Archive for June, 2013

Advisors – Website Content And Presentation Matters

Tuesday, June 18th, 2013

J.D. Power & Associates just released its 2013 U.S. Self-Directed Investor Satisfaction Study, and overall client satisfaction declined from last year. This headline is good news for full-service advisors, many of whom have been fighting the trend of investors trying to go it alone.

Hidden behind this headline are some other interesting tidbits of information for all advisors as well:

1) The reason that Scottrade finished in first place was the clear communication about their pricing which could be found on their website. Investors – especially those that do self-direct – are extremely fee conscious. For all advisors, however, the message is clear – be upfront and transparent about your fees, and explain them clearly and prominently. (Scottrade was followed by Vanguard, T. Rowe Price, TD Ameritrade, E*Trade Financial and then Fidelity in the study.)

2) The study concluded that these firms were struggling to “find the right method and frequency of communication with investors.” Yes, client communications does matter. Especially in today’s world of social media and mobile communications, advisors must be able to deliver to clients what they want, when they want it and how they want it.

3) A major reason for the decrease in satisfaction was dissatisfaction with the websites of the firms. The complaint was that there was too much information on their websites, and many investors felt that much of the information presented was irrelevant to them. Content does matter – you don’t want too much information, and you have to make the most relevant information the easiest to find.

4) And related to (3) above, because there is so much information out there, and so many new products, investors are looking to the websites for educational materials.

I think that there is great information in this study for all advisors. It provides hope that perhaps the trend toward self-advice is waning (a positive for full-service advisors) and it emphasizes the importance of client service and transparency. And it reemphasizes the importance of having a great website that provides clear and useful information to investors.

AK In The News: Opinion – SMA Death Rumors Are Greatly Exaggerated

Tuesday, June 11th, 2013

I was asked to write an opinion piece in today’s Fundfire (A Financial Times Service) on the future of SMAs and SMA managers; please contact me and I would be happy to send you the complete piece.

As a summary:

1) While other types of fee-based programs have been growing more quickly than SMAs recently – including UMAs, model portfolios, advisor-managed, alternative investments and ETFs – SMAs still have by far the largest share of assets under management and will not be going away anytime soon. While the growth of these other programs may limit their growth in retail wrap programs, I still see them doing well on the institutional side – where assets are stickier – and with advisors who see themselves as “purists,” and who avoid ETFs and alternative investments for most clients.

2) SMA managers that adapt will do well; those that don’t will probably suffer. But the world will look different to these managers: growth will be greater on the institutional side, at lower fees, which will eat into profit margins. But since sponsor firms on the retail side are taking a greater role in running model portfolios, these managers can probably reduce their distribution and marketing costs (as fewer wholesalers will be needed). In addition, as technology advances, for example on the currency and fixed income trading sides, they may be able to increase the breadth of their product offerings and venture into new areas.

The fee-based investment world is ever evolving, and many of the programs we see today were probably never envisioned a few years ago. But there is room enough in this growing area for multiple products and programs. The rumors of the death of the SMA are truly greatly exaggerated.

AK In The News: UMA Programs Face Advisor Adoption Challenge

Thursday, June 6th, 2013

I was asked to comment on a piece in yesterday’s FundFire (A Financial Times Service) concerning the future of UMAs. While UMAs have grown considerably – assets have grown 84% in the past two years – the overall size of such programs, at $237.5 billion according to Cerulli Associates, is still far below that of SMAs (which are approaching AUM of almost $750 billion).

There are a number of reasons why UMAs have not grown as quickly as forecast when they first were introduced – among them the market crash of 2008. More recently, a plethora of new types of managed account programs – including, ETF, advisor-managed and alternative investments – have introduced competition that many had not foreseen a few years ago.

While the growth until now has been somewhat disappointing, many in the industry remain hopeful that the future is still bright for UMAs. I agree, but also think that these other types of fee-based programs – including SMAs – will also continue to grow, and therefore UMAs will not become as dominant as many thought they would once be. Certainly not an SMA killer!

A few things do bode well for the continued growth of UMAs – the move toward model programs being run by the sponsor, which should actually help grow all types of programs, the emphasis at the traditional brokerage firms on promoting UMAs to its newer and younger advisors, and the conversion of some platforms to UMAs (some might call it “forced” conversions.)

Technology is also going to keep advancing, and this may help UMAs in particular because of their flexible nature and because unlike some of the more product-specific programs, the ability of UMAs to hold multiple types of investments makes them attractive to a wide variety of investors and advisors.

What do you think the future holds for UMAs?



AK In The News: Passive Products Appeal To Fund Industry Pros

Wednesday, June 5th, 2013

I was asked to comment in today’s Ignites (a Financial Times Service) about the results of a poll which indicated that many mutual fund industry pros are investing their own money in passive investments (such as ETFs). More than two-thirds of respondents indicated that they have a sizable portion of their own assets in passive investments.

These results are not surprising given the outflows that many active funds have seen as well as the negative press active management has received over the past few years, largely the result of so many of these funds underperforming their benchmarks. Industry professionals are in essence practicing what they preach – investing their own assets in a fashion similar to how they are investing their client’s assets. To quote from the article:

“Andy Klausner, founder and principal of AK Advisory Partners, says it “seems reasonable” that nearly 70% of industry participants have at least some assets in passive investments. Still, it is “hard to know exactly what percent of their personal assets are in passive investments,” he notes.”

Active management is far from dead, however. I believe that there will always be a segment of the profession that stays away from passive management, so I wouldn’t expect this percentage to increase significantly over time. Again, from the article:

“However, given some professionals’ personal preference for active management, experts do not expect many of those who are now abstaining from passive to be swayed in the future. Both Klausner and Dannemiller anticipate that the percentage of assets fund professionals invest in passive products expressed in Tuesday’s Ignites poll will stay about the same over time.”