Archive for the ‘Articles / Publications’ Category

Does Rebound Change Marketing Strategy?

Wednesday, 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.

Top Ten Thoughts on the Goldman Sachs Mess

Monday, 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?

Will Active ETFs Woo Non-Indexers?

Friday, February 19th, 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.

I believe active ETFs will likely have an advantage in attracting more interest to passive strategies in the intermediary market as opposed to the direct investor space. Consider how advisors are making decisions for clients, either on a discretionary or non-discretionary basis, on which traditional equity or fixed-income mutual fund meets their needs. It’s very logical that an advisor would see benefits in an active ETF with cost advantages when compared to mutual funds, particularly if the advisor’s overall investment preference is for low-cost products and active management. The proliferation of sector- and commodity-specific ETFs at significantly lower costs than comparable mutual funds (when available) also bodes well for the continued growth in ETFs.

However, for many investors that go it themselves, I don’t think they know or understand the difference between active and passive ETFs. They view ETFs as a way to invest in the “market” and ETFs allow investments into specific sectors and commodities (for example, gold). ETFs are an alternative to mutual funds that allow for trading throughout the day as opposed to at NAV only once a day. I think this segment of the market has increased itsparticipation in this segment of the market and will continue to do so. This will be especiallythe case as firms such as Charles Schwab and others decrease the cost of trading. I am not sure that active v. passive is an issue for this group.

Is the Time Right to Target New Sales Channels?

Tuesday, September 22nd, 2009

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.

For asset managers looking to diversify into new distribution channels, it is important that they do so carefully and with a well planned-out and researched strategy. I urge caution because the characteristics of advisors vary greatly from channel to channel.

Expansion into new segments should be done in the context of the total marketing and support resources the firm has available — both internal and external. It also needs to be done with the assurance that operational capabilities will not be stretched. A well-thought-out plan prior to expanding distribution channels will increase the odds that any new foray is successful.

Let’s look at the three primary channels: the broker-dealer, registered investment advisor (RIA) and bank segments. Many asset managers have a long history of serving the broker-dealer world. One of the distinguishing aspects of this channel is that the concentration of advisors in offices (and often complexes) makes it easy for the external marketing representatives of asset managers to leverage their time by seeing multiple advisors quickly. This convenience has in fact increased with the consolidation of the industry, where now many broker-dealers have multiple offices in the same city.

In contrast, advisors in the bank channel are more spread out (often traveling themselves between branches). Therefore, getting in front of multiple bank advisors easily is often difficult, if not impossible. The same is generally true in the RIA channel as well, especially among the independents. From this marketing perspective, the decision of an asset manager to enter the broker-dealer channel is a much different one than the decision to enter either the RIA or bank channels.

Asset managers looking to enter the RIA and bank channels may be better served looking for alternatives to hiring a large external marketing force.

Perhaps their strategy should be focused more on developing a powerful internal marketing team that utilizes phone, e-mail, the Web and other electronic methods of communication. One tactic may be for these internal teams to forge relationships with RIA and bank advisors and thus assist the external marketing forces in leveraging their time. Such a strategy also highlights the importance of developing strong ties with the home offices of sponsor firms in order to “earn” slots at larger firm-sponsored meetings. Consider that at these events a large number of advisors will be in attendance.

As the above example illustrates, the key to success in expanding into new channels is to develop a comprehensive business plan first so that resources are allocated where they will be utilized the most effectively. In fact, the events of the past year have forced many firms to reassess the channels that they have been already been participating in. From this perspective, and as part of this analysis, it might be a perfect time to consider entering new channels if doing so would create synergies with the existing business.

What Are the Risks of a Wirehouse-to-Regional Move?

Saturday, August 29th, 2009

Published in  FUNDfire – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS, founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

The market turmoil of the past year has certainly benefited the recruiting efforts of many regional firms at the expense of the wirehouses. In fact, many regionals have alreadysurpassed their annual recruiting goals. For regional firms, what was once a disadvantage in recruiting advisors – having to explain to clients who you are – has turned into an advantage as shell-shocked advisors look to escape the bad publicity of the wirehouses.

But advisors who are interested in moving from a wirehouse to a regional need to do so with their eyes wide open. Moving is never easy and the grass is never as green as you think. I am not taking sides on which type of firm is better; remember that in many cases, an individual advisor’s success and fit with a firm is specific to his or her personality, and the firm’s ability to support their client base. However, there are a few items that advisors contemplating this move should consider and factor into their decision-making process:

  • Product development. Wirehouses have traditionally introduced products sooner than regional firms, in many cases by several years. While the firm that you are being recruited by will try to accommodate your business and add investment platforms to accommodate you, be realistic in your assumptions. Remember that at a regional, differences may exist in how much of this will happen, how quickly and how the quality will compare.
  • Service. Regional firms have traditionally been able to “sell” the fact that you will be a bigger fish in a smaller pond. They have been able to convey how the advisor will receive more personalized service and have access to the firm’s top executives and support staff. You should confirm that the recent market crash has not resulted in staff reductions that will cancel out this benefit.
  • Culture. Mergers among the wirehouses have undoubtedly changed many cultures. If the regional firm you are considering is independent, you need to remember that further overall industry consolidation is likely. Consider, too, that it’s not out of line for the trends of a few years ago to reappear.
  • Technology. Historically, wirehouse have had a large advantage in technology. Their IT budgets are larger as are their internal staffs. This has made their product development and enhancement initiatives more efficient and timely.In a case where the regional has been purchased or merged in the recent past, ask questions about the senior management. In these circumstances you will probably hear thateven though the firm has been purchased by another regional firm, the management is intact and the firm has been left alone. You need to consider what happens when these executives retire or leave. Keep in mind that the likely succession will include more day-to-day involvement by the parent company.

For all of these issues, it is important to take the long-term view. Contemplate what might change in each of the above areas over the next one to five years and how such changes might impact your business, your clients and your quality of life. By doing so, you make the decision with your eyes wide open. You will not be overly influenced by current negative events at your present firm or by over-enthusiasm garnered from the people recruiting you.

What’s Best Way to Frame Poor Performance?

Friday, August 14th, 2009

Published in FUNDfire – 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.

In today’s environment, where the confidence of investors has been shaken by many nonperformance issues, how investment managers frame poor performance is more important than ever. Above all else, honesty and full transparency are necessary.

Remember that a lot of money is in motion these days. Many investors feel the need to make a change for change’s sake, not necessarily for any rational reason. In this environment, when investors are more likely than not to become spooked, underperforming managers must be clear and confident in their conversations with clients.Clients appreciate honesty. So rather than try to mask poor performance, underperforming managers should begin with a simple statement of the facts. They must explain that they did underperform and then explain why. Further, they must make it clear upfront that their goal in explaining their performance is not to make excuses. Rather, the objective is to make surethat the client has a very clear understanding of why the underperformance occurred. You might go so far as to tell the client that you do understand if they make a change – as long as they are doing it for the right reason and with a full grasp of the facts.

Give specifics about why you underperformed – a missed stock pick (or two), poor sectorallocation, too much cash, etc. This explanation may very well be the same whether you are talking about your relative performance as compared to a benchmark or relative to your peer group. Next, it’s important to explain to the client what you learned from the mistake, what you will do to prevent identical mistakes in the future and how this knowledge will make you a better manager.

It’s also appropriate for you to describe some of the things that you did well, in order to reinforce why they hired you in the first place. Also, frame the quarter’s performance in along-term context. Importantly, if you believe that your portfolio may continue to underperform for a quarter or two, let the client know this as well. Remember that, above all else, clients do not like surprises.

End by thanking the client for their business, show empathy for their position and help them leave the meeting with a positive attitude about you and your firm regardless of what they ultimately decide to do with their investments.

Is Open Architecture in Danger of Cuts?

Monday, June 8th, 2009

Published inFUNDfire – 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.

Open architecture should not be a victim of the current financial crisis. This form of investing has been synonymous with offering best-of-breed choices to clients. For sponsor firms, to cut back or hold off on this important competitive advantage in a reactionary manner would be a mistake.

Certainly wirehouses, RIAs, family offices, banks and regional brokerages, among others, have felt the pinch of the economic crisis – many if not all have made expense cuts to counteract reduced revenues, and staff downsizing has been all too common. There have also been cuts to product managers and product specialists who play a key role in strengthening fee-based open architecture platforms and getting advisors to use them. And no doubt many platform expansion efforts, such as unified managed account and unified managed household rollouts, that were planned before the crisis have been pushed back due to wider cost-cutting initiatives.

But as the economy has begun to shows signs of recovery over the past few months, many firms have begun to look forward and plan for the future. We have been encouraging clientsto begin talking more about their “Rebound Plan” – a forward-looking effort to demonstrate toclients how the firm has successfully weathered the economic turmoil and positioned themselves for long-term success. Bank of America’s reported decision to attempt to sell its proprietary money management arm, Columbia Management, while keeping a large minority stake in BlackRock, is an example of how a company can strategically plan for the future in a pro-open architecture way.

But uncertainties do remain. One example is the continuing ambiguity surrounding Morgan Stanley Smith Barney, where it is unclear whether the combined operation will sell proprietary product from Morgan Stanley Investment Management. Wealth management sponsors that have made smart and necessary cuts can and should still offer open architecture as part of their value proposition. Remember, as firms look to grow in the future, the winners will be able to pick up advisors (whether through acquisition or recruiting) at the expense of those firms that have deemphasized investment platforms. Top-notch advisors are used to operating in an environment of open architecture platforms. I do not believe that they will settle for anything less in the future.

Realistically, wealth managers that find it necessary to cut or hold off on offering vital services will probably be forced to merge with a rival or be sold outright. I believe that small to medium-sized firms are going to find it harder and harder to offer top-notch products and services as stand alone organizations. Clients are scrutinizing their advisors and the firms they do business with more carefully. Explaining “smart” reductions should be easy; but if your product and service offerings are not competitive, you are at great risk of losing clients.

Crisis Hurts Small Managers Most

Saturday, March 7th, 2009

Published inFUNDfire – 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.

While no segment of the financial services business has been shielded from the devastating effects of the credit crisis, the outlook for many smaller investment management firms seems particularly dire. As such, I believe that the next 12 to 18 months will be characterized by a wave of mergers and firm closings.

Particularly hard hit will be small firms (managers with $1 billion or less under management) and mid-size firms ($1 billion to $2 billion under management). While many managers above that threshold will continue to lay-off staff and reduce costs, many in this larger segment of the marketplace should survive relatively intact and perhaps become more diverse as they buy up some of the firms that can no longer remain freestanding.

My bleak outlook for smaller and mid-sized investment managers results from the fact that these firms are being squeezed on multiple fronts.

  • These managers will be impacted externally by the significant changes taking place among their distribution relationships. As the larger sponsor firms continue to consolidate on both the retail – Smith Barney and Morgan Stanley– and institutional – Callan Associates and Mercer– sides of the business, opportunities for smaller andmid-size managers will inevitably decline. In addition, there will probably be few opportunities for managers to add additional strategies or enter new programs with  these merging wealth management sponsors until the current sponsor integration process is complete. The same goes for managers seeking to stand out to institutional consultants who are integrating their operations together.
  • These shops will also be impacted internally by the economic reality of lower revenues (resulting from lower AUM) and higher operational costs (resulting from theincreased need for transparency). This will affect their internal profitability and thus their long-term viability.
  • Last but not least there is of course the issue of performance. Any manager thathas not performed in line with its peer group is especially vulnerable in today’s market environment. Firms that are smaller and have only one or two strategies will find it hard to survive.

On the retail side, as trends lead to fewer but significantly larger sponsor firms (with tens of thousands of advisors), the pressure on managers to have larger marketing teams will also increase. And as more advisors join or start their own registered investment advisor firms, the independent distribution channel’s decentralized nature will add to a manager’s cost of sales support and client service. Advisors and clients will also continue to need a lot of handholding and they will increasingly look to their managers for support – both in-person and via value-added materials. The annual cost to compete in this marketplace may just become too high for firms with limited resources.

On the institutional side, standards for new managers will continue to increase. There will be stronger demand for increased transparency, verifiable operationalcapabilities, and well-documented compliance procedures. Firms with greater resources available to them will be better equipped to satisfy the increasing scrutiny of institutional consultants and sponsors. Those firms without the staffing and systems to rise to the occasion will face dwindling prospects.

For all managers, it is more important than ever that they be able to clearly articulate their value-added proposition and demonstrate why they should be considered for particular assignments.

Nevertheless, for all of the above reasons, it seems clear that the investment management market of the future will be characterized by fewer and larger firms. Along the way, all firms will see pain. Smaller firms will have to merge or close. Larger firms will also have a rough time – witness Harvard Management Company’s recent decision to lay off 25% of its staff.

But the larger firms have the resources to survive. They will emerge as the winners. Whether bigger will be better for clients long-term will not be known for many years.

How Vital Are Wholesaler Credentials?

Monday, February 23rd, 2009

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, a strategic consultancy serving the wealth management industry.

The more impressive the credentials wholesalers possess, the greater the chance that they will be able to meet with and form a meaningful relationship with top producers. This is especially the case in today’s tumultuous times, as producers have little time to waste. The key for any wholesaler is establishing credibility with the branch office’s gatekeeper and the top producers. As the number of wholesalers has increased over the past decade, it’s not a given that every wholesaler will be allowed into branches.

The best way to remain on the list of people allowed to visit the branch office is to develop these key relationships. And in that first meeting, the firm you work for is as important as your sales pitch in communicating the value that you will be able to add on an ongoing basis. Especially with larger producers, those with clients with varied and complicated needs, a wholesaler’s ability to “talk the talk” and “walk the walk” is very important. So whether it’s an advanced educational degree such as an MBA or certifications such as the CFP, the more the wholesaler can exhibit a firm industry knowledge base, the easier establishing credibility will be.

Also, remember that the first question a large producer will ask wholesalers is if they have ever been in production. For those that have not, impressive credentials are the next best things to highlight.

What Wealth Managers Are Burned By Crisis?

Tuesday, January 6th, 2009

Published inFUNDfire – 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.

Few if any wealth managers escaped 2008 without significant damage to their portfolios, their client lists, or both. Just by the very nature of the market’s decline, any business that relies on, or is impacted, by assets under management will be down at least 30% – 40% and in many cases more as 2009 begins.

For wealth managers, those hardest hit include those that did not have their clients properly diversified. Firms with less than stellar client service were also impacted. The quality of client servicing is very important to high-net-worth investors, and the fourth quarter of 2008 was a time for wealth managers to prove themselves in this area. The more proactive wealth managers were in contacting clients and providing calm and rational advice, the more likely that those clients will stay put with their assets. Even if clients felt compelled to sell out of the market, if their advisor partnered with them in that decision and remained attentive, there’s a good chance that these investors will come back to that advisor.

Also vulnerable are wealth managers that were not proactively prospecting over the past few years and have simply benefited from their revenue growing as their current client’s AUM grew. These advisors are likely to come back slowly as they have to reinvent their businesses once again and refocus on marketing and asset gathering.

Wealth managers that excelled in both of these areas – asset allocation and client servicing – havethe greatest chance of coming back the quickest. However, even those that did everything correctly are still facing a tough 2009 as lower assets under management totals translate into reduced fees, squeezing income. Still, keep in mind that there will be many unhappy clients and many making switches. Wealth managers that take advantage of these likely movements and have well thought out marketing plans should be able to attract new clients more quickly.

In terms of the wealth management model that stands out, the RIA and independent B-D channels definitely emerged as the early winners from the financial sector turmoil. Negative press about the wirehouses, coupled with dramatic falls in their share prices – which released advisors from the golden handcuffs that had previously tied them to these firms – made it more attractive for larger advisors to go independent. While this trend is likely to continue, the pendulum may swing back a little in the other direction as the reality of large losses in fee-based revenue will probably make some of those advisors who were considering going independent rethink their choice. For these advisors, being able to concentrate full time on rebuilding their businesses and revenue, without having to assume some of the administrative duties associated with going independent, may be the best interim solution. Furthermore, the negative press associated with large broker-dealers has somewhat dissipated.