Archive for January, 2011

Business Planning for Advisory Firms

Monday, January 31st, 2011

This is the title of a presentation I am giving Wednesday at TD Ameritrade Institutional’s 2011 National Conference. Click here for a full copy. The five sections of the presentation include:

1. Mission statements – how to start off on the right foot with a targeted and unique mission statement that encapsulates your value-added proposition and differentiating characteristics.

2. Business planning – How to develop a business plan that will assist you in taking your practice to the next level.

3. Client strategies – How to build goals and segment clients so that your capabilities and goals are in synch.

4. Performance management and measurement – How to measure your progress.

5. Resource allocation – How to allocate or reallocate your resources to put them to their best use.

I hope you find this information useful. Many view business planning as a necessary evil – and in some ways it is! But you and your business will be better for going through and sticking with the process.

(Contact me if you want copies of the worksheets that accompany the presentation.)

My Two Cents on the Fiduciary Standard

Thursday, January 27th, 2011

Since the release of the SECs report on the Fiduciary Standard last weekend, it has been the talk of the industry. I therefore feel compelled to add my two cents on the issue, especially since it will be one of the most discussed and debated issues of the year (and perhaps next year).

But before I speak to that issue, the SEC also released its report on the need for enhanced examination and enforcement resources for investment advisors; both studies were mandated by the Dodd-Frank Act. This study has gotten far less press, but its implication are just as important. To quote from the results “State regulators may not have adequate resources to continue to assume increased regulatory responsibilities, and investor protection could be compromised if such resources are lacking.”

The study made no final recommendations, but my concern is that regardless of how the fiduciary standard issue finally concludes, lack of effective enforcement will significantly decrease its effectiveness. Especially in today’s atmosphere of governmental budget cuts, don’t overlook the importance of how any eventual legislation is supposed to be enforced. Given the spotty recent records of the regulatory agencies, this study should be garnering a lot more the public discussion.

Now, on to the fiduciary standard. To borrow from another commentator, if this were a baseball game, we would probably be in the third inning – this issue will not be settled for a long time. At issue is if brokers should be held to the fiduciary standard that investment advisors are held to today. Under the recommendation, anyone providing personalized investment advice to retail customers would have to adhere to the fiduciary standard.

Part of the rationale given for the recommendation is that client’s do not understand that there are differences in the standards in place today. The SEC argues that harmonizing the regulation of advice providers would increase investor protection (although no specifics are given). The new standard would require that advisors show that any recommendations they make is defensible and that the paperwork is in place to ensure that investors understand exactly the service they are expecting.

A summary of my two cents:

– This issue will not be decided for a long time, and as the publicity continues the arguments are probably going to confuse investors more than anything;

– Instituting a fiduciary standard that is not enforced will not protect investors;

– Just because investment advisors today are held to this standard does not mean that all investors are protected; and just because brokers are not help to this standard does not mean that investors are being harmed;

– The burden continue to fall on the advice giver (broker or investment advisor) to explain how they act in the client’s best interest – to describe their process and how they hold themselves to a fiduciary standard (regardless of whether anyone else does).

At the end of the day, successful advice givers will be able to articulate their value-added proposition and succeed. The rest of this seems to me just to be a lot of noise……..

Book Review: My Top 10 Thoughts on “Too Big To Fail”

Friday, January 21st, 2011

I decided to read “Too Big to Fail: The Inside Story of How Washington and Wall Street Fought to Save the Financial System – and Themselves” by Andrew Ross Sorkin after it was recommended by a friend. Up until now I have avoided reading many of the books on the financial crisis – maybe you can call it overload.

Well – you need to read this book! Not since reading “Barbarians at the Gate” (about RJR Nabisco)  have I enjoyed a business book so much. Yes, there was certainly some gossip in the book which made it all the more intriguing and enjoyable. But there are also many lessons to be learned and I have not been able to stop thinking about its continued relevance.

Here are my top thoughts and observations on this book – please read it and let me know yours. (Note – these are in no particular order.) I also apologize in advance for the length of this blog – but there is so much to think about in this book!

10 – Wow – we were really close to a total meltdown of the entire financial system! I mean really close! I knew this before – but now I know a lot more of the details. And we are very lucky that the solutions ultimately worked (namely the decision to use some TARP money to loan banks money). It’s still hard for many of us free marketers to stomach bailouts – as it was hard for those in power to do at the time – but I am more convinced now than ever that it had to be done.

9 – It could happen again – actually will probably happen again – and it may be quickly. To be honest, I’m not sure that we learned a whole lot from the experience; it doesn’t seem to have greatly affected the behavior of many. This is the scariest thing to me. We continue to create derivatives of derivatives and products like triple-leveraged ETFs and nobody – and I mean – nobody really understands what they are. This leads to my next observation:

8 – Title and position are not necessarily correlated to knowledge. We all know this intuitively, but the fact is that many of the CEOs of the largest banks and financial institutions had no idea what was on their own books. The sophistication of the products at some point greatly surpassed most people’s ability to understand them. Everyone accused the leaders of Wall Street of being greedy; while this is probably true to some extent, part of the crisis was not about greed but more about mis-management. Business schools certainly failed us! Risk management? Didn’t exist!

7 – I have more respect for Tim Geithner than I did before (I don’t want to give too much away here – read the book!)

6 – Conflicts of interest are so rampant that to even pretend that they can be avoided is naive. I didn’t know that Hank Paulson got a special waiver which nullified his agreement not to deal with Goldman Sachs (the firm he used to run) during his tenure as Treasury Secretary, did you? If I had a dime for every time they mentioned GS in this book……

5 – Luck pulled us out of this as much as anything – which is scary for the future. The way the government came up with the $700 million for the TARP program would have made Houdini proud! So scary though – what if they had been a few hundred million shy? What if Paulson had not been Treasury Secretary?

4 – It still doesn’t make sense to me – or most people in the book I think – why Lehman was allowed to fail and others were not. Luck of the draw? Personal vendettas? Dick Fuld’s personality?

3 – So many random decisions were made – many which luckily worked out for the best. But this does not bode well for the future. We continue to allow bubbles to expand without knowing the true implications. I don’t think we learned a whole lot from what happened. Maybe this is human nature. Maybe this is where greed comes in. I’m not sure. Municipal bonds, student loans .. what will cause the next crisis? Will luck pull us through again? And it will have to be luck because I don’t see any evidence that anything has really been put in place as a backstop.

2 – TARP started out as a 3-page bill that was expanded to about 50 pages. Certainly there were not enough details in the original heat-of-the-moment proposal. Last year’s financial services reform (and health care reform) bills were in the thousands of pages, many of which were probably never read – or understand. Maybe we use 100 pages as a goal moving forward? There is something to be said for short and sweet – and clear and understandable!

1 – We the people – us little people – really have no control.  I hate to agree with those that have always claimed that individual investors, for example, are at the mercy of the institutions. In some respects, what has happened over the past few years has verified that the system is really rigged. Maybe that is inevitable in a system that has grown so large and bureaucratic.

I still need to think through this book – I will probably have more thoughts at a later date. In the meantime, please read the book!

1Q2011 Newsletter – A New Year, a New Congress …

Monday, January 17th, 2011

We have published our first quarter newsletter, which features our new White Paper “The 10 Keys to 2011 Marketing Success.”

Click here to see the entire newsletter. Our introductory letter, entitled “A New Year, a New Congress …” talks about the dichotomy between the outlook for the markets and the outlook for the economy as we move into 2011.

While the outlook for the economy is improving somewhat, concerns remain over the speed and magnitude of the recovery. On the other hand, most market participants are more optimistic about the outlook for the stock markets as we enter a very important earnings season. Even though there is a lot of optimism, however, earnings were so good last quarter there is some caution and concern if earnings this quarter will be as good.

Against this backdrop, we all need to run and grow our businesses. Enter our White Paper, which discusses marketing in today’s environment.

Have a great quarter – we would love to hear your feedback on our newsletter and White Paper.

The 10 Keys to 2011 Marketing Success

Wednesday, January 12th, 2011

We just completed our newest White Paper – The 10 Keys to 2011 Marketing Success.

The White Paper begins:

The economic events of the past two years have brought with them the reality that while referrals are great, and will always be part of growing a business successfully, many practices that have relied on referrals exclusively have more recently needed to supplement these referrals with a more active marketing approach.

For those who have not had to actively market for a number of years, or those who have not been happy with their marketing success – or lack thereof – one of the stark realities is that marketing has changed. Competition has increased, clients have become more discerning and social media has had a dramatic impact on the types of activities that are most effective.

Click on the link above to read the rest of the Paper. It can also, along with the other White Papers referenced in it, be found on the Resources tab of our website.

Giving Advisors What They Want

Friday, January 7th, 2011

I’ve read a number of articles over the past few days analyzing why communications between advisors and wholesalers break down. Many mutual fund companies and investment managers continue to struggle with the best way to earn the trust of advisors, and in turn become one their core investment offerings.

Well – I have a news flash – it really is not all that complicated! The one caveat is that good performance must be there – because if an investment firm is consistently under-performing, it will be very difficult for any wholesaler to establish a long-term relationship with any advisor. Let’s not be naive – this is all about business. The wholesaler wants to help the advisor, but if no business comes his way, this support will inevitably diminish.

I don’t view this as a conflict of interest as much as a reality of life. Top-notch advisors do business with multiple providers of investments, and it’s fine that the level of support and communication is a factor in the decision-making process. After all, they need to provide their clients with information on an on-going basis.

So, what are the keys to success in this advisor/wholesaler relationship?

The first key to success is one that does not have a lot to do with the wholesaler per se. It’s important that the firm that the wholesaler works for communications openly with the home office of the advisor so that the rules of the road are clear and that the priorities of the sponsor become those of the investment provider (and in turn the wholesaler). Advisors do not want to do business with firms that will potentially bring him into conflict with the powers that be at his firm. A strong firm-to-firm relationship makes the job of the wholesaler easier from the start.

Then it is up to the wholesaler. Begin by asking what the advisor wants  – not by telling them what you offer and can do for them. The best salesmen – and wholesalers are after all salesmen – listen more than they talk. While there will be a lot of common answers – like value-added presentations or financial support for seminars (if allowed by the firm) – each advisor will want to get information and communicate with you in his own way.

Make the advisor feel like the services you area providing, and the way that you are providing them, is unique and custom to his needs. Treat him like the client that he is. Ask how often he wants to hear from you and in what form. Ask for permission to contact him in case of “emergencies” that need to be communicated quickly.

In other words, treat the advisor as a partner. Advisors spend a lot of time making sure that their clients are happy – wholesalers should do the same. The most successful wholesalers understand that advisors want this same level of attention given to them in their relationship. See – its not that complicated! But it does go beyond having the best value-added training modules.

Its the relationship, the relationship, the relationship. And communication, communication, communication.