Archive for April, 2011

What Type of Wealth Manager Are You?

Monday, April 25th, 2011

Every quarter, Cerulli Associates partners with IMCA to produce a research piece of interest to the industry. The latest is entitled “Understanding Wealth Managers: Practice-Type Analysis.” The study differentiates advisor/wealth manager practice types that exist today. Categories generally vary by the amount of advice offered that is not directly related to investment management. In general, the more services you provide above and beyond traditional investment management, the more sophisticated and wealthy the clients that you are serving.

Are these categorizations perfect? No. Are they always adapting? Yes. The lesson to be learned here, however, is to get a general idea of whether your practice and your resources match your target audience and your business plan. If there are mismatches, there is no time like the present to make some adjustments.

Cerulli’s categories – from least comprehensive to most are:

  • Money managers – desire to be valued solely on their investment performance
  • Investment planners – work with investors larger financial needs on an as-needed basis – typically would use modular planning tools
  • Financial planners – strive to deliver comprehensive financial advice, but still many clients do not receive comprehensive financial plans
  • Wealth Managers – additional services included to meet the wider needs of high net worth individuals, including philanthropic giving and concierge-type services

Which type of advisor are you? Now, here are some of the results of the study to see if your practice is in sync:

  • The percentage of fee-based business is higher as you move up the scale from money manager to wealth manager, as wealthier clients are more likely to understand the-based arrangement and are used to paying that way
  • Wealth managers tend to work in team practices and provide either in- or out-house resources for the specialized and more sophisticated services that they provide (advanced planning and wealth preservation)
  • Wealth managers utilizing a holistic approach are more likely to be the Alpha advisor
  • Wealth managers are more likely to have larger books of business – fewer clients with larger amounts of assets

And last but certainly not least – wealth managers are more likely than other types of advisors to get referrals – from either clients or other professionals. On average, according to this report, 55% of the new business of wealth managers comes from referrals.

All in all, these results are very interesting. While there is compelling evidence to strive to become a wealth manager, it’s important that you make sure that you have the capabilities, finances and resources to do so. If not, create your own compelling reason for choosing the type of business that you become. There is enough room for advisors to be successful in a number of ways – but it’s always good to know what the competition is doing.


AK Quoted: Fund Industry Article – Usefulness of Social Media Grows

Wednesday, April 20th, 2011

Ignites today published results of a poll which indicates that fund industry professionals are increasingly embracing social media and recognizing its applicability; click here to read the complete article.

More than 58% of the almost 250 respondents characterized social media as either “important” or “useful,” up from 51% a year ago. The number of respondents who indicated that they believe the hype around social media is greater than its usefulness dropped to 26% from 35% a year ago.

My two cents as cited and quoted in the article:

  • Social media oriented strategies will only gain more ground in the future. Fund companies and other sponsor firms are ahead of advisors and RIAs because of continuing monitoring/compliance issues.
  • “For those who think the hype is bigger than usefulness and to those that bemoan the end to face-to-face communications, I would say you are looking at social media in the wrong way. Social media should not replace anything — the heart of all relationships remains personal. Social media should not replace the handshake or anything else. It should supplement it and deliver more value to the client or prospect, and deliver in a way that they want. Social media should increase your reach, improve your communications and help attract new prospects and cement relationships.”

Investment Managers: Stability Continues to Top Performance

Monday, April 18th, 2011

Another survey has confirmed what has been the “new” conventional wisdom post-Madoff and post-financial crisis: institutions are weighing organizational stability more heavily in deciding their manager mandates than they are performance. We all know that past performance is not necessarily an indicator of future performance. Organizational instability, on the other hand, will most certainly lead to future under performance.

This latest study is entitled “Institutional Investor Brandscape” and was conducted by Cogent; 590 institutions were questioned for the survey.

A staggering 88% of respondents placed organizational stability at the top of their list as the most important criteria they use when selecting a manager. While I would have expected stability to top the list, I was surprised at the magnitude of this number.

Institutions have clearly become much more focused on the long-term – whether a manager can retain its people, whether its systems capabilities can match its growth and whether the future level of service and performance will be adequate.

Other answers that ranked highly in the survey in the decision process included strength of investment philosophy, investment team and risk management practices. While investment philosophy is important, respondents indicated that just as important if not more so is the process by which that philosophy is implemented. Institutions want to make sure that the philosophy is repeatable over a long period of time.

Respondents also consider consultant recommendations, a firms research and though leadership, fees and reputation. Interestingly, service and support models, relationship management and product innovation were at the bottom of the list.

This seems a little counter intuitive to me – after all, the relationship management and service teams are the ones that communicate and articulate what makes the firms stable in the first place, they the ones who update clients if and when changes take place, and they explain and how the firm is dealing with it. Perhaps respondents were making the assumption that good investment managers have good relationship management and service teams; to me, these are two distinct areas and firms might not necessarily excel in both.

So while I am confused by some of these results, I do think the survey clearly once again confirms that performance, while important, is certainly not the deciding factor for institutions when hiring investment managers.

The important implication for these results is that investment managers must be able to articulate their entire firm story during both good and bad performance periods. In fact, viewed from this perspective, these results should be somewhat comforting to managers – it means that if clients are comfortable with the organization and its stability they are less likely to fire them during the inevitable periods when they do under perform.

If You Don’t Know Your Own Value – Who Will?

Tuesday, April 12th, 2011

It never ceases to amaze me that so many advisors are so willing to discount their fees – no questions asked – as a regular course of business. PriceMetrix recently conducted a study of advisors across North America, and the findings are based on data which includes the books of 15,000 advisors, 2.3 million investors, one million fee-based accounts and more than $850 billion in assets. A few of the findings of the study include:

  • Discounted management fees are taking an average of $20,000 a year out of the pockets of financial advisors
  • The top 25% of advisors charge an average fee of 2.01% while those in the bottom quartile charge an average fee of 0.81%.

I find this last statistic very interesting indeed. To those who say that competition has increased and therefore fees must come down, I would counter with the question, do you want to be in the top 25% of advisors or the bottom quartile? Yes – competition has increased. But that does not necessarily mean that price is the only way to compete.

Successful advisors typically have the fee discussion with clients up-front, at the beginning of the conversation, as they describe their value-added proposition and unique perspective on the business. If the conversation is successful, discussions about discounts and quelled even before they begin. On the other hand, if the client brings up fees it’s probably too late.

The study also validates that point that once you have begun to discount, it’s very hard to end the precedent. According to PriceMetrix, only 5% of advisors increased their prices on existing fee-based account by more than 10 basis points in the years studied (2007-2010).

Few surgeons or attorneys to lower their fees – why should you? If you are confident in your ability to add value to your clients, then the fee discussion should be easy. In fact, turn the question around and ask the client “Would you want to do business with someone that has so little confidence in their ability to add value that they automatically offer a discount? If I help you define and reach your goals, the fee charged would be more than justified, wouldn’t it?”

Take control of the fee issue – and don’t discount you own worth! After all, if you don’t know your own value, you certainly can’t expect someone else to know it.

Making a Case for Emerging Managers

Thursday, April 7th, 2011

Making a Case for Emerging Markets is the title of a presentation that I gave today at the Investment Management Institute’s Consultants Congress in San Francisco; click here to see a copy.

While there are no silver bullets to get emerging managers into searches, the good news is that consultants are more receptive to less-traditional managers in the wake of the financial crisis. Consultants are looking for managers that can add value in today’s very challenging investment environment, and they are more willing to look at managers with shorter track records and fewer assets under management (AUM).

Having said that, the burden remains on these managers to articulate their investment strategy, their uniqueness and to demonstrate the strength of their organizational infrastructure. The door is now open to these managers – but hard work still remains to actually get shown to clients and ultimately win business.

At the end of the day, of key importance is the ability for these managers to develop a trusting relationship with the consultant. Communications – open and proactive – is vitally important as is honesty. For example, if you make an investment mistake, own up to and demonstrate what you have learned from the mistake. And above all else, remember that consultants do not like surprises.

Today’s investment environment demands that consultants consider a wide range of manager candidates. If your firm can add value in a repeatable and easily articulated manner, than being an emerging manager does not present the hurdle that it used to.

Create a Buzz to Grow Your Business

Tuesday, April 5th, 2011

Click here to read our newest White Paper – Create a Buzz to Grow Your Business.

The perception is that the only way to become better known is to spend a lot of money hiring a public relations firm. The good news is that there are ways that you can act as your own publicist without spending a lot of money. In fact, the best publicity is often free, and easier to get than you might think.

The White Paper talks about some of the ways that you can create your own buzz now:

  • Focus on a niche or target market
  • Be proactive and promote yourself
  • Be accessible and newsworthy
  • Be “Social Media” visible
  • Be Patient

The article was featured in our second quarter Unlocking Real Value Newsletter. Click here to see the complete newsletter, which also includes an exciting new Crisis Management program we have introduced via one of our strategic partnerships.

I hope that you enjoy the article and the newsletter.

Hallmarks of an Effective Social Media Strategy

Friday, April 1st, 2011

This is the title of an opinion piece that I wrote for yesterday’s Ignites; click here to read it.

The article discusses the things that will separate the winners from the losers among firms that decide to enter the social media arena. (These same principles are germane to advisors entering this foray as well.) Bottom line, those firms that succeed will be those that have a strategy to attack this ever-influencial channel and then execute on this strategy. Those that enter with no strategy, and act accordingly, are probably wasting their time and money.

Key principles firms should consider in developing their approach to social media include:

  • Be informative and educate – pull people in with value-added content; do not try to sell something
  • Be consistent with your delivery – if you’re not going to have fresh content on a regular basis – don’t start!
  • Be accessible – give people multiple ways to follow your company, link them together and make them easy to use
  • Have an opinion – it’s okay to be outspoken and a little controversial
  • Be patient – Rome wasn’t built in a day – it will take time to build a sizable following

Roughly 80% of asset management firms recently survey by Kasina expressed interest in developing a social media strategy. Some will and some won’t. Some will be successful and some won’t.

You can be sure that the winners will plan, allocate resources and personnel and treat their entry into social media as a serious endeavor. Because it is – and if not done right can hurt your reputation and leave you behind the competition.