Archive for October, 2010

Advisors are Adapting Businesses in Order to Survive

Wednesday, October 27th, 2010

Russell Investments recently surveyed 358 advisors from 132 firms and found, not surprisingly, that many of them are making significant changes to their businesses in reaction to today’s market environment. The results of the survey confirm many of the things that we have been hearing and saying over the past year, but are worth repeating:

1) Referrals and word-of-mouth marketing continue to be the best sources of new business. We all know how important it is to ask for referrals in a systematic way.  The importance of word-of-mouth marketing is consistent with focusing on a niche clientele, where you are more likely to find clients similar to those you already have.

2) Clients remain skittish, though not necessarily to the point where they are switching advisors. Top-notch client service and attention remain the best ways to alleviate client concerns and maintain relationships.

3) Many advisors are facing squeezed margins and therefore looking for technological solutions to finds way to become more efficient. For example, many are installing more sophisticated CRM systems. We have been saying for a long time that becoming more efficient is one way to increase profitability and counteract the lower revenues that have resulted from poor market conditions.

4) More and more advisors are embracing goal-based as opposed to benchmark comparisons for their clients. This is an acknowledgment of the fact that clients are more concerned with meeting their own individual goals then beating a mostly irrelevant benchmark. Advisors have also become more risk averse and have rejiggered client allocations accordingly.

5) And finally, most advisors acknowledge that they want 250 clients or fewer, and the need to segment clients – in other words providing services based on relationship size – is an important component to building a lasting and profitable business. Advisors must become better at leveraging their own time without sacrificing client service.

We continue to operate in a challenging business environment, and those practitioners who are open to adapting their businesses and practices are likely to emerge as the winners. This not only goes for advisors, but for all segments of the financial services business.

Pessimism Abounds: Advisors and Managers Beware……

Thursday, October 21st, 2010

Despite the current upward trend in stocks, fueled most recently by good earnings, the economy remains weak. People are still negative on the economy and the economic outlook; this has important implications for how you approach clients as you begin to meet with them one last time before year-end.

To illustrate, the CNBC All-American Survey was just released (You can read about the survey by clicking this link: Americans Growing More Pessimistic About Economy).

To summarize some of the results:

* 92% of respondents feel that that the economy is either doing no better than last year, or doing fair or poor

* Only 37% think the economy will improve over the course of the next year – down 5% from last year’s survey

* Only one in four think wages will rise over the next year, and only one in five that their house will increase in value over this same time period; these are the worst results in the 3 years that the survey has been taken

(There are also some interesting results on the political front in the survey – definitely worth looking at the complete survey.)

Americans are not feeling very optimistic – the official end of the recession and the rising stock market notwithstanding. This means that as you meet with clients, it’s important to realize that empathy is more important than ever. I would hesitate to give client’s only good news – put yourself in their shoes and think about what they might want to hear.

Now more than ever, client’s are looking to their advisors (or money managers) to reassure them. Even if their portfolios are up, it’a obvious that concerns linger. Reassurance and realism will keep them invested. Sugarcoating the situation may lose you a client.

Do You Know Your Niche?

Monday, October 18th, 2010

You know intuitively that you can’t be all things to all people, and your business model should reflect this. The shotgun marketing approach – where you target anyone and everyone – is doomed to fail. Niche marketing allows you to grow your business by fulfilling the needs of one well-defined group.

Our newest White Paper “Find Your Niche – Grow Your Business!” is designed to help you find your niche. The Paper focuses on:

* Why Niche Marketing?

* How Do You Find Your Niche?

* Marketing To Your Niche?

Now is a great time to position your business for 2011 and beyond.

Retiring Later … If Ever

Monday, October 11th, 2010

Not surprisingly, a recent study by Barclays Wealth and Ledbury Research found that high net worth individuals are planning to work longer, with many planning never to retire.

The survey of 2,000 individuals found that 54% of U.S. respondents are among those that plan to never retire. While it appears that the global crisis of the past few years has contributed to this trend, it is not the only reason for the results. This trend had been evident for awhile in part due to rising life expectancies. If someone expects to live 20+ years past the age of 65, it is logical that they will need more money in order to maintain their desired lifestyle throughout their retirement years.

These trends have some important implications for advisors. Longer investment horizons for retirees will impact their asset allocations –  not just as they near retirement but throughout their lifetimes. Investors will in general need more growth than in the past. There will be a trade-off: for example, more conservative investments early in life will result in either a later retirement or a more-conservative lifestyle in retirement. Investors need to know their choices as early in their lives as possible.

Especially with where interest rates are today, this phenomenon bodes well for stocks. With housing down as well, there are few places where investors can today grow their portfolios. The yields on many blue chip stocks are very attractive today.

But the investment implications aside, advisors would be well served to visit the retirement discussion with their clients sooner rather than later. It will sometimes be a difficult discussion – and you may have to tell clients things that they do not want to hear – but that is what a true advisor does. The world has changed over the past few years – you need to make sure that you gauge how your clients have as well.

What’s Rationale for Picking SMAs over UMAs?

Tuesday, October 5th, 2010

Published on October 5, 2010 – FUNDfire – An Information Service of Money-Media, a Financial Times Company- written by Andrew Klausner, Founder and Principal of AK Advisory Partners LLC.

The debate over whether unified managed accounts (UMAs) are going to replace separately managed accounts (SMAs) has been raging for a number of years. There is no direct resolution to the debate. There are enough differences between the two that there will be room for both types of investment vehicles. Both products will continue to survive and garner the assets of high-net-worth individuals. This entire debate reminds me of the one that began soon after SMAs were introduced, and revolved around whether mutual funds or SMAs were more appropriate for the wealthy. The answer turned out to be that both were, and still are, depending on the individual circumstances being considered.

Below is my perspective on why SMAs and UMAs each have their unique advantages and disadvantages, depending on the specific advisor and client on hand.

For advisors, the decision of which vehicle to use – or whether to use both – in their practices is related to their overall business philosophy. Some advisors consider their role and value-added proposition as selecting the managers to be used in SMA portfolios and then managing both the rebalancing of accounts as well as providing tax-efficient management. They are thus reluctant to abdicate these duties to someone else, such as situations where those duties are outsourced to a sponsor’s UMA team or a third-party overlay manager.

Some advisors also prefer individually managed accounts over mutual funds or exchange-traded funds (ETFs) as a general investment philosophy. These advisors presumably have a client-servicing model that eases any paperwork or coordination issues that maintaining multiple investment vehicles and accounts poses. On the other side, some advisors are attracted to UMAs because the pre-selected models reduce the amount of the work that they must do.

For clients, there are three primary differences between SMAs and UMAs. First, many UMAs have ETFs and mutual funds as part of their portfolio makeup. Thus, in many cases, the investment minimum within each investment sleeve is usually much lower than the standard $100,000 to $250,000 level in the SMA world. As a result, clients with fewer investable assets can invest in UMAs and achieve diversification more easily. Secondly, because all of the different investment sleeves in a UMA are in a single client account, there is less paperwork, both initially and on an ongoing basis. Third, UMAs typically include, or have options for, automatic rebalancing and tax-optimized investing. Therefore, the relationship size and the overall importance of these other issues to a particular client will help the advisor determine which vehicle to recommend.

(I haven’t really discussed managers because while there was reluctance on the part of some managers to participate in UMAs when they were first introduced, a lot of this resistance has disappeared as UMAs have become more common. There are enough quality managers in the universes of both UMAs and SMAs.)

In reality, UMAs and SMAs both have a place in the business. An advisor who utilizes SMAs exclusively, for example, and who has high client minimums, might occasionally have a client with fewer investable assets. In that case, the advisor might opt to use a UMA for that client. Or, some clients might themselves have preferences for one or the other based on previous experiences. They might have used SMAs for decades and feel comfortable with the simplicity and customization that such investment vehicles provide. There are enough different clients and client profiles that neither of these investment vehicles are likely to disappear – in the same way advisors still use mutual funds for their wealthy clients after all of these years.

Breakaway Trends – Which Way is Up?

Monday, October 4th, 2010

Everyone (well it seems like everyone) seems to like to opine on whether the breakaway trend will continue, whether wirehouses will recover their places of prominence, etc. While the topic is interesting, a recent survey which concluded that the breakaway surge is over had what I thought were some much more interesting results that were buried in the fine print.

The study I am referring to is a recent one by Cogent Research, which interviewed 1,560 registered reps and advisors. The study found that advisor satisfaction is up 15% over last year, led by Merrill. The article rightly pointed out that the large retention bonuses paid advisors after the Bank of America merger probably had a lot to do with this – and that these bonuses were unsustainable. Hardly a seeming end to a trend…..

Advisor satisfaction at Merrill is now a whopping 49% – considering that advisor satisfaction at the regionals is 81%, I would hardly be jumping up and down if I was in management at Merrill. As I said above, I don’t personally read a lot into these numbers that indicates the trend to breakaways is over.

But I found a few other things in the article much more interesting:

– For the first time, the majority of revenues of those surveyed which were derived from fees surpassed 50% for the first time – reaching 54% in fact.

– While fee income lagged at banks, which was not surprising, the fact that fees only accounted for 35% of revenue at the regionals did surprise me – I thought the number would be higher. Given the number of large producers that have joined regionals over the past few years (regionals have also benefited at the expense of the wirehouses), I would expect this percentage to increase quickly.

– Finally, the number of advisors forming partnerships leveling off at 22% overall – it was 31% at the wirehouses and 37% at RIAs. Again, I would have expected both a higher percentage and an upward trend.

I will refrain from opining on the breakaway trend lest I become one of those referenced above; however, regardless of where an advisor sits, there seems to be little doubt that the trend toward fee-based income increasing at the expense of commissions is undeniable and irreversible.