Archive for December, 2011

AK In The News: 2012 Will Be Year of ….

Friday, December 30th, 2011

Readers were asked in a year-end poll by Ignites (a Financial Times Service) what they thought the main market trends of 2012 would be (they were given a list of items to choose from). The two top trends that they identified were 1) the return of individual investors into equities; and 2) the growth of exchange-traded funds (ETFs) and other passive investment strategies at the expense of mutual funds. I agree with them on the latter but not the former.

Investors continue to be fee-sensitive, and given the relatively poor performance of the equity markets for awhile now, the popularity of ETFs should continue to grow. After all, to many investors, if returns are going to be low, why reduce them further with higher cost mutual funds?

I am surprised that the number one answer  (28% v. 26%), however, was that individual investors would return to the market. I personally think that this is wishful thinking on the part of financial services professionals. As I state in the article, ” I think that the combination of global uncertainty (especially in Europe) and the election are going to make investors hesitant to get back into the markets. I think that the market will be flat for the year and then we might get a year-end rally after the election.”

What do you think? Click here to read the entire article.

Have a great New Year’s weekend. 2012 should be an interesting year.

Top Ten 2012 Predictions

Wednesday, December 21st, 2011

2011 has certainly been an interesting year – with many economic, financial and political issues unresolved as the year ends. What this bodes for next year is that 2012 will be another tumultuous year – in fact a year very much like this one.

In no particular order, therefore, my top ten predictions for 2012:

10 – The Presidential election is the Republicans to lose. I retain this view even as the Republicans (led by the House) are self-destructing and opening the door for Obama. If the candidate is Romney, Huntsman or someone with similar moderate views that can attract independents AND there is no third-party candidate, then Obama is out. If, on the other hand, the candidate is Gingrich, Paul, Bachman or some other candidate who can not attract independents AND/OR a third-party candidate emerges, then we will have four more years of Obama. I know that that is a lot of “ifs,” but we are still early in the race. My money is on a Romney presidency starting in 2013.

9 – The Democrats will retain control of the Senate, although with a smaller majority, in part because like in 2008, the Republicans will put up some unelectable candidates (can anyone say Rhode Island?). The Republicans will retain the House of Representatives, which will look pretty much the same as it does now. Sorry Nancy.

8 – The Supreme Court will uphold the legality of Obama’s Health Care plan, but this will make it an even more polarizing issue in the election (since the decision should come in the Spring). If a Republican is elected President, it will be continue as an even more contentious subject in 2013 and beyond, as the legislative branch will take the lead in repealing parts of the plan.

7 – The stock markets will end slightly up for the year, helped by a year-end relief rally after the election. Volatility should be relatively low, as many investors will stay on the sidelines because of all of the political uncertainty. Another “lost” year like this one. It will remain a stock pickers market – driven largely by earnings in the few sectors of the economy that will do well.

6 – The U.S. economy will not go into recession, though following continuing turmoil in Europe, will get dangerously close. Unemployment will dip somewhat then increase again to about 9% at election time because there will be no significant job bills enacted and political gridlock will dampen demand. Housing will remain in the dumps. The positive economic news of the past month is deceiving.

5 – Europe will go into recession (maybe not all countries but as a whole). There will have to be a number of emergency summits once again, as everyone realizes that the actions enacted in 2011 were only band-aid measures and that real problems remain. The divergence between the stronger Northern European countries and weaker Southern European ones will continue.

4 – The Euro will survive 2012 – barely – and I imagine a year from now the outlook for its continuation past 2012 will be very bleak. Back to those summits for a second – hopefully there won’t be 8 or 9 like there were this year!

3 – The Occupy movements will continue sporadically throughout the year as economic conditions stagnate. I don’t think they will pick-up significantly, however, and absent the emergence of any real leadership – to voice a unified concern or theme in a cohesive manner – the November elections might signal their end.

As for the financial services industry:

2 – At least one major brokerage firm will be sold or spun off by its bank-parent (this excludes Morgan Keegan; in this case, if MK is not sold by the end of the first quarter, I predict that Regions Financial itself will be gobbled up by a larger bank). The bank/brokerage marriages have in large part not worked, so 2012 could be the beginning of the end for many of these relationships. Hint – ML.

1 – The wirehouses will continue to lose advisors to the independent, RIA and semi-independent channels. The attractiveness of working for one of the big four is just not what it used to be – both from a reputational point of view as well as an ease of doing business one. The wirehouses aren’t going to disappear though – just continue to become less dominant.

In any case, 2012 should be another fun and interesting year.

Happy Holidays and a Happy and Healthy New Year to all – regardless of the macro-world, may 2012 bring you and your family health and prosperity.

A Look Back At My Top Ten 2011 Predictions – How Did I Do?

Wednesday, December 14th, 2011

As the year draws to and end, and before I release my predictions for 2012, I thought that it would be fun to look back on my predictions for this year. Here is the list with updated comments (which are in bold).

10 – Stocks will once again have a better year than the economy as a whole. I am “mildly optimistic” heading into 2011. The one thing that I have learned is that you can’t fight the market’s momentum. The market is essentially flat and the economy  remains weak with a few bright recent employment reports. Mild optimism was perhaps warranted, but not rewarded.

9 – Housing will continue to struggle in 2011 and unemployment will remain stubbornly high. The jobless recovery will continue, but there will not be another recession. This predication proved to be pretty accurate. We are pretty much where we were a year ago (wasted year?).

8- The much-talked-about municipal bond crisis may develop, but will not be as bad as the doomsayers predict. Increased municipal failings will not be surprising – but this will not be another crisis of the magnitude of the housing crisis. I was wrong here – this crisis never really developed even though a number of large bankruptcies occurred. 

7 – The bipartisan spirit of the lame duck Congress will end quickly – particularly over spending – and the gridlock predicted after the election will begin. This is not necessarily a bad thing for the markets – just the reality. Here I was correct – the political environment is worse today then it was a year ago. More on this in my 2012 predictions.

6 – The Federal Reserve will not raise interest rates (that will happen in 2012). Interest rates have not been increased and if anything, whatever inflation threat there was has abated.

5 – The crisis in the Euro zone will continue and the PIIGS will continue to give us heartburn – but the Germans will lead the EU to the rescue and the crisis will not negatively impact the US (maybe on particular days, but not overall). Kind or right – kind of wrong. The Euro crisis has gotten worse and the German leadership has been less than stellar. The jury is still out as to what the impact on the US will be – that again is more of a 2012 prediction at this point. But Europe = heartburn was certainly true!

As for the financial services industry:

4 – It will be another year of net advisor losses for the wirehouses. The allure of going independent coupled with continued negative press will be the straws that break the camels back and influence advisors to make the change. Yes and no – the trend toward independence continues but slowed more than I thought. However, this slowdown was do more to general inertia caused by economic uncertainty than by anything positive that the wirehouses did to make themselves more attractive. Few advisors are willing to make changes that will affect their clients when there is so much uncertainty already.

3 – UMAs will continue to grow at the expense of SMAs and ETFs will continue to grow at the expense of mutual funds, although ETFs will continue to fight negative press surrounding the plethora of derivative-type ETFs that are being developed. UMAs did continue to grow as did ETFs. The negative press about ETFs is still out there, although did quiet down somewhat during the year. Surprising was the growth of advisor-managed accounts – didn’t see that one coming!

2 – Fidelity will have at least one reorganization (not hard to predict based on past trends!) and Schwab will continue to grow its managed accounts AUM and surpass at least one, if not two warehouses. Of course Fidelity made news with changes in staff and strategy and Schwab continued to grow. 

1 – Consolidation among money management firms and RIAs will continue as firms continue to cut costs and search for synergies to help them distinguish themselves from the pack. Consolidation did continue, although slower than I thought – another symptom of a year in which economic and market uncertainty caused many people to sit on their hands and wait for the dust to clear.

All in all, I would say many of my predication were accurate. But the year was a frustrating one in that we find ourselves pretty much exactly where we were a year ago – the markets are pretty much at the same levels, the economy is growing at the same rate, unemployment remains high, etc. etc. etc.

I think 2012 is going to be a little more exciting – look for my new predictions next week!

AK In The News: RIA Growth To Continue

Thursday, December 8th, 2011

Today’s FundFire (an on-line service of the Financial Times) contains an article on the growth prospects for RIAs; click here to read the entire piece. While the article focuses on Focus Financial Partners, no pun intended, the comments are germane for other industry participants as well.

My comments center on a few primary themes, one related to the overall growth prospects for RIAs, and the other on how these firms are maintaining and in some cases increasing their competitiveness.

While there may have been some slowdown in the trend toward advisors going independent this year (depending on who you talk to and which studies you look at), this slowdown is more a symptom of the current financial uncertainty then a sign that the trend toward independence has reversed. What we learned in 2008 is that economic and market uncertainty, rather than signaling large moves in assets, leads to a period of inaction – many advisors don’t want to rock the boat and make decisions until the future becomes clearer.

This is the case for clients as well as advisors. The attractiveness of leaving a wirehouse for an RIA remains for advisors that either want an equity stake, as some of these firms are offering, are looking for more independence in the decision-making process and/or perhaps a chance to escape the reputational risk that hampers many of the wirehouses today. Now, I am not saying that the wirehouses are going away. Some advisors like the safety of the wirehouses, and the fact that they don’t have to make management and/or other far-reaching decisions. They are willing to put up with the increasing amounts of compliance and red tape.

The second point – competitiveness. Larger RIAs and aggregators, as the article points out, are increasing their product offerings – specifically in the areas of SMAs, UMAs and alternative investments. In many case, they are teaming with product providers. My comments here are that in many cases, it is easier for these RIAs to buy the product platforms as opposed to building them.

Their particular area of expertise is probably not in product development – so why force the issue? In my mind this situation is similar to many bank brokerage platforms, where the quickest way to grow and compete is to utilize existing products. The amount of money, time, and organization that it takes to build competitive investment products is daunting for firms that have never done it before.