Archive for the ‘Press’ Category

How Did I Do? A Review Of My Top Ten Predictions For 2016

Monday, December 5th, 2016

Time to review my Top 10 predictions for 2016. It was an interesting and unpredictable year, and my picks kind of followed that pattern – some good, some not so good. Analysis follows each prediction.

10 – Hillary Clinton will be elected to be the next President of the United States, beating Republican nominee Marco Rubio. She will be able to withstand the continued scrutiny over her e-mails, and despite the fact that many people will not be excited voting for her, the Republicans will have alienated too much of the electorate with their emphasis on social issues and overturning Obamacare. (Trump will not run as a third party candidate. At some point, he will get frustrated and quit, and justify it by saying he can make more money in the private sector!) I can’t imagine too many people got this one right. Even up until a few weeks ago I felt pretty confident about being half right. I was not the only person to underestimate the anger and division within the country. Clinton compounded the problem by running an uninspired campaign. 

9 – The Republicans will retain a majority in the House of Representatives, but the Democrats will retake the Senate, though fall far short of the 60 seats needed to enjoy a super majority. The result will be more gridlock, but that is a 2017 issue. There will still be gridlock because the Republicans don’t have a veto proof majority of 60 in the Senate, but I do think if the Democrats become obstructionists, the Republicans may do what the Democrats did a few years ago and legislate that rule out too. 

8 – President Obama will continue to go around the Congress with a number of Executive Orders, but the Supreme Court will uphold the illegality of his Order on immigration. He will also not be able to successfully close Guantanamo Bay before his term in office is over. Got this one right! I think Trump will reverse many of his Executive Orders in short order.

7 – ISIS will continue to wreak havoc in the Middle East and the world, despite increased bombing by the U.S. and its allies, and the U.S. will get drawn further into the battle. ISIS may lose land, but their global influence will increase, as will terrorist activities outside of the Middle East, including here in the U.S. There will be no leadership change in Syria. Got this one kinda right, as ISIS has exported its terror to the West. Still a lot of uncertainty of how this will all end up as the Iraqi army has done better than expected. Yup, still dealing with Assad.

6 – Russia’s global influence will continue to grow, as Putin aggressively props up the Assad regime and works to counteract the U.S. and its allies in the fight against ISIS. Tensions with NATO and Turkey in particular will increase, but Putin will stop short of provoking any military confrontations. Three in a row! Putin is probably pretty sad to see Obama go, as he has definitely expanded his influence over the past eight years. 

5 – The U.S. economy will continue to grow at a modest rate – in the 2% to 3% range, and inflation will remain tame. This modest growth will allow the Fed to tighten 3 times, but these will be small 0.25% increases and the Feds’s overall stance will remain dovish. The economy did grow about as I expected, but the Fed held tight on interest rates, mostly because of volatility at the beginning of the year and then global uncertainty as the year wore on. The Fed certainly remained dovish!

4 – The continued strength of the U.S. dollar (as European and Asian Central banks remain accommodative in their monetary policies), and the continued weakness in the price of oil, aided by new supply from Iran coming on the market, will continue to hurt profits of U.S. companies and will put a cap on the stock market. The market will be down 2% – 3% for the year. Missed this one. Despite the dollar and oil, the market behaved better than expected, certainly after the first six weeks of the year. U.S. companies also become more productive, so corporate profits are on rebound again.

For the financial services industry:

3 – ETFs will continue to come under increased scrutiny, following a tough 2015. Because we will be in a flat market, active management and stock picking will outperform, and I would not be surprised to see another ETF-induced selling panic, followed by a lot of negative press over the growing influence of ETFs. ETSs did come under some scrutiny, but things were not as bad as I thought that they would be. The active v. passive debate remains in full force, yet to be decided!

2 – Consolidation in the asset management industry, which was slow throughout most of 2015 before picking up at the end of the year, will continue and actually accelerate. There may also be a few large deals among the B/Ds as overall industry consolidation increases in the face of a second straight tough year in the stock market. There was consolidated among money managers, but less so among B/Ds, as the market rally continued. Fears and costs of the proposed Fiduciary Rule did have some impact (more on that to come this year.)

1 – And of course, some sports predictions: The Rio Olympics will be plagued by problems, in part a result of the political and economic turmoil plaguing the Brazilians. It will go down as the most poorly run and executed olympics in history. The Patriots will make it two in a row, overcoming all of their injuries and beating the Cardinals in the Super Bowl. Golden State will easily repeat as the champions of the NBA, and Alabama will beat Oklahoma for the college football national championship. The Rio Olympics went off better than I expected, and the biggest debacle was actually Ryan Lochte and friends! Kudos to the Brazilians, although the contrast between the Olympic venues and the abject poverty in the country did shine a light on whether the Olympics are really worth the expenditure. Missed the Super Bowl – didn’t see the Broncos coming; although things might have been different if the Pats hadn’t “thrown” the game in Miami and lost home field advantage. Alabama did win the National Championship (over a different opponent), and I could not be happy that I was wrong about the NBA. GO CAVS! You can take the boy out of Cleveland, but you can’t take the Cleveland out of the boy.

AK In The News: Active v. Passive Investing

Thursday, March 24th, 2016

I was asked to comment for an Ignites (a FinancialTimes Service) article on active versus passive inviting. Fidelity and American Funds recently put out research showing active management outperforms passive management. Like all studies on this topic, however, these results were achieved by implementing a screening on the large universe of available funds.

In the American Funds study for example, the firm screened for funds in  the lowest-quartile for net expenses and highest-quartile for management ownership. Had they picked different screens, of course, the results would have been different.

What was done here was no different that how one can manipulate performance by choosing a particular period of time over another. The process is extremely subjective and often produces the desired results.

So what is the lesson here? The lesson is that the argument of which is better – active or passive management – will continue into the future. Active management has taken a hit during the bull market because until recently there have been few down periods when active managers have been able to show their real value added – down market protection.

In reality, there are positives and negatives to both types of management. Passive, for example, has started to take a hit with recent questions about ETFs and their proliferation and their role in last summer’s mini-crash. Many investors choose to combine active and passive funds in their portfolios.

The issue gets thornier for many of the sponsor firms, since they offer both active and passive funds, and must walk a fine line between “bashing” some of their own funds. They can do this, however, by showing the relative advantages of each and the rationale for having both types of investments in a diversified portfolio.

For advisors, this argument illustrates the need for a solid due diligence process – to be able to select from the many thousands in each category – those that are more apt to outperform and to be able to articulate to clients why they are choosing particular funds for them. They also must illustrate why the combination of the two might be more effective than a portfolio of one or the other.

The arguments will go on ……..

Top Three Strategic Mistakes FAs Made In 2015

Tuesday, December 29th, 2015

2015 has been a difficult year for many wealth managers, with stock markets flat, global uncertainty increasing, and speculation about rising interest rates dominating the news. August volatility spurred one of the toughest quarters in five years, and the proposed Fiduciary Rule has raised an increasing number of questions about the types of products advisors can use with clients.

Given this environment, and with the benefit of hindsight, what were the biggest mistakes that wealth managers made this year?

Riding the bull market rather than educating and preparing clients for tougher markets

While 2015 has been tough, 2016 looks to be even more challenging. We are not necessarily at the end of the bull market, but certainly entering a different phase of it.

Wealth managers who did not educate and prepare their clients are probably now having to endure many questions from clients. In these cases, the advisor will have to learn the important lesson that if the client has to ask about it, it’s probably too late.

On the positive side, wealth managers do have another opportunity to be proactive as we prepare for a rising interest rate environment. It is not too late to position themselves (and their clients) for a smoother 2016. There is no time like the present.

Buying into the theory that active management is dead

As the market environment gets tougher, stock picking and sector selection become more important. Wealth managers who have continued to offer a combination of active and passive strategies to their clients are best positioned to succeed. Some active strategies are showing signs of promise. For example, in excess of 55% of active large- and small-cap growth equity funds outperformed their benchmarks in the six months trailing June 30, compared to 53% of mid-cap growth funds that did so, according to S&P Dow Jones Indices.

Fighting (or ignoring) the growth of robo-advisors

The growth of robo-advisors was probably the biggest story of 2015. Consulting firm A.T. Kearney predicts assets controlled by robo-advisors will increase by 68% annually to roughly $2.2 trillion by 2020, as Bloomberg has reported. About half of the allocation will be new money, with the remainder stemming from already invested assets.

Rather than view robo-advisors as threats, however, wealth managers should instead determine how the concept can fit into their businesses.

Wealth managers can partner with robo-advisors – either by developing their own software or working with a third-party vendor. With this technology, advisors can handle a larger number of smaller accounts (as opposed to rejecting them) and help attract Millennials who are beginning to save and invest.

Advisors who ignore these trends and fail to take action will face amplified business and investment risks in 2016. But wealth managers that give these topics some new attention should be better positioned to provide greater value to clients, while reinforcing their relevance.

AK In The News: The Bill Gross Saga Continues – Does It Matter?

Thursday, October 22nd, 2015

I was asked to comment for an article in today’s Ignites (A Financial Times Service) about the $200 million law wrongful termination lawsuit filed by Bill Gross against Pimco, his former employer. Ignites conducted a poll asking who has the most to lose from this lawsuit. 42% of respondents said that the suit shines a negative light on both parties, 22% said that Gross could be the biggest loser, 19% say Pimco stands to lose the most while 17% said that Janus (where Gross works now) could lose the most.

My take on the law suit is that it is much ado about nothing. Unlike the frenzy, gossip and media spotlight that Gross’ departure garnered last September, the filing of this lawsuit has been quietly reported and caused barely a ripple. To me, this  indicates that people are over the saga and don’t really care any more.

Sure, if it goes to trial, there could be some ugly gossip spread and the media might get back on the bandwagon. This possibility makes it most likely that some type of settlement will occur. But in any case, all of the parties except perhaps Janus were hurt significantly by this very public divorce last year. The damage has already been done.

Some investors left Pimco with Gross, others stayed and still others probably decided to move somewhere else all together. But that was over a year ago. I highly doubt that this rehashing of this very public breakup will change many minds, or cause a great deal of money to move at this point in time.

Obviously feelings were hurt and a lot on anger still exists – at least on the part of Gross. But I think most everyone else has moved on.

AK In The News: Why All Planning Firms Could Use a Robo-Advisor

Thursday, September 17th, 2015

My opinion piece on Robo-advisors was published in today’s Financial Advisor IQ (A Financial Times Service). My general assessment is that advisors and advisory firms should embrace the concept where it fits into their businesses, rather than fight the trend. Three potential fits include:

Assist with client segmentation. As many advisors grow their businesses, they face the issue of having too many clients — and they often have to grapple with the issue of what do to with smaller, less profitable clients. They also have to turn down prospective new clients who don’t meet their account minimums.

Advisors can use robo-advisor services as an alternative for clients or potential clients who don’t fit into their current business model. Rather than turning them away, advisors will be able to keep them.

As client assets grow over time, and these clients need more-sophisticated services, they can be migrated into the advisor’s core business. And at that point they become more-profitable clients. Or, if they are happy, they remain as robo-type clients — the advisor’s revenue from them might be smaller, but they are spending a lot of time or money on client service.

Attract family members of clients. Advisors often struggle to effectively attract the family members — typically children — of current clients. This is a serious setback, as developing such relationships is crucial to building a longer-term sustainable business. But a robo-advisor service component can mitigate this threat, as such systems allow these family members to become part of the firm even before they amass assets. As a result, these new clients will learn the basics of investing and be more apt to remain long-term clients.

Attract millennials. Similar to the matter above, as advisors grapple with the issue of how to service the newest generation of investors, they are offering them what the competition is offering — again without disrupting their current business model. Over time, as advisors attract more millennials through the robo-advisor model, they will learn more about them and their long-term needs and traits. Indeed, they will be better prepared to adjust their entire business model in the future if necessary.

A Merrill Spin-Off Could Be Bad For Business

Thursday, April 16th, 2015

I was asked to write an opinion piece for today’s Financial Advisor IQ (A Financial Times Service) on whether or not a spin-off of Merrill Lynch from Bank of America would be a good thing or not. Here it is:

Despite the bureaucratization of the legacy Merrill Lynch culture, the wirehouse is still better off in Bank of America’s hands, as any spin-off would put it structurally on much weaker footing, says wealth-management consultant Andy Klausner.

Last Friday, General Electric showed how easy it is to break up a big business, as the firm sold off parts of GE Capital to help lose its title as a systemically important financial institution.

Bank of America shareholder Bartlett Naylor wants the bank to shed that distinction too, by divesting business units including Merrill Lynch.

But although the SEC has rejected Bank of America’s request to ignore Naylor’s recommendation, don’t count on another breakup, either there or at other banks with sizable wealth shops.

To start off, management will oppose the move. Executives will argue that the bank-and-brokerage combination diversifies revenue streams and that cross-selling has helped their wealth-management clients.

And if management opposes these spin-offs, only a few things could eventually force the banks’ hands: increased regulation or legislation — both of which seem unlikely with both chambers of Congress under Republican control — or mass advisor defections that would severely impair profitability. While this second idea is intriguing, it too seems highly unlikely.

So let’s focus on the advisors. We have all heard complaints from legacy Merrill Lynch FAs that the firm’s culture has changed since the merger and that they are under pressure to sell bank products. And frankly, they are probably right. But it’s important to remember that advisors are free agents. They can move to another firm anytime.

While some advisors have left, most have not. And the firm is recruiting new, larger producers at a steady clip, despite increased competition from alternative channels. In addition, like many of the large wirehouses, Merrill has shown steady overall financial improvement. And some of Merrill’s products, like its fee-based programs, continue to lead the industry in innovation.

Also, let’s not forget that Bank of America did save Merrill from probable bankruptcy. Many of these same legacy advisors were pretty happy back at the beginning of the financial crisis. Then, the bank helped reassure nervous clients and protect the reputation of the Merrill brand.

It’s human nature to complain about your boss and your company. But for those who are really unhappy or feel their businesses are threatened, the option to leave is always there. The fact that many Merrill advisors have stayed is a telling story in and of itself.

Wealth unit spin-offs could have negative side effects. Clients who like the security of having a large, stable parent in the background might get nervous and move their assets. They could become fearful that another crisis would bring the smaller, potentially less financially stable firm down.

And change is always difficult. There would be systems conversions, changes in the way accounts are handled and changes in personnel policies. The advisors who have stayed despite their misgivings would have to begin explaining such changes to clients. If they really thought about it, they might not be so vocal. Ultimately, shareholders, advisors and clients alike should be careful what they wish for.

AK In The News: Shops Charge Ahead With Sales Hires As Bull Market Runs On

Wednesday, March 18th, 2015

I was asked to comment in an article in today’s Ignites (A Financial Times Service) on the hiring of sales professionals. A recent Cerulli report found that 41% of fund shops expect to add to their distribution sales forces this year. The question is, are these hires simply a reaction to the continuation of the bull market or are they more strategic in nature?

I take the view that they are more strategic, and a response to the expansion of the independent and quasi-indepenent advisor networks. There are more advisors out there working for varied types of sponsor firms. You need to be able to provide support to each of them.

To quote from the article: “RIAs’ and quasi-independent advisors’ growth has driven fund firms’ enhanced sales efforts in those channels, says Andy Klausner, founder and principal of AK Advisory Partners, in an e-mail response to questions. This has led to strategic distribution build-outs rather than full-scale expansions, he says.

“I think a lot of firms learned from the 2008 crisis and have been a lot more prudent in their hiring decisions; the old ways, of always hiring too many people during good times, has changed,” Klausner says.

Fund companies should create three- to five-year strategic plans when expanding their intermediary distribution teams, and adjust those according to firmwide assets, profitability and the effect of market fluctuations, Klausner says. Such planning helps protect against “knee-jerk” staffing cuts, too.

“Distribution is still needed during lean years — to train advisors, meet new advisors, hold hands, etc.,” Klausner says.”

Do you agree, or do you think fund companies are over-hiring?

AK In The News: How Federated Turned Its Flows Around: ‘Consistency’

Tuesday, March 3rd, 2015

I was asked to comment on an article in (a new on-line website geared toward portfolio managers) based on comments made by the CEO of Federated Investors, where he credited the consistency of the performance of many of their funds as the reason that they have seen a turnaround in flows from negative to positive.

Is ‘consistency’ the new buzz word? While it may not be the only driver of fund flows, I do believe that many investors are looking for the safety that consistent, steady returns promise. To quote from the article: “Fund industry consultant Andy Klausner adds that wirehouses and other distributors find the promise of modest but consistently positive returns appealing because investors are still skittish about the markets.

“Nobody wants hot money,” he insists. “Everyone wants longterm investors, and the best way to attract longterm investors is to outperform in a slow and steady manner.””

Transparency still matters, but in the wake of the financial crisis so many firms have addressed this issue head on that has now become the norm – the expected – rather than the exception. Again, quoting from the article:

“While it’s true that transparency is important to financial advisors, it is so common that most FAs take it for granted, says Klausner. “So when a firm like Federated makes announcements about performance, it makes sense to focus on something like consistency – something that really resonates.””

Especially now with the long expected normal bull market correction still somewhere over the horizon, not losing money becomes as important as making money.

What are your thoughts?

AK In The News: Stifel Boosts Advisor Count, Taps Indie Market With Acquisition

Wednesday, February 25th, 2015

I was asked to comment on Stifel Financial’s announced  acquisition of Sterne Agee, particularly on the effect that it will have on asset management firms that work with the two firms. The article appeared in today’s Fundfire (A Financial Times Service).

In general, this seems like a good move for Stifel, as it allows it to pick-up a high quality firm and add a reasonable number of advisors. I say reasonable because it is not the number of advisors that you have that matters – biggest is not best – but the quality. This allows the firm to widen its footprint and solidify its market position.

As with all mergers, the proof will be in how the integration goes – if the firm retains top producers, if they become more efficient and reduce overhead, if costs are contained, etc. Stifel also now is able to enter the independent channel without having to develop their own from scratch. In some cases, buying it is better than building it.

How will the merger affect asset managers that work with the two firms? That is hard to say for sure right now. To quote from the article: “The impact on asset managers distributing through the firm will depend on how integration eventually shakes out, says Andy Klausner, a strategic consultant with AK Advisory Partners. “From the asset manager’s point of view if they can get to more advisors through fewer gatekeepers, that’s always a positive,” Klausner says.

Mergers can provide opportunities for some managers already working with the firms to gain wider distribution with a new group of advisors. But it can also result in some managers losing shelf space.

“This would be an opportunity to look at the product sets of both firms and condense them,” Klausner says. “Let the best platforms survive.”

For managers doing business with the firm, the best approach is likely to wait and see how the integration plays out, he says.”

Any thoughts?

AK In The News: Consultants Tighten Grip on Inst’l Manager Selection

Monday, November 10th, 2014

I was asked to comment in an article published in today’s Fundfire (A Financial Times Service) about the increasing presence of consultants in the institutional asset management business. According to Cerulli Associates, in 2013 consultant-intermediated new business jumped to 68.4% of the total, an increase of almost 10% from the year before.

There are a number of reasons for this jump, increasing product proliferation and complexity and cost.

We continue to see a large increase in the number of products being offered – and their complexity – in the face of the reality that it is getting increasingly difficult to “beat” the market in the traditional asset classes (large cap, mid cap, growth, value, etc.). In the constant race to beat the market (or in a goals-based scenario meet your funding goals), institutional investors have increasingly turned to alternative investments to supplement their asset allocation strategies.

There are a wide range of alternative investments, however, and finding qualified analysts to evaluate them is difficult. Let’s not forget that a traditional stock analyst is in most cases not qualified to analyze REITs, commodities, etc. Firms must hire new staff – which takes resources and brings us to the discussion of cost.

But first – plan sponsors have the fiduciary responsibility under ERISA that requires them to meet an expert threshold. You either have to build an organization that can stand up to regulatory scrutiny or outsource to a consulting firm that has such expertise. As the number of available products increases, so does the cost of building it yourself. The reality today is that you have to be very large to even think about having your own in-house capabilities if you want to consider investing in the plethora of new products.

To quote from the article: “The trend is probably reflective of how expensive it is to do it yourself,” says Andy Klausner, principal at AK Advisory Partners. “It’s much cheaper to hire a consultant and rely on them to help fulfill your fiduciary responsibility. You have to be relatively large to be able to afford the same level of resources in-house.”

Build it or buy it – which do you think is better?