Archive for July, 2013

AK In The News: RIA Trends / Bullying In The Workplace

Wednesday, July 31st, 2013

I was quoted in two articles this week – one on the trends in the RIA space and the other on bullying in the mutual fund industry.

The first story, published in yesterday’s GatekeeperIQ (A Financial Times Service), had to do with the announcement by Securities America that they were unveiling a new hybrid platform geared toward smaller RIAs. The platform allows for the use of multiple custodians and can accommodate fee-based as well as commission business.

I was asked to comment on whether this was part of a greater trend in the industry and if asset managers would be able to benefit from new platforms such as this. To quote from the article: “The custodian-agnostic platform is an attractive proposition for small advisors who want to make the switch to a fee-based practice, say Andrew Klausner founder and principal advisor of AK Advisory Partners. “This is kind of a stepping stone into that, because they don’t necessarily have to change who their custodian is and therefore move client accounts,” he says. While reaching small dually registered advisors might not be a top priority for managers, they shouldn’t ignore this space. Still, he says, such advisors require support and attention. “You’ve got a larger number of smaller producers, so to have an impact is a greater effort,” Klausner says.”

The second articles was published in today’s Ignites (A Financial Times Service) and dealt with the results of a survey about bullying in the mutual fund industry. In the survey, nearly two-thirds of respondents said that bullying was prevalent in the mutual fund industry (30% actually said “very prevalent.”) This compares to 50% in the U.S. overall.

To quote from the article: “”Bullying should never be allowed or tolerated,” says Andy Klausner, founder and principal of AK Advisory Partners. “It should be specifically defined in the employee manual, including what bullying is [as] defined by the company … and what the penalties are.””

I was also asked about the different between bullying and competition. Again, to quote from the article: “Moreover, firms should not confuse fostering competition among employees, which can be healthy for a firm, with allowing bullying to occur, experts note. As Klausner says, bullying is “completely different” from competition. He defines competition as “setting goals and rewarding appropriately” and bullying as “forcing someone to behave in a manner that you want them to.””

Any thoughts?

Product Missteps That Can Hurt Relationships

Thursday, July 25th, 2013

I was asked to write an opinion piece for FinancialAdvisorIQ (A Financial Times Service) about the types of mistakes advisors make when presenting products to clients. Mistakes can result in lost opportunities for clients and a loss of revenues for advisors. Advisors should always be upfront about fees and discuss the potential for underperformance.

Top mistakes include:

Too much jargon. Advisors sometimes use too much industry jargon when explaining how products work, rather than stressing their benefits to the client. Clients don’t care about the name of the program they are investing in. They want results. Advisors should “sell” the concept and its benefits through the consultative process and bring in the specific product names only when they have to.

Whether the strategy is a mutual fund or individually managed accounts, advisors need to explain how these products will help the client reach his or her goals. It helps to ask clients about how much detail they want. Advisors should never oversell products, because the goal in the case of underperformance should be to replace the investment, not the advisor who pushed it.

Lack of transparency. Another cardinal sin in this realm is failing to explain fees clearly and openly. Costs should be discussed up front. If the client has to ask about them, it is probably too late. Advisors should describe the types and frequency of fees and be sure to distinguish between different types of investments — a no-load mutual fund versus A shares, for example. Further, advisors should ensure that clients are able to conduct apples-to-apples comparisons between different product types when needed.

Failure to understand the product. While advisors don’t want to inundate clients with too much product information and detail, they also want to avoid getting stuck with unanswerable questions. Presentations should be customized for each client; engineers will probably want to know more of the nitty-gritty of a product, whereas doctors might be more curious about what other doctors are invested in.

Jumping on “hot dot” products. While advisors are well served by researching new products and incorporating them into their business as appropriate, running to sell the new hot product is rarely the right strategy. The product needs to be the most suitable investment at this point in the client’s investment life. The client’s larger investment goals, their unique needs and the state of their existing portfolio should play the most important role in a product recommendation.

AK In The News: Even Fund Pros Have Personal Retirement Fears

Wednesday, July 17th, 2013

I was asked to comment on the results of an Ignites (A Financial Times Service) poll of financial services employees and their thoughts on retirement. About 84% of respondents say that they are saving enough for retirement, although 52% said that while there current savings rates are sufficient, they still feel that they should be putting more money aside.

This contrasts to a recent Gallop poll which found that 46% of non-retireed Americans do not feel that they will have enough money to retire comfortably.

First, why are we in the financial services industry so much more comfortable with our outlooks for retirement? To quote from the article:  “As Andy Klausner, founder and principal of AK Advisory Partners says, “You would expect fund industry employees to be more tuned in to retirement and saving for retirement than the average person simply through their day-to-day exposure to the issues.

“Even if they aren’t directly involved in the products, for example, they are certainly more aware of the advertising and marketing that their firms do. This goes for all [fund industry] employees,” he writes in an e-mail response.

Additionally, fund firms themselves are taking an active role in helping their employees prepare for retirement. One way that firms, such as Invesco and Vanguard. accomplish this is by making their employees eligible to participate in their 401(k) plans from the day they start employment, rather than requiring a waiting period.”

Secondly, however, why do we feel that we should still put away more? I think there are a number of reasons: 1) people are living longer than ever before, so the fear of outliving your savings, no matter how large it may be, is great; and 2)  to quote from the article again: “A number of factors can hinder professionals from saving enough, Klausner acknowledges. For example, living costs usually are higher in the large cities where financial services firms tend to be located, such as New York. Plus these professionals may not be seeing their compensation rise as quickly as it did before the 2008 financial crisis, he says.”

Any thoughts to add?


Creating A Successful Marketing Strategy

Tuesday, July 16th, 2013

Our latest White Paper, Creating A Successful Marketing Strategy, is now available!

While referrals are great, and will always be part of growing a business, many who have relied on referrals exclusively in the past have more recently needed to supplement these referrals with a more active marketing approach. And the world has changed – competition has increased, clients have become more discerning and social media has had a dramatic impact on the types of marketing activities that are the most effective.

In order for a marketing strategy to be successful, it must be multi-faceted, realistic and implemented consistently over time. The messaging should be focused on developing awareness of your brand and on building trust around that brand.

  • Detail specific activities you intend to undertake;
  • Identify the audience each activity is targeted to;
  • Specify how you’re going to measure success;
  • Be flexible enough to allow adjustments as necessary; and
  • Stipulate who on your team is responsible for each activity.

 Click here to download the entire White Paper.

Retail’s Dangerous Shift Toward Alternative Investments

Monday, July 8th, 2013

I’ve been warning about the trend toward retail alternative investments for a long time. With yields so low, many investors have been looking for ways to increase return; and the financial services industry has been more than happy to introduce many new products for retail investors. (The alternatives market has been historically an institutional one, with high net worth and income requirements.)

Now FINRA – the Financial Industry Regulatory Authority – has woken up ,and is warning investors of the risk of alternative investment mutual funds. These warnings are good for investors, and can be good for advisors who heed the warning and ensure that they only employ alternatives for clients that truly understand the risk/reward trade off.

(As an example, Morningstar’ alternative funds category includes the following types of funds: bear-market, multi-currency, long/short equity, managed futures, market neutral, multi-alternative, nontraditional bond, trading-inverse commodities, trading-inverse debt and trading-miscellaneous.)

To quote Gerri Walsh from FINRA: “Investors should fully understand the strategies and risks of any alternative mutual funds they are considering. FINRA is warning investors to carefully consider not only how an alt fund works, but how it might fit into their overall portfolio before investing.” Other warnings include the fact that many of these funds are new, and thus don’t have long track records, and many have higher fees than traditional mutual funds.

I agree with these warnings, and in fact, the reality is that most individual investors don’t have the capability to analyze these investments on their own and make informed decisions.

Advisors do have an opportunity to fill the knowledge/information gap and provide advice and education. Advisors would be well served to talk to their clients about alternatives, especially given the publicity they are now getting. Even if such investments are not appropriate for a client, given their risk profiles, clients should appreciate the fact that the advisor has taken the time to explain why such investments should not be purchased; this will also probably dissuade them from doing it themselves, outside of their accounts with the advisors.

While alternative investments might be appropriate for some retail investors, advisors should address the issue head on with their clients and prospects and take the lead role as educator and counselor. Use this FINRA warning as an opportunity to proactively contact clients and help them through the haze of information. You are potentially helping them avert large investment mistakes.