Archive for February, 2011

How do Advisors Mismanage Their Practices?

Friday, February 25th, 2011

Published on February 25, 2011 – FUNDfire – An Information Service of Money-Media, a Financial Times Company- written by Andrew Klausner, Founder and Principal of AK Advisory Partners LLC.

When we analyze advisors, we usually focus on traits that successful advisors share. But are there traits that are shared by underperforming advisors as well? The answer is yes. If you’re mismanaging your practice, the odds are that you’re deficient in at least one of four closely linked areas. Taking corrective action in your weak area can help position you for future success. Here are the top traits that we see among underachieving advisors:

Lack of business plans: Whether you’re a single practitioner or part of a team, planning is an important component to your business success. The key is to match your resources with your growth expectations. The metrics used are typically desired assets under management and revenue. Where do you want your business to be in one year, or in three years? When combined with your desired minimum account size, you can determine the number of clients that you business should have. Armed with the information, you can analyze if your resources – both human and financial – are a match for your goals. Once resources and goals are in sync, you can begin to address the question of how you get there. Make sure that everyone in your organization understands the goals and how success will be measured.

Lack of a distinct value proposition: Why is someone going to do business with you? What value do you add that they can not get somewhere else? What is unique about you or your services? These are the types of questions successful advisors ask themselves. You notice that I didn’t mention the word “product.” That’s because the product is the commodity; the advisor is the differentiating point. Creating a unique value proposition is part of the process of developing your brand identity. A good brand is one in which every time a client sees something from you, they know it’s from you, and they are reminded of the unique value that you add.

Poor Client Service: Multiple surveys find that client service – even more than investment performance – will dictate whether clients stay with you or not. Part of the planning process for all successful advisors is devising a client service strategy that accomplishes two primary goals: provide the client a unique, enjoyable and profitable experience, and offer the service in an efficient manner. Good client service begins by asking clients what they want and how they want their services delivered (for example, in-person, telephone, e-mail). Challenge your staff to create your own unique client experience and make it part of your brand.

Being reactive instead of proactive: Finally, it’s the old saying that if the client has to ask, it’s too late. Successful advisors anticipate client questions and concerns, especially during volatile times. Call clients before they call you and make them feel like true partners in the relationship. Conduct client surveys as a good way to get feedback. Embrace social media to the extent allowed by your firm so that you can push out ideas to your clients on an on-going basis.

AK Quoted: Poll: Competition From ETFs Is Top Industry Challenge

Thursday, February 24th, 2011

Published on February 24, 2011 – Ignites – An Information Service of Money-Media, a Financial Times Company – written by Gregory Shulas

Competition from exchange-traded funds ranks as the biggest challenge facing the mutual fund industry. That’s according to a plurality of Ignites poll respondents.

Roughly 45%, or 155 voters, said ETFs, along with collective investment trusts, are the biggest threat to mutual funds. That made it the top option in a survey asking readers to identify the industry’s top challenge.

The high ranking comes more than two months after ETFs hit the milestone of $1 trillion in assets under management, and as more active mutual fund firms seek to launch their own ETF products. Some industry observers contend that the growth of ETF products is coming at the expense of mutual funds.

The Dodd-Frank Act received 17%, or 58 votes, coming in a distant second. The lackluster showing may reflect the lack of clarity regarding the law’s ultimate impact on the industry, due to Congress’s current reluctance to fully fund the legislation.

The industry’s concerns about poor equity product inflows appear to be diminishing as only 13%, or 45 voters, said weakness in that asset class is a top concern. Meanwhile, 9%, or 31 voters, said 12b-1 reform is a top challenge.

Rounding out the results were “mitigating the risks, losses imposed by low-yielding money market funds,” with 8%; “tougher scrutiny by SEC, Finra,” which received 6%; and delays in getting derivative-oriented products approved by the SEC, which collected 3% of the vote.

The top ranking for ETFs as a competitive threat to the industry is a development that fund professionals should take note of, says Paul Justice, director of ETF research at Morningstar. The option’s popularity partly stems from the fact that passive product advocates are having an easier time selling their story to post-crisis investors than their active management counterparts, he says.

“I think people responded this way because mutual funds have a harder time defining their value proposition to investors. ETF providers have effectively explained the tax efficiencies and the low costs of their products, saying, ‘Look at my expense ratio.’ What the mutual fund industry has failed to do is say that we charge more but we provide better services,” Justice adds.

Andy Klausner, principal at AK Advisory Partners, says the readers’ concerns about ETFs mirror what he sees firsthand in the industry. “I am not surprised by the poll results. ETFs have become increasingly popular and have been a focus of the press for more than a year. While there has been some negative publicity over some of the more esoteric and risky leveraged ETFs, mainstream ETFs have gotten positive feedback overall,” Klausner says. He adds that the mutual fund industry has a right to be concerned.

“Investors have never really understood the pricing of mutual funds — the many so-called hidden fees — and I don’t think the industry has ever done a good job of explaining them,” Klausner says. “Many sophisticated investors today are still confused about mutual fund fees. On the other hand, ETF fees are pretty straightforward and low.”

Brian McCabe, partner at Ropes & Gray, is surprised that Dodd-Frank collected only 17% of the vote. “I would have expected that, given the importance and sheer volume of regulatory changes occasioned by Dodd-Frank, respondents would have considered it, if not the top industry challenge, certainly a closer second than what the poll revealed,” McCabe says. “I’m not surprised to see that competition from ETFs and collective investment funds finished high on the list, but the margin by which it bested Dodd-Frank is surprising,” he adds.

Yet the industry still seems to believe that mutual funds have the strongest prospects, despite ETFs’ market gains. In a Dec. 14 Ignites reader poll, 51% said ETF assets won’t surpass mutual fund assets in the near term. That made it the top sentiment expressed in the poll. Of that group, 26% said it would take another 20 years for ETFs to surpass mutual funds, while 25% indicated it will never happen.

As of 3 p.m. Tuesday, nearly 350 Ignites subscribers participated in the survey, which is an unscientific sampling of the publication’s subscribers. Readers voted only once on a voluntary basis. Ignites’s audience consists of financial advisors, money managers and service providers.

AK Quoted: Private Bank Retools Leadership, Investing Model

Monday, February 14th, 2011

Published on February 14, 2011 – FundFire – An Information Service of Money-Media, a Financial Times Company – written by Tom Stabile

Key Private Bank has ushered in new leadership as it continues an effort to open its investment platform and build out its staffing to pursue more new clients within its existing 13-state footprint. The changes include a greater reliance on outside managers by the private bank, which oversees about $22 billion for high-net-worth clients, apart from its separate brokerage and Victory Capital Management institutional asset manager business lines.

Tim Swanson stepped up last month from his role as CIO of Key Private Bank to now head the entire operation, a move in tandem with the elevation of his predecessor, Tim Lathe, to a newly created post as executive v.p. and sales executive for Key Community Bank. Swanson – who took on the CIO post in 2009, coming over from a similar role at crosstown rival National City’s private client arm – now plans to hire his successor as CIO through an ongoing search that includes internal and external candidates.

Since his arrival, Swanson has contributed to an overhaul of the Key private banking model that has expanded a largely proprietary investing approach involving stock-picking by its own portfolio management teams to add more external managers and offer more of an open architecture platform.

“I have been part of the group that has put Key Private Bank on the path that we’re on, and that we’re continuing on,” he says. “Our view is that our clients deserve our best answer, and at times we believe we are the best answer, but we’re not so arrogant to think we have all of the answers.”

The push has included adding more external separately managed accounts, mutual funds, exchange-traded funds and alternative investments to its menu, while tapping into the due diligence consulting and product access support of Prima Capital for traditional investments and Fortigent for alternative investing strategies. It had hired Prima several years ago and added Fortigent last year.

Swanson says Prima and Fortigent provide a first level of research to identify strategies that meet Key’s investment criteria. An internal due diligence team adds another layer of review to apply the private bank’s own view to zero in on products that are the best fit for its clients. He says the private bank also has internal research processes – investment strategists, research specialists and portfolio managers – covering equity securities, fixed income and derivatives.

Numerous private banks have opted to mix open architecture with their legacy proprietary approach in recent years, acknowledging an evolution of client demands and the axiom that “you can’t be all things to all people,” says Andrew Klausner, principal of AK Advisory Partners, a consulting firm. “Typically, a trust department or private bank will be good at one style, but can’t offer you the diversification with [internal resources]. If they can show they supplement what they do with [outside managers], it’s not as profitable, but clients today appreciate that.”

Klausner adds that using Fortigent and Prima shows the marketplace that Key is “serious” about its open architecture effort. He says private banks that put their own strategies under the same review as external managers probably can respond to most client questions about whether their proprietary investing options are free of conflicts.

Swanson says the private bank has made a “meaningful investment” to upgrade its platform over the past few years. On the staffing side, the push to expand resources will largely focus on adding staff to its existing private bank locations in the Midwest, Northwest, Northeast and Southeast, with outposts stretching from Anchorage, Alaska east to Portland, Maine and south to Fort Myers, Fla.

The private bank has about 120 lead client relationship managers and more than 700 trust, tax or other wealth management planning specialists overall. The private bank staffers tend to work in standalone locations, though sometimes are based in Key retail bank branches.

What Makes a Mission Statement Good?

Thursday, February 10th, 2011

A Mission Statement – a short statement of a company’s purpose – is an important part of your brand (or corporate identity). It helps distinguish you from the competition by articulating your value-added proposition in an intriguing and engaging way. A good Mission Statement makes the reader want to read more about you and your services.

It should be short – especially if people see it for the first time on your website – because if it isn’t, people won’t read it. As in your elevator speech – if you can’t articulate your value succinctly – it’s time to go back to the drawing board!

Having said that, there are three additional important components of a good Mission Statement:

1) It should clearly define the product and/or service that you provide;

2) It should clearly define who the target audience for your product and/or service is; and

3) It should contain a measurement metric so that you can evaluate its effectiveness.

It might sound daunting to accomplish these goals in a short statement, but it’s definitely possible. To view some samples of Mission Statements please click here. Slides 5-6 of this presentation provide general examples as well as a few specific ones from the financial services industry. (Contact me if you want to know the companies whose Mission Statements are listed on slide 5.)

Send me a draft of your Mission Statement and I’ll give you my two cents.