Archive for August, 2013

Advisor Tidbits – A Roundup Of Industry Thinking

Friday, August 23rd, 2013

I’ve read a number of interesting articles/reports lately that merit a mention – and could help lead to business-building ideas.

1) Referrals – a recent study by Prudential about referrals indicates that while clients think it takes 4.8 years on average to build up enough trust to make referrals, most advisors think that such trust is built in half of the time – just over two years. Perhaps advisors need to be a little more patient! The good news, however, is that while clients believe that referrals have a lot of social risk, more than half of the people surveyed have made referrals, and another third said that they would.

2) Fee-based compensation – According to Cogent Research LLC, two-thirds of industrywide compensation will come from asset-based fees by 2015, up from 59% today. The study included 1,700 financial advisors with an average of just over $100 million under management. The likely biggest loser from this continuing and growing trend – actively managed mutual funds.

3) Advisors too focused on baby boomers – a recent Cerulli Associates report (conducted in conjunction with Phoenix Marketing International) warned that advisors are focusing too much of their time on baby boomers, just at the time when these investors are going to be retiring and entering the spend-down phase of their lives. Simultaneously, fewer than 20% of investors under the age of 40 feel that they are getting enough attention. Advisors, by ignoring these younger investors, could miss out not only from the growth in assets of these investors as they become more successful, bus also from the more than $2,3 trillion in investible assets estimated to be transferred via inheritance between 2026 and 2030.

4) Wirehouses face continued threat from RIAs – the Aite Group, in a new report, indicates that independent shops and discount brokers should continue to benefit from their ability to tailor customer experiences more easily than wirehouse advisors. While there is no denying the continued growth in market share of wirehouse competitors, I for one still believe that a wirehouse advisor can be successful and create a very good client experience – they just have to work a little harder at it! (According to the story, RIAs boosted assets last year by 18.2%, discount brokers by 12% and the wirehouses by 8.2%.)



Merrill’s Fee Debacle

Monday, August 5th, 2013

Your near the top of your industry and a cash cow for your parent (Bank of America). The future looks bright as the financial crisis of 2008 fades. So, what do you do? You announce a complicated new fee structure that on the surface looks like it may increase fees for many of your top clients in a fast growing (fee-based) business. Then you explain it in murky terms. Not, in my opinion, too smart!

These fee changes are part of a platform restructuring that merges five separate managed account platforms on to a new one called Merrill Lynch One (set to rollout in September). While currently, minimum fees are based on the amount a client has in a particular account, the new system will see a unified fee based on all of the assets a client has with Merrill. Great if you have multiple accounts, not so great if you don’t,and your account happens to be in one of the programs whose current fee structure is less than the new one.

It appears that the greatest change will be seen for clients with accounts in the Merrill Lynch Personal Advisor (MLPA) platform – currently about 1/3 of the total of all fee-based assets at the company. According to the Wall Street Journals, fees on some accounts might rise by as much as 60% by the end of 2015 (advisors have until that time to adjust/negotiate client fees).

Now the catch – according to Merrill spokeswoman, the changes will not be automatic. Clients can choose to use the new single platform and will pay “an agreed-upon fee” reflecting the value the client “places on the overall advice and services delivered by the advisor and the firm.” (As quoted in FundFire, a Financial Times Service, on August 2, 2013.) So, what exactly does that mean?

I have been doing this a long time, and I don’t really understand that statement! It seems that perhaps current clients will be exempt from fee increases; or will they? Grumbling among financial advisors has already begun, as has some negative press in some of the industry on-line publications. I’m all for transparency, and maybe this makes the system more transparent. But “making” your financial advisor negotiate fees with current clients now, when many people are still leery of the industry?

The debacle is not necessarily the new fee schedule or the new platform, which should make Merrill more efficient (and good at least for Bank of America shareholders). The debacle is the confusing the way in which the firm has handled this announcement and is potentially disrupting client relationships at just the wrong time.

Great way to destroy all of your positive momentum guys!