Archive for February, 2012

AK In The News: Mutual Fund Industry’s Top Challenge

Wednesday, February 29th, 2012

Today’s Ignites (A Financial Times Service) highlights the results of their poll on the top challenges facing the mutual fund industry today. Respondents were given five choices to select from. The results on the top challenge were as follows:

  • Market volatility and economic uncertainty (43%)
  • Competition from ETFs (21%)
  • The proposed money market reforms (16%)
  • Tougher scrutiny by SEC, Finra (8%)
  • Encouraging flows into equity products (6%)

I was a little surprised by these results, as in my mind I have the top two answers reversed – with ETFs being the biggest threat. Interestingly, a similar poll done in February of last year indicated that 45% of respondents chose ETFs as the biggest threat, making it the most popular choice. (That poll did not include the economic uncertainty option.)

My thoughts on the results, as indicated and quoted in the article are:

“”Long-term, of course, economic uncertainty always will be a factor. But this uncertainty impacts all types of investments, not just mutual funds,” Klausner says. Competition from ETFs represents a more daunting challenge to the mutual fund industry than economic uncertainty because it is a specific, rather than a generalized threat, according to Klausner.

“Given the ongoing press about the underperformance of active management, I would think that ETFs, most of which are managed passively, would continue to be a large threat to mutual funds. This comes in conjunction with the growth of ETFs and the increase in the number and type of ETFs available: sector, industry, commodity, et ceterara,” he says.”

What do you think?

How To Succeed In Institutional Sales …..

Thursday, February 23rd, 2012

FundFire ran a series of articles last week that chronicles the woes currently facing many institutional money managers and in turn their sales people – fewer searches, smaller searches, a longer sales cycle, more emphasis on alternatives at the expense of traditional managers, etc., etc. Don’t forget widespread under performance as well, and the recent “bashing” of active management. It’s also become harder to get and keep the attention of the gatekeepers.

Against this backdrop, institutional sales professionals are struggling. While many of these macro issues account for these woes, there were some definite opinions cited from those interviewed about lack of marketing support from their firms, personnel turnover, etc.. These issues did pale in magnitude, however, to the more macro battles to most.

So how does an institutional sales professional succeed in this environment? There are a few things that come to mind:

1) Make sure that your firm’s brand is strong and that you are clearly articulating the distinct factors that differentiate you from the competition. Internally, get with your marketing people and portfolio managers and make any adjustments that are necessary to highlight your competitive advantages – in your website, marketing materials, client presentations, etc.

2) Educate the rest of your firm on today’s environment and garner support for your efforts. This might be a little CYA – but the more your firm recognizes your challenges, the more willing they will be to help you as necessary. For example, the reluctant portfolio manager might be willing to come to a presentation that you feel he should. OR more marketing dollars might be budgeted.

3) Be patient – you won’t be able to change the world tomorrow, but in the words of one of the people quoted in the article’s – be professionally persistent. Confirm with the gatekeepers that you are giving them the information that they want, how they want it and when they want it. Relationships take time to build, and while you may at time frustrate some of these gatekeepers, by being persistent they will remember you and your firm when an appropriate opportunity arises.

I’m not going to sugar-coat this and say that it is easy out there today – it isn’t. But there will always be opportunities and movement in the institutional money management world – those patient enough and smart enough will succeed, while those that blame others and throw up their hands will not; this is the way that it always is after all.

AK In The News: Talent Contest Tightens For High-End Advisors

Tuesday, February 14th, 2012

I was just quoted in an article in Fundfire (A Financial Times Service) which focused on two main points – the hiring prospects for high-end advisors in 2012 as well as the outlook for continued restructuring (code word for budget cuts and layoffs) at home offices in the brokerage community.

While I was not asked to comment on the first question, I agree with the gist of the article that 2012 will be another good year for hiring. The brokerage firms continue to recruit, understanding that wealth management will continue to be a driver for profitability (as they see investment banking revenues decline). And the RIA world, which has been in a growth mode, will continue to be in such a mode, as they continue to attempt to take market share.

As to whether or not the home office restructuring for brokerage firms is over, I disagree with the other gentlemen quoted, who feels that this downsizing has worked its way through the system.

To quote the article: “Not everyone shares this outlook, however. Various factors – such as market competition, evolving technology that automates more processes, pressure on fees from demanding clients, and the temptation to further streamline branches in congested markets – all will encourage more big-brokerage staffing cuts, says Andy Klausner, principal of AK Advisory Partners.

How can they be more profitable without cutting more people in this environment? he asks. I don’t see any reason why you won’t continue to consolidate branch operations. If you have four branches in Cleveland with four operations centers, that’s a place [firms may target]. I think we have more to go.” (I didn’t mean to pick on Cleveland – that is where I am from – I just used it as an example! Also, by operations centers, I am referring to the cages.)

What do you think?

Beware The Rise Of Advisor-As-PM Managed Accounts

Thursday, February 2nd, 2012

Having recently read a number of articles about the significant growth of advisor- or rep-as-PM (portfolio manager) managed accounts, a phenomenon that has actually been taking place since the 2008 financial crisis, I’ve been wondering what’s driving this trend – and do advisors really want to go there?

One such article detailed the rollout of a new trading technology platform at Merrill Lynch included the following two points:

  • More than 3,800 Merrill reps participate in this program, managing assets of about $88 billion.
  • A new survey from the Aite Group found that 42% of respondents think that this segment will be the fastest growing for clients with between $250,000 and $10 million in assets, which is well ahead of other fee- and no-fee-based options.

These accounts give the advisor more control over managing client accounts; in particular, they offer the opportunity to raise cash quickly. This feature is especially important during volatile markets. But, frankly, I don’t buy into this theory.

Top advisors retain control of asset allocation decisions regardless of the chosen investments; this is one of their value-added functions. Such control would include the client’s overall allocation to cash. Additionally, many investment mangers have altered their cash-raising capabilities in the face of the 2008 financial meltdown, making it easier for them to react to the market.

Why this trend then? Perhaps fees are one reason. Compensation in these accounts is generally higher to the advisor, since there is no outside investment manager involved. Fees in general are being squeezed today in the face of years of mediocre market returns. Positioning oneself to get a larger portion of the fee is one way to increase revenues.

Regardless of the reason, however, I would caution advisors that have moved, or are considering moving, the majority of their business into these types of accounts. Remember why traditional fee-based accounts have grown as they have. Hiring an outside investment manager somewhat shields the advisor from poor performance, in addition to putting them on the client’s side of the table. If an advisor hires a number of managers for a client, for example, and one begins to underperform, that manager is replaced – not the advisor.

This traditional model allows the advisor to concentrate on what most advisors do best – relationship management. It’s hard to prospect, market, service and manage investments all at the same time. It’s much more effective to hire a specialist to manage each portion of a client’s portfolio. Remember the theory of gaining control of the client by giving up control of the investments.

I don’t mean to infer that all advisors that participate in these programs are making a mistake. Some advisors truly have an aptitude for managing money. Even these advisors, however, should probably only be managing a portion of each client’s assets. Top advisors should diversify their books of business, just as they diversify a client’s portfolio.

There is a place for advisor-as-PM accounts, particularly in a partnership in which one partner can concentrate on this area. However, I question whether all the growth we are seeing in this area is a positive trend, and if advisors are doing themselves or their clients any favors by jumping on the bandwagon.