot more announcements.

One last thought – one positive is that last year’s market rise (and accompanying rise in AUM) will probably save some jobs, as firms are feeling better than they were a year ago and are probably in better financial shape. But the overall rationale for merging remains.

Top Ten Reasons to Read “The Digital Handshake”

Saturday, March 13th, 2010

(This is the first in a series of book reviews that will be featured on the blog that I believe are relevant to our community.)

“The Digital Handshake – Seven Proven Strategies to Grow Your Business Using Social Media” by Paul Chaney (

Recommendation: Buy this book today! I have read more books than I care to remember on social media and without a doubt this is the best of the bunch – by a large margin.

Top Ten Reasons to Read “The Digital Handshake” by Paul Chaney:

Number 10: It is well written and well organized. Sounds funny to say this, but I find so many of the books written on social media hard to read and I come away not sure who the audience is supposed to be.

Number 9: It is comprehensive – Paul covers every conceivable type of social media available today and explains where each fits (and where they don’t fit).

Number 8: It is chocked full of example and references – rather than bog the reader down in excessively long explanations, references are made to where the reader can go for further information.

Number 7: It puts social media into context. The book begins with a great overview of the 5 consumer trends that are turning the business world upside down.

Number 6: It has a point of view. In addition to covering social media in a very comprehensive way, Paul gives his opinion of the relative merits of the various alternatives in each category.

Number 5: It addresses the question of how to measure the effectiveness of your social media efforts so that you can determine if you are spending your time wisely.

Number 4: It helps you develop a plan of action before jumping in. For example, rather than just starting a blog, Paul walks you through the process of how to plan for your blog first so that your efforts will be more successful.

Number 3: It answers the question of how Facebook and Twitter (among others) are relevant to business! This was huge for me because I could never figure out how and if these were social media venue I wanted to pursue.

Number 2: It motivates you to learn! The book makes you want to try things that you have never considered before. Now, none of us can do them all at once, but the ideas will now be in the back of your mind and you will have a reference guide to refer to when ready.

Number 1: IT IS RELEVANT TO PROFESSIONALS IN THE FINANCIAL SERVICES INDUSTRY. I have finished most books on social media feeling like they were not talking to me – a small business owner in a specialized industry. I have implemented more ideas from this book in just writing this blog than in all of the previous social media books that I have read! (For example, did you know that search items like lists?)

“Fiduciary” From the Client’s Point of View

Thursday, March 11th, 2010

The issue of which advisors will ultimately be held to fiduciary standards  is bound to continue into the foreseeable future. Clients, however, are more concerned with how you – their advisor – is looking after their particular interests now.

How do you demonstrate to your clients that all of your actions are in their best interest? A good place to start is by looking at the message of  The Committee for the Fiduciary Standard. These principles, or some variation of them, should be part of your Mission Statement, Value Proposition and the stated principles which govern how you operate your business. First – talk the talk – it will help differentiate you from the competition.

Then you must walk the walk – your actions must follow your words. Here is a little quiz. Is it ethical to say to a client “I charge a fee of 1% of the value of your investment portfolio, a fee much lower than many of my competitors”? This statement is misleading because it fails to mention the costs that are associated with the actual investments – the client’s  total cost. In fact, it is likely that the total cost the client pays will be the same as, or close to, what the competition charges in an “apples to apples” comparison. This example demonstrates actions which are contrary to the principle of fully disclosing all information to the client. Your actions affect your clients much more than any proposed legislation!

Demonstrate your value-added to your clients and always follow-through on your commitments. Then all of this talk about who is and who is not a fiduciary is less likely to distract and sidetrack you (and your clients).

To Be a Fiduciary … Or Not To Be a Fiduciary?

Monday, March 8th, 2010

The March 3rd article in the New York Times entitled Trusted Advisor or Stock Pusher? Finance Bill May Not Settle It raised the public profile of an issue that has been swirling around the financial services reform debate for a long time – should advisors in the brokerage industry be held to fiduciary standards (as RIAs are)? The title and content of this piece miss a few very important points:

1) Just because you’re not held to fiduciary standards, you’re not a stock pusher! There are many qualified advisors at brokerage firms, and their motives and reputations should not be questioned just because of where they work. Criticism of the industry is in vogue today – but  we shouldn’t lose sight of the fact that there are many qualified advisors out there helping clients.

2) No new regulation (Bill) and no standards are assurance of quality. Clients must still assess whether the advisor that they have chosen is truly acting in their best interest. And advisors must be able to proactively demonstrate to clients – regardless of whether are are a fiduciary by law or not – how they act in the best interest of their clients.

Our next blog will focus on what advisors can do to make their case to clients.

The Unlocking Real Value Blog is Here!

Saturday, March 6th, 2010

I would like to welcome you to the AK Advisory Partners blog. I hope that you will become part of my community and visit and comment often.

I have started this blog as a place for financial services professionals to read and comment on thought-provoking ideas that affect them and their businesses. Whether your are an advisor, money manager or professional at a sponsor firm (broker/dealer, bank, mutual fund company or insurance company), this blog will provide information of relevance to your everyday life.