Archive for March, 2011

Press: AK Quoted in Social Media Article

Wednesday, March 30th, 2011

Ignites today reported the results of its latest survey on social media. Click here to read the article and see comments by AK Founder and Principal Andy Klausner.

The surprising headline in the survey is that a greater percentage of respondents said that Facebook is their main social media tool; LinkedIn came in second (45% to 30%). The question did not distinguish between business and personal use, however, which is probably why Facebook placed higher. While among companies the use of Facebook is increasing, as they develop company-specific pages, I think the number of advisors using LinkedIn as opposed to Facebook is still far greater.

Encouraging was that only 16% of respondents said that don’t use any social media; a similar survey by Ignites last year indicated that 33% of respondents did not use social media. The message here is that the financial services industry is not as far behind in the social media race as previously believed.

Finally, not surprisingly, Twitter trailed significantly in the survey, with only 4% using this tool. Twitter remains a much more social tool than a business one.

Bottom line, despite the results of this narrow survey, I still believe that LinkedIn remains the primary social media tool of individuals in the financial services industry, followed by Facebook and Twitter. Companies are increasingly turning to Facebook but remain active in LinkedIn as well.

The Wealthy Rebel – Advisors Beware

Monday, March 28th, 2011

A new Cerulli Associates Inc. survey of 400 affluent households with at least $10 million in investable assets has some very sobering news for advisors:

  • 57% of these households are working with at least five or more advisors
  • 64% are working with at least four advisors (compared to 16% in 2008)
  • 18% are working with only one advisor
  • 44% changed their primary advisor over the past 12 months

I am frankly surprised by these results. Two or three advisors makes sense – but four or five? We have all heard reports that the financial crisis resulted in large client moves from advisor to advisor – but the fact that almost half changed their primary advisors should make advisors sit-up and take notice.

The report also talked about the needs of these clients. On average, these households have more than 13 in-person meetings and 18 client-initiated phone conversations per year. Add advisor-initiated telephone contact and the number of annual contacts approaches fifty. We all know how important services is – but this many contacts per client is a little surprising – and obviously requires a lot of time and resources.

If I were an advisor reading this, I would ask myself the following questions if I either am or are thinking about targeting this niche:

1) Do I really want to serve this niche, or am I better off going after clients with fewer assets? Focusing on clients with lets say $1,000,000 to $5,000,000 in investable assets is still a huge marketplace and client expectations might not be as high.

2) If you do want to serve this niche, you need to ask yourself questions such as a) How do I become the “Alpha” advisor – the primary advisor?; b) How do I altar my marketing approach to demonstrate that I have the ability and experience to help evaluate the client’s entire portfolio, not just the portion they have entrusted to me? In other words, if I take as a given that clients will test me and use other advisors from time to time, how do I establish my role as the person that helps them in their overall evaluation and monitoring process? Often times, helping rather than fighting this trend will distinguish you from the competition; and c) Is my service organization and team capable of servicing clients that are demanding so much attention? Do I need to re-jigger my service strategy to accommodate these trends?

3) Is my message and value added proposition clear? Money has been in motion and the odds are that some of these clients will not be happy with their new advisors. How do I highlight my differentiating characteristics to take advantage of today’s trends?

This study highlights the fact that competition has increased (we all knew it had – but not to this extent). Use this information to make yourself and your business better.

Book Review – The Devil’s Casino (Re: Lehman Brothers)

Wednesday, March 23rd, 2011

I just finished reading The Devil’s Casino: Friendship, Betrayal, and the High Stakes Game Played Inside Lehman Brothers by Vicky Ward. I bought the book awhile ago, but frankly needed a break from reading about the financial crisis. But I’m glad that I finally read it, if only to remind myself of the lessons that I learned from the crisis and how such lessons remain relevant.

The book was enjoyable, and a quick read. Like many of the books on the crisis, it was filled with gossip and stories about the main characters involved. While this type of stuff is always fun to read, I do take the gossipy parts with a grain of salt knowing that the truth probably lies somewhere in the middle….

I always ask myself when I read books if there are lessons that I can use in my day-to-day business – and there were here.

I have three main takeaways from the book:

1. Don’t let success breed arrogance – I hadn’t realized the extent to which Lehman had successfully navigated the Long Term Capital Management (LTCM) crisis. Lehman emerged from that crisis better than most of its rivals, but this success gave them a feeling on infallibility which probably led to their ultimate demise (by over-leveraging and over-committing to real estate and other illiquid assets). Success once does not guarantee it again.

2. Always hire on merit not feelings – Though certainly not unique in this or any other industry, Lehman made countless personnel decisionsthat were seemingly not made on merit – and most of these decisions turned out poorly. We all have egos, but the more we let them interfere with rational decisions, the worse off we will be. Always try to take a step back before making important personnel decisions.

3. Thoroughly understand what you are getting yourself into before you do it – It still amazes me how companies such as Lehman amass huge exposures to instruments that they really don’t understand. The derivatives world has gotten so complicated and in the case of Lehman at least, the sophistication of its people and its ability to understand derivatives, leverage and risk did not keep up with the instruments themselves. In many senses, Lehman is the classic story of getting in over one’s head – and not realizing it until it is too late. In fact, I’m not sure if many of the Lehman principals even understand today why the firm failed. The lesson here is that you should stick to what you do well and only expand after a thorough and unbiased review.

Gossip aside, it seems apparent to me that ego and mismanagement above all else destroyed Lehman Brothers. Reading books such as this are good reminders of what not to do and how to keep yourself grounded and on track. And they provide a little entertainment as well.

And the Worst Job in Financial Services is ….

Thursday, March 17th, 2011

I saw this morning that four Morgan Stanley Smith Barney branch managers recently left the firm – two went to competitors and the fate of the other two was not known by the reporter. It got me thinking, is there a worse job in this business than being a branch manager, especially at a wirehouse?

You will know from past blogs that I am not one of the many wirehouse bashers – I have spent many years at these large firms, and despite recent difficulties, I feel that they will have their day once again. But over the past few decades, the role of branch management has changed, and not for the better.

Historically, compliance jobs were always considered the worst in the industry. Everyone hates those anti-business people in compliance and legal, don’t they? Realistically, we know that they are a necessary evil and in fact there to protect us – but it was always fun to blame them for everything bad. But now, in today’s world of transparency and full disclosure, compliance has become a friend more than a foe. In fact, almost unheard of years ago, people sometimes look for that “no” to avoid things that they really don’t want to do!

Conversely, branch management used to be a glamorous job. The branch manager was respected, helped train and mentor the rookies, held productive sales meetings and stood up for his guys when the home office was being difficult. Those days are behind us, especially at the wirehouses.

Branch managers have largely become babysitters – bringing down the hammer at the request of the home office, and often saying no to protect themselves. I have an old friend who was a branch manager. His firm asked recently him to fill-in temporarily when they were between branch managers. He did it – but only out of a sense of loyalty, and he did it kicking and screaming!

To cut costs, many branch managers have been let go in place of complex managers, pay has been cut, and I’ll bet we all know tons of former branch managers who are now producers.

So yes, I think that the worst job in financial services is definitely branch manager.

What do you think?

The Unhappy Marriage of ML/BofA – The Saga Continues

Tuesday, March 8th, 2011

Any way you slice it, the cultural problems between the “old” Merrill Lynch and parent Bank of America persist. Part of the problem is the classic meshing of a bank with a brokerage firm.

Business Week’s article this week on the firm (entitled “The Bull Whisperer”) highlighted many of the potential causes of the continuing conflict – Bank of America’s “connectivity” initiative (a.k.a. encouraging/mandating cross-selling of proprietary products), the desire of the bank to have brokers get rid of smaller accounts (or at least offer smaller clients less service), the low price of the stock, the continuing bad press surrounding the bank, etc.

Whether you support the notion that the partnership is not working – Merrill brokers are leaving in larger numbers than the competition – or you think the partnership is working – brokers have access to more liability-side services – there is one clear lesson: brokers just don’t like being told what to do. All other reasons aside, and regardless of the rationale – increased bank profitability – the connectivity initiative is only going to drive more brokers away.

The bottom line is that the large broker/dealers will continue to exist, and many brokers will continue to make the move to independence. Regardless of the reasons for the larger number of brokers leaving ML, the lesson for upper management is that you can’t ignore cultural differences. To do so will lead to continued unhappy marriages like the ML/BofA one.

Having said that, I understand that in the case of this merger there really was no choice – the merger happened at the apex of the financial crisis and ML was headed toward certain bankruptcy. So in cases like this, management needs to be a little smarter, recognize the irreconcilable cultural differences and stop trying to put a square peg in a round hole.

It’s All About Trust, Trust, Trust

Friday, March 4th, 2011

Hardly a day goes by that I don’t read one study or another, or see a poll that indicates that the public level of confidence in the financial services industry remains very low. And usually the answer why is the same – a lack of trust. Trust is our equivalent to real estate’s Location, Location, Location. Its’ All About Trust, Trust, Trust – that’s it in a nutshell – that’s what matters to investors.

So if we all know that you have to gain an investors trust, why are so many in our industry having trouble either understanding this, or in gaining it? I read an interesting article recently that not only talked about trust between advisors and clients, but between advisors and the investment companies (e.g., mutual funds) that they work with. What was most interesting to me was that advisors are looking for the exact  same thing in the companies that they work with that clients look for in advisors.

So why the disconnect? Why are advisors in general able to articulate what they want from investment partners but unable to demonstrate the same traits to the people that they want to do business with them? Why can’t we as an industry gain the public’s trust?

First, lets look at the traits that are most important on the advisor side. They want firms they work with to be ethical, trustworthy and easy to business with. These traits are more important to them than cost. In addition, many advisors seem to be reducing the number of firms that they are working with in order to be able to do a better job of due diligence – they want to work with a smaller number of partners who they know well and can trust.

Hmmm – sounds familiar? That’s exactly what clients want – they don’t want to have a lot of advisors – they want someone that is ethical, that they can trust and that is easy to work with.

So where is the disconnect – why can’t many advisors demonstrate to their clients that they are ethical, trustworthy and easy to do business with?

Much has to do with the fact that clients don’t understand what the advisor is really offering – what the “brand” is. If an advisor doesn’t effectively articulate what his value-added proposition is and what makes him different – and better – than the competition, then naturally the client will focus on either price or product – and inevitably not be happy.

The clients of successful advisors can tell you why they do business with their advisor. So, maybe, if your’e an advisor, you should ask the question – the answer might help you reposition or redefine your message. Ask yourself the question, ask your clients the question. In fact, just by asking clients the question, and showing clients that you trust and value their opinion, you are probably starting to increase trust!

Its All About Trust, Trust, Trust.