Archive for September, 2012

Investors Are Worried – What Should Advisors Do?

Thursday, September 27th, 2012

Many individual investors, still spooked by the 2008 financial crisis, have remained out of equities, and have missed most or all of the rebound. With many indices at or near multi-year and/or all time highs, it’s even harder to get these investors back into the markets now, as they fear a correction.

A new study released by Hearts and Wallets confirms the fear among individual investors. There is little appetite for risk-taking in general, and 41% of the 5,400 households surveyed say that they are “inexperienced” when it comes to investing. This number is up more than 50% in just one year. The results were consistent across all ages and lifestyles.¬†Only 25% of respondents said that they were comfortable accepting investment risk in order to achieve higher returns.

As an advisor, what do these results mean? Well, I need to tell you one more thing to complete the story – along with this reluctance to take risks among investors is a continuing lack of trust in financial services firms. The authors of the study, who have been tracking this trust issue for a number of years, have identified three unmet needs. Investors want answers to the following questions:

  • What do you do?
  • How do you get paid?
  • How do I evaluate you?

It’s all about developing the relationship and earning the prospective clients trust first. Part of this process includes educating them on the markets, which will hopefully help them to overcome their fears of investing over time. Once they understand concepts such as diversification and asset allocation they should be more willing to dip their toes back into the markets.

Ultimately, they need to feel comfortable with you, view that you are in it for the long-term and trust that you have their best interests in mind. The consultative sales process does this – but it takes time and multiple meetings. And patience on your part.

Additionally, a large part of developing this relationship is taking the time to learn about the prospect and their family on a personal level – what they like to do, what their values and dreams are, etc. This is part of building a relationship and being seen as being on their side, as opposed to being seen as a product pusher. Unfortunately, there is no quick easy solution; but no one ever said this business was easy!

(As an aside, since the distrust seems to be leveled at firms as much as advisors, those of you with your own firms or who work for smaller lesser-known firms have a leg up. If you work an as advisor for a larger firm, especially one that has received bad press, you need to work extra hard to separate the value that you add from that of the company; the prospect needs to feel comfortable that the firm will not get in your way.)

AK In The News: Weak U.S. Growth Sapping Equity Flows

Thursday, September 20th, 2012

I was quoted in an article yesterday in Ignites (A Financial Times Service) about why retail investors remain on the sidelines. A recent poll indicated that industry participants believe that investors will return to equities once employment and income growth return. This was the most popular belief, followed by progress by Congress on reducing the deficit and fixing the federal tax system.

While I don’t disagree with these answers, I also believe that it’s a little more complicated than that. For one thing, as I am quoted: “Investors who missed the equity markets rebound may also be fearful of “getting in again at the wrong time” because they are hearing that indices are nearly back to their all-time hight. Additionally, even investors already in the equity markets are “nervous and cutting exposures” because of uncertainty over the presidential election and about the federal budget.”

Many investors also still fee the scars of 2008, so it’s not as simple as one event getting them back into the market. Herein lies the opportunity for advisors – educating investors about the equity markets, and getting them comfortable with the ups and downs, is an important way to start to get them to be more open to once again investing in equities, and then when some of the economic and political mess starts to clear, they will be more likely to do so.

As I say in the article, it’s more about “helping investors get comfortable with investing than thinking any one event will precipitate a mass entry into the market.”

Advisors should be patient, take the time to educate clients and prospects via White Papers and perhaps one-on-one educational counseling sessions, and make it clear that they are with the client for the long-term, irregardless of when that long-term begins.

AK In The News: Advisor Group Dumps “Nickel-and-Dime” Fees

Thursday, September 13th, 2012

I was quoted in an article in GatekeeperIQ (A Financial Times Service) this week about a recent decision by Advisor Group to reduce the number of so-called “nuisance” fees it charges on mutual funds and on accounts with low balances and little activity. The firm also added access to many more no-load mutual funds.

This change comes at a time for the firm when it is digesting the addition of 1,400 advisors from its purchase of Woodbury Financial Services. The change, however, reflects more than just the desire to retain these advisors; it reflects the changing competitive landscape where firms are fighting hard to keep advisors.

Advisors don’t like it when their clients are assessed these types of fees; it can endanger the relationship. Would such fees in and of themselves cause an advisor to move? Probably not. But it’s part of the total package of working at a certain firm, and I think it’s smart that in this case Advisor Group sees the benefit of not imposing such fees over the potential loss of revenue from them.

Having said all this, and being fully in support of dropping such fees, I do have to say that on the flip side, such fees do help get rid of smaller, dormant accounts that are probably ones the advisor wants to lose in any case. They take up his/her time and are a distraction from other revenue-generating accounts.

Sponsors like Advisory Group would be best served by doing away with these types of fees on one hand, while also helping to educate advisors on how to segment clients and services and how to manage their businesses more efficiently on the other. This type of a dual strategy is a win-win for everyone – the client, the advisor and the firm.

The On-Going Importance of Your Brand

Wednesday, September 5th, 2012

Many financial services firms remain conservative in their corporate spending, particular on marketing, even as the markets have improved this year, and for many, revenues are once again on the rise as part of their continuing post-financial crisis recoveries.

A recent study of asset managers, for example, found that most planned small increases in their marketing budgets even as revenue growth rebounds. The study covered firms of all sizes, ranging from $5 billion under management to +$100 billion.

Interestingly, however, the respondents in the same study also recognized the importance of branding and messaging, as they rated this the highest priority of any marketing-related category to invest in.

Why is branding and messaging so important? Because one thing that you must always do is promote the integrity of your firm. Especially during tough market times, and in today’s political environment where banks and financial services firms continue to get beat up in the press, reminding clients and prospects alike of your value proposition and why they do business with you must remain a top priority.

At the end of the day, all you or your firm has is its reputation. Protect it, promote it – always. Even if you are reducing your marketing budget, or your advertising budget, ensure that the money that you do spend helps your branding and messaging. It doesn’t have to be expensive – e-mail marketing systems and social media has made getting information to your target audience(s) a quicker and cheaper proposition.

Perhaps you need to think not so much about how much you spend in this area, but how wisely you are spending it!