Archive for November, 2013

AK In The News: Sun Belt Bank Taps FolioDynamix For SMAs

Thursday, November 21st, 2013

I was asked to comment on Trustmark’s (a Mississippi-based bank) recent decision to offer separately managed accounts through FolioDynamix, a turnkey platform provider; the article was featured in today’s Fundfire (A Financial Times Service).

FolioDynamix has seen a large build-up in its bank business, and the question is why. I think the reasons are two-fold. First, banks are increasingly embracing the idea of open architecture (in lieu of offering only proprietary products), and second, it is easier for most of them to “buy” a third-party platform than to build one from scratch. They often don’t have the in-house expertise to build such platforms in any case. Yes, banks may be late to the game, but if other similar deals follow, it could be a boon for these turnkey firms.

To quote from the article: “Banks eager to get into the fee-based market are more likely to hire turnkey firms than try to mimic what other advisory shops have assembled from scratch, says Andy Klausner, principal of AK Advisory Partners,  a consultancy. “I think very few banks have the expertise or are willing to spend the money to build their platforms,” he says. “Especially with the proliferation of third-party offerings, buying is definitely better than building.””


Do Female Advisors Have An Edge?

Wednesday, November 20th, 2013

PriceMetrix Inc., a well-respected industry data aggregator, just released a study finding that female advisors have more large households, more consistent pricing and more women as clients that their male counterparts. What, if anything, can we take from this study? First, the numbers:

  1. The average female advisor has 56 large households (defined as having $250,000 or more in assets), while the average male advisor has 51. (Females have on average 72 smaller households, while males have 78);
  2. While male and female advisors have about the same proportion of fee-based vs. commission accounts (21% v. 22%), men charge slightly more than women on average. This difference comes predominantly in the commission portion of the business; and
  3. Female advisors seem to be more consistent in their pricing, with a lower overall variation in the range of what discounters and non-discounters charge clients.

While the results are interesting, the numbers are so close that I don’t think you can draw too many earth-shattering conclusions from the study. According to the CEO of PriceMetrix “Ultimately, neither the X or Y chromosome determines the quality of an advisor’s practice, the advisor does. The prerequisites for success, though, are a consistent pricing strategy and knowledge of where opportunities lie in one’s book.”

Male advisors have to ask themselves what if anything they can do to improve their businesses with female clients, including the spouses and children of current clients. Sure, prospects may have a bias for whether they want to work with a male or female advisor; that is only natural. But in some cases this built-in bias can probably be overcome through good client service and a little TLC.

Firms with multiple advisors should also consider their mix of male and female advisors. After all, if your firm has all male or all female advisors, you are certainly sending a message to potential and current clients.


Full Steam Ahead For Retail Alternatives – Trouble Ahead?

Monday, November 11th, 2013

Hardly a day goes by that you don’t see another fund company jumping further onto the retail alternative investments bandwagon. While this news is not all negative, as some firms are upgrading their educational capabilities along with their product offerings, I still fear that we are seeing the newest bubble in the financial services industry.

When everyone climbs on board to avoid presumadly being left behind, my worry antenna rises. I have nothing against alternative investments; they have been a very successful diversifier for many institutions and institutional investors for years. But I have also seen my share of very sophisticated investors who don’t understand them.

The latest onslaught of retail alternative investments news included:

1) AllienceBernstein has begun its largest ever alternative investments marketing campaign – which includes a road show targeted at major broker/dealers and investment advisor firms. On the positive side, their new website does include a quiz to test financial advisors on their knowledge of liquid alternatives.

2) In the past year, according to Cerulli Associates, fund companies added more sales positions related to alternative investments than any other area. More than 40 firms were interviewed for the study. The general belief is that more salespeople are needed to sell alternatives because it is a more difficult sale than more traditional investments.

But these trends back the idea that supply is leading demand. Despite all of the efforts of fund companies to grow this marketplace, with large numbers of new funds continuing to be introduced, growth remains slow. Again according to Cerulli Associates, alternatives represent just 2% of mutual fund assets.

Lack of track records and high fees, explain part of this phenomenon, along with the previously mentioned lack of advisor and investor knowledge in this area. But it worries me that fund companies continue to push and push, and invest and invest, and the question remains what the demand really is.

I don’t doubt the efficacy of the asset class, particularly for institutions. I do, however, question whether this retail push is indeed positive for individual investors. There are enough alternative investment funds out there for those investors who understand them and desire them. There is no lack of supply. Shouldn’t the lack of demand be telling us something? Are we going to listen to what the market tells us? Or are we going to strive to increase profitability at the expense of doing the right thing (again)?

I fear that the answer is not the one that is best for investors.