Archive for November, 2012

Why Are More Investors Going It Alone?

Friday, November 30th, 2012

So much of the focus today in the advisor world is on the relative growth of RIAs vis-a-vis their competition at wirehouses and other traditional B/Ds, what often gets lost is the investors that they are all going after. And recent statistics show a worrisome trend – the trend of investors deciding to “do-it-themselves” has taken on momentum.

This trend favors banks and self-directed firms and the expense of full-service firms. According to a recent study by Hearts & Wallets, most firms showed a decline between 2011 and 2012 in investors “intent to invest more” and “intent to recommend.” (Two exceptions were Vanguard and T. Rowe Price.) Full-service brokerages share of households with $1 million or more to invest fell from 36% in 2011 to 32% in 2012. On the other hand, banks share increased from 13% to 17% during the same period of time; the survey data used included 5,400 households. According to the results, less than 2/3 of investors now use an investment professional.

The question is, why are investors so frustrated? The study indicates that investors:

  • Don’t understand their advisors’ (or potential advisors) value proposition
  • Don’t understand the pricing models; and
  • Don’t feel that they have a way to evaluate advisors other than using absolute return.

I actually see some good news in this. All three of these frustrations, while understandable, are easily addressed. Let’s take them one at a time.

If an advisor doesn’t have an easily understandable and visible value proposition which they can articulate, then they don’t deserve the business. Whether you have an elevator speech, a tag line or a mission statement, you better make it clear very early on why you are different from the thousands of other advisors out there. If you don’t, shame on you.

As for pricing, if you aren’t upfront about your pricing, and if it isn’t fully transparent, then you have a problem. This is another issue that if addressed head-on early in the relationship can actually be used as a selling and differentiating point. If you wait until the client has to ask about it, then it’s probably too late.

And on the measurement issue, advisors would be well served to adapt some version of goals-based analysis. If you take the time upfront to learn about the client, help them define goals and milestones, and show them a pathway to get there (and measure progress along the way), you should have a long-term client; if you don’t, then maybe you’re in the wrong business.

There is great opportunity for those advisors that rise to the occasion – because I have no doubt that many of these investors who try to go it along are going to be very unhappy with the results and will be looking for an advisor again very soon.

AK In The News: Wealthy Fear Fiscal Cliff Tax Hikes

Monday, November 26th, 2012

I was asked to comment in FundFire (A Financial Times Service) on the results of a poll seeking to find out what high net worth individuals feared  most about the fiscal cliff. 56% of respondents feared increases in income taxes and capital gains taxes the most (the top two answers), following by 21% fearing equity market turmoil.

My thoughts on the matter, to quote the article: “Even if a deal is made, and more progress is made next year, it’s likely that the many deductions the wealthy have enjoyed will vanish, says Andrew Klausner, founder of New York, N.Y.-based AK Advisory Partners. “The mortgage interest deduction may be trimmed or eliminated. Taxes on dividends are likely to increase,” he says. “The poll reflects the growing realization that taxes in some form are going up for investors.””

Political views aside, the only way to solve this country’s fiscal problems will be a balanced approach – revenue increases and spending reductions. Nothing else will work – despite what the politicians are saying.

Some taxes are already slated to go up with the implementation of some aspects of Obamacare next year. The implications for advisors is that they should be meeting with clients now to review their individual tax situations. Planning and taking appropriate action now will reduce the number of negative surprises your clients will face next year.

I don’t see any reason to panic, or make rash decisions about your stock portfolios. But prudence dictates that you at least take a look, weigh your various options, and act appropriately. You still have about a month!

What Do Successful Advisors Have In Common?

Monday, November 19th, 2012

PriceMetrix, a leading industry think tank, recently issued a new report entitled “Moneyball For Advisors.” The study’s name is a takeoff on Michael Lewis’ book which detailed how the Oakland A’s used statistics – rather than high priced players – to assemble a championship-caliber baseball team. If you would like a copy of the study, please contact me.

The question PriceMetrix set out to answer is whether or not analytics can be used to gain an informal advantage in recruiting and advisor development. Their answer – and the data do seem to support it – is definitely yes. While I will focus on how advisors can learn from this study, PriceMetrix also analyzed the data in a way that should help recruiters and companies hire advisors who have a better chance of succeeding in the long-run (and thus in many cases justifying the paying of a large up-front bonus).

So, according to the statistics, what should advisors do to maximize their future production?

  • Maximize the percentage of fee-based business in their book;
  • Have a high number of households with more than $250,000 in assets;
  • Have a willingness to “fire” households with less than $250,000 (and to minimize the number of them);
  • Have deep client relationships (measured by multiple accounts per client and having a large number of retirement accounts); and
  • Be experienced – all other things being equal, past success bodes well for future success.

Advisors can control every aspect of their future production except for the last one. While there is little new in these results, they do reinforce much of today’s conventional wisdom.

As advisors consider their 2013 business plans, unless they have a natural niche that goes against conventional wisdom (and I will be the first to admit that some advisors do and can do well in these areas), they should target larger clients where there is the potential to build a deeper relationship by capturing more assets (and more family members if possible), and they should focus their sales and asset management on fee-based (or recurring) assets.

Food for thought to any advisor looking to the future.

(As a side note, one of the reasons I like to use PriceMetrix, and have confidence in their reports, is the breadth of their sample size. This study use aggregated retail brokerage data representing 6 million investors, 500 million transactions, 1.6 million fee-based accounts, 7 million transactional accounts and over $3.5 trillion in investment assets.)

AK in the News: Mutual Funds and the Election

Wednesday, November 7th, 2012

I was asked to comment for an article in today’s Ignites (a Financial Times Service) which indicated (not surprisingly) that people in the mutual funds industry prefer Romney to Obama. (The ignites poll indicated that 58% preferred Romney to 39% for Obama.) The comments were made before we knew the results of the election.

My quote from the article: “Wall Street obviously would prefer a Romney victory because he is perceived as being pro-business. The hope is that business confidence would increase more quickly under a Romney administration which would translate into more hiring. If investor confidence increased, that would also be good for fund flows, as some of the money sitting on the sidelines might flow back into the equity markets.”

Further, “Regardless of who is the next president, a split Congress is likely, which makes earth-shattering legislative changes unlikely, according to Klausner. Regarding regulation, “Romney would push quicker for a reform of Dodd-Frank reform — not no regulation, but less strenuous regulation. Even some Democrats might agree that the legislation needs to be reformed — but again, under either scenario, large changes are unlikely,” he explains. Due to the fiscal cliff — expiring tax cuts, new taxes and automatic spending cuts that start in January if lawmakers can’t reach an agreement by the end of this year — Congress and the president probably will have to make a short-term deal on taxes, Klausner notes.””

So, now that Obama has won the election, businesses will remain jittery until there is some resolution to the fiscal cliff. The lame duck Congress is likely to come-up with a short-term solution to get us through the end of the year. Then – who knows. If the President can show some real leadership – leadership that was lacking in his first term – perhaps a grand deal can be struck next year. If not, the proverbial can will be kicked further down the road.
And on regulation – any changes to Dodd-Frank just became far less likely and the cumbersome nature of the legislation will continue to be a drag on business moving forward.