Unlocking Real Value Blog

Differentiating Your Business in the Age of Goldman - April 26th, 2010

We’ve talked in previous posts about differentiating yourself and protecting your reputation by defining a unique brand (The Importance of YOUR Brand). In addition, in light of all of the publicity today surrounding Goldman Sachs and financial services reform, all of us in the industry must adopt the mantra of “Transparency, Transparency, Transparency.”

When it comes to issues of trust, I firmly believe that if a client or prospect has to ask questions about what you have done to place their interests above your own, or how you are providing complete transparency, then it is too late. The only way to counteract the negative sentiment surrounding “Wall Street” is to proactively raise the trust issue with clients and prospects, to have an opinion and to be consistent in your behaviour.

Take the time to reread our White Paper Transparency = Client Confidence = Client Retention and formulate your own response to today’s events. Then take that message directly to your clients and incorporate it into the beginning of any presentations you make to prospects.

Keep in mind that people like to do business with people who are like them and who share their values. First, your brand should clearly differentiate you from the competition and highlight your unique value-added proposition; this will attract like-minded people to your practice. Once you have shown that you are someone that can be trusted, reinforce this trust by clearly articulating your views on the state of the industry and the steps that you have taken to safeguard your clients. Finally, commitment yourself to open and ongoing communications.

You can’t stop others from acting irresponsibly; but you can protect your clients, your business and your reputation.

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Does Rebound Change Marketing Strategy? - April 21st, 2010

Published in Ignites – An Information Service of Money-Media, a Financial Times Company

Written by Andy Klausner, CIMA, CIS, the founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

It’s safe to say that most investment managers are certainly feeling better than they were a year ago, as are clients. However, it would be a mistake for firms to emphasize short-term performance over other longer-term changes that they have made in reaction to the financial crisis. I say this for a number of reasons:

• While markets have rebounded, most investors are still down close to 20% from the bull market peak. Happiness is a relative term. Therefore, it’s easy to understand why investors won’t be thrilled with performance that’s still a shadow of fourth quarter 2007 highs.

• Investors are focused on whom they do business with. That means they are interested to know in more detail why a manager performed the way it did and if such performance is repeatable. Investors have also educated themselves as a result of the financial crisis. They will be asking questions that go above and beyond performance. Managers that revise their marketing strategy to focus on the recent positive returns can come off as out-of-touch within this context. But a successful manager will proactively anticipate these questions rather than sit back and see if the client asks them.

• With all of the negative news about the industry over the past year — and certainly in light of the Goldman Sachs news — investors are focused more on issues such as transparency and disclosure. If managers are reevaluating their marketing strategy today, I would encourage them to keep those two latter themes in mind.

• Consider how the growth of social media has impacted the market over past several years. Investors are looking for partners who will address their particular concerns and ask the right questions  — a true partnership. Managers should be pushing out information to clients rather than trying to pull clients in, as was common in the past. This information must be about more than just performance. It has to add value to the client’s business.

Now, I am not saying that performance is not important. Certainly managers have to demonstrate how they have done in relation to their peers and benchmarks. But in today’s world, while this performance is the requisite to remain competitive, it’s not the overriding factor that investors are focused on. After all, there are literally hundreds of good managers out there today to choose from.

What differentiates one manager from another is the ability to add value above and beyond performance, and then to be able to clearly articulate that value to clients and prospects. They also must demonstrate that their organization is solid and has adapted successfully to the events of the past 18 months, and that they are interested in being a true partner with their clients. These are goals to which marketing efforts should be geared.

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Top Ten Thoughts on the Goldman Sachs Mess - April 19th, 2010

I use the word “Mess” intentionally because there is so much noise surrounding the SEC’s actions – the timing of the charges, whether other firms will be charged, etc. In fact, I would venture to guess that few people know what the actual charges are! They just know that another large Wall Street firm is in the news – and not for a good reason.

So here are my thoughts on the matter:

10 – This is not an isolated incident – more dealers such as Goldman Sachs will be charged in the weeks and months to come; I wouldn’t be surprised if Goldman is charged in other cases as well.

9 – The greatest risk to Goldman Sachs is its reputational risk – not whatever fines they have to pay or other actions are filed (by New York Sate for example).

8 – Without passing judgment on Goldman Sachs’ culpability, the firm will survive this, and while they may lose some clients shorter-term, it will not significantly impact their long-term business. But their reputation and standing as an industry icon is diminished, regardless of the eventual outcome.

7 – The timing of these charges is suspect at best – coming in the middle of the financial reform debate and on the same day that the SEC is faulted for its handling of the Stanford Scandal and other cases. The SEC is attempting to revive its reputation and, as mentioned above, this is just the first of many announcements to come.

6 – While few oppose the idea of financial reform, I fear that the public outcry and political posturing will turn the debate and eventual regulation into more than it should be. Adding further bureacracy – as seems likely – is not the answer.

5 – It is not about the level of sophistication of the client – it is about the fiduciary responsibility for full disclosure. In fact, the mantra of our industry must be “Disclosure, Disclosure, Disclosure.”

4 – This and similar cases will demonstrate how little upper management at many firms really understand some of the most sophisticated derivatives products that they are selling – and that in and of itself is pretty scary!

3 – The actions of a few (individuals and firms) will continue to tarnish the reputation of the industry and the “us v. them” argument will continue in the headlines through this and perhaps the next election cycle.

2 – Proactive client service is more important than ever – need I say more?

1 – Did I mention the importance of disclosure?

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More Black Eyes For Our Industry - April 13th, 2010

The financial services industry continues to get battered with bad publicity – last week saw the accelerated SEC/FINRA probes of bond funds at Morgan Keegan; today was news about Washington Mutual and their loan profile and a new name to most of us – Hudson Castle – an affiliate used by Lehman Brothers to shift investments off of its books.

The bad press also continues from Washington, where as financial reform is discussed, debated, and televised, the poor judgement and illegal actions of a few reflect poorly on the entire industry.  It is of course not nearly as news-worthy to focus on the vast majority of firms and individuals that don’t break the law. I am not sure about you, but the “Main Street” v “Wall Street” rhetoric has gotten really old!

My purpose here is not defend or judge these actions – but more so, since the tide of public opinion continues to flow against the industry, to suggest briefly how industry participants respond. The majority of industry participants do not engage in illegal activities and truly act in their clients best interest.

In this case the best defensive is offensive. If a client brings up these scandals to you – then it is probably too late. I recommend that you proactively contact clients to discuss the state of the industry and remind them of your standards and values – and remind them why they do business with you.

Clients will appreciate you taking the upfront approach, and being proactive will make you less susceptible to losing clients that for whatever reason begin to question you.

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Top Ten Ways to Cross-Market to Grow Assets - April 8th, 2010

What are the best ways to deepen the client relationships that you currently have? How can you broaden your relationship with current clients – who should be your best referral sources?

10 – Give away what you used to sell

9 – Become part of your client’s community

8 – Have a consistent and identifiable brand

7 – Make sure that clients understand your value proposition

6 – Communicate, Communicate, Communicate

5 – Survey your clients

4 – Don’t try to be all things to all people

3 – Don’t over-commit

2 –  Listen – don’t talk!

1 – Push don’t pull

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The Importance of YOUR Brand - April 6th, 2010

We just released our new White Paper entitled “The Importance of YOUR Brand.” To quote from that paper:

Your brand is much more than a logo or the color of your marketing materials. Your brand is what you are to the marketplace and more importantly to your clients – it is your reputation and the value that you bring to clients and the reason that they do business with you. Viewed in this context, the importance of having an effective brand can’t be overemphasized.
 
A brand differentiates you from the competition and allows you to present your core value proposition. In fact, your brand and your reputation are interchangeable. You should invest in it and leverage it to grow your business.

Please click here to view the full PDF version.

We would love to hear your feedback.

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Trends Affecting Financial Services Professionals - April 5th, 2010

While the outlook for the general economy is still somewhat uncertain, the performance of the stock market over the past year certainly has investors feeling more confident. 
 
Almost a year into the stock market’s recovery, several interesting trends have emerged which directly affect financial services professionals:
 
* Clients now have a year’s worth of data to evaluate their advisors on how they reacted to the financial crisis and if what they are doing for them is working;
 
* Movement among advisors continues – both those moving within the same channel (wirehouse to wirehouse) and among channels (wire to regional, wire to independent, etc.); and
 
* Investment management and advisory firms that have lost significant assets have had a year to see if they have been able to successfully adapt operationally and strategically.
 
The remainder of 2010 will be characterized by CHANGE – unhappy clients seeking new advisors, unhappy advisors seeking new homes and mergers among firms that recognize that they can’t go it alone any longer.
 
The common denominator among these trends is that to be successful, market participants must clearly articulate their differentiating characteristics – their brand.
 
Clients thinking of changing advisors need a compelling reason to do so. Merged firms need to articulate the benefits of their new organization. And advisors that have switched firms need to convince clients to move with them. Your brand will influence if you emerge from this environment of change as one of the winners or not.

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Supreme Decision on Mutual Fund Fees … Or Was It? - March 31st, 2010

Both sides are claiming victory in yesterday’s Supreme Court decision about fees that mutual funds can charge investors. While on one hand the Court upheld the long-reigning standard for determining whether a fiduciary has breached its duties by charging excessive fees (called the Gartenberg standard), a victory for the mutual fund industry, it did state that courts reviewing such matters may give weight to the comparison of fees charged to institutional versus retail investors. Such comparisons, which are deemed to benefit retail investors, as institutional fees are usually lower, was seen by a victory by the plaintiffs in the case; previous decisions had not gone so far in allowing this comparison.

That there was a little bit of victory for both means that we have probably not seen the last of this issue. But investors will be the winners for sure if the opening of this door by the court – albeit a small opening – means that the Boards which run fund companies will have to keep the possibility in mind that such comparisons are possible. If these Boards take a little more time now when they review the fees associated with their funds than investors should benefit.

The issue of mutual fund fees has been in the news quite a bit lately. A recent article in the New York Times talked about the “hidden” trading costs of mutual funds. The moral here for advisors, especially if fees remain an issue in the news, is to have a policy of full diclosure of fees to clients. The total costs of investments should be explained in detail to clients before they make their investments. “Apples to apples” comparisons should be made between the total cost of one investment versus another (with this comarison including the split between what the advisor is paid versus what the investment charges).

Specifically as relates to mutual funds, such fee comparisons will help uncover whether one alternative fund is significantly more expensive than another. If an investor chooses an expensive fund, then they are doing so with their eyes wide open.

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Poll: Morgan Stanley-Smith Barney on the Wrong Track - March 24th, 2010

Published on Mar 24, 2010 – FUNDfire – An Information Service of Money-Media, a Financial Times Company
By Gregory Shulas

The Morgan Stanley Smith Barneywirehouse is headed down the wrong track as the one-year anniversary of the firm’s creation approaches. That’s the consensus of industry professionals both inside and outside the company.

FundFire asked readers in a poll Tuesday whether management is leading the combined wirehouse in the right direction. Respondents could choose yes or no and had to identify whether they work for Morgan Stanley Smith Barney or are unaffiliated with the firm.

Poll respondents in both categories expressed dissatisfaction with the path the firm is on. Of the poll participants affiliated with the wirehouse, 58%, or 155 voters, said the firm is headed in the wrong direction. In contrast, 42%, or 113 Morgan Stanley Smith Barney voters, say they think the firm is headed the right way.

Of the survey respondents unaffiliated with the firm, 60%, or 78 voters, said the firm is losing its way. About 40%, or 51 voters, disagreed, saying Morgan Stanley Smith Barney is making the right strategic moves.

The Morgan Stanley Smith Barney deal closed on June 1, 2009, after Citigroupopted to spin off the Smith Barney brokerage as part of its larger efforts to restore profitability. The wirehouse’s opening months as a merged entity were marked by a drop in both assets and advisors.

At the start of 2010, the brokerage had approximately 18,135 advisors and managed assets of $1.56 trillion. This compared to $1.7 trillion in assets and 20,000 advisors in January 2009, around the time the deal was announced.

FundFire has reported on how escalating recruiting costs are putting the brokerage under pressure, forcing officials to reduce the numbers of new advisors they plan to bring on board this year. Morgan Stanley Smith Barney president Charlie Johnstonsays due to the changing environment the firm will concentrate on producing more revenue from existing teams, rather than poaching advisors from rival firms.

Andy Klausner, founder of strategic consultancy AK Advisory Partners, says he’s surprised that more affiliated voters did not register their dissatisfaction with the firm’s direction.

“Given the circumstances of the industry when the merger commenced, and the enormity of the task of integrating two such large and diverse companies, if I were the company, I might take these results as a small victory,” Klausner says. He believes a recent lift in the financial market may have lifted the advisor force’s optimism, further dampening the negative vote.

As of 3 p.m. Tuesday, nearly 400 FundFire subscribers participated in the survey.

Participants were self-selected and were only able to vote once. The survey is an unscientific sampling of FundFire’s audience, which consists of asset managers, institutional investors, consultants, financial advisors and service providers.

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Fiduciary Redux – Who Wins in the Financial Reform Bill? - March 22nd, 2010

I guess I shouldn’t have been surprised when a major industry magazine called the release of today’s Financial Reform Bill a victory for Wall Street in that it did not mandate that all people who sell securities be held to fiduciary standards. Not surprised but certainly disappointed.

This is a shallow victory at best. In fact, I dare say it is a loss – especially for those advisors who fail to see that in the minds of clients they are fiduciaries; and for those sponsor firms that will not encourage their advisors to pursue fiduciary credentials in any case because it is the right thing to do. It is a classic case of perception versus reality. If you are perceived as a fiduciary you should act like one!

And, oh by the way, those advisors who are “forced” to be fiduciaries – don’t you think they will use the fact that you are not against you? If I was in production, it would be the first thing that I would discuss with clients and the first question I would ask them to ask their current advisor.

All any one of us has is our reputation. As I have said before, holding yourself to fiduciary standards is the right thing to do regardless of the rhetoric. Separate yourself from the competition. Do the right thing – and perhaps some day financial services professionals will get some positive press!

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