I was asked to write an opinion piece for Financial Advisor IQ (A Financial Times Service) on the relative merits of regional broker/dealers versus the competition – larger B/Ds as well as the independent or quasi-independents. Contact me if you would like a copy of the entire piece.

To summarize though, overall. regional B/Ds have done quite well since the financial crisis, helped by cheaper technology which has allowed them to compete with fewer resources.

To quote from the piece: “Key ways in which regional brokerages are positioning themselves as a happy medium between the wirehouse and RIA models include:

• Access. Advisors who are large or even moderately large producers will probably have the ear of the decision-makers in the home office. They will be more important to these people than if they were large producers at a wirehouse or at an RIA using Charles Schwab’s or Fidelity’s investment platforms. They will have access to people when they need them and be on a first-name basis with key executives. They’ll also have better access to support staff. And advisors with friends in the back often receive service that has a personal touch.

• Influence. As a result of their access, advisors can influence product and platform decisions. For example, large producers will likely be invited to serve on an advisory council, where their opinions will count more than those of their peers.

• Freedom. Regional brokerages generally have fewer proprietary products than their larger counterparts do. Therefore, advisors are under less pressure to offer in-house products to clients, who often perceive a conflict of interest in such sales. This independence appeals to advisors attracted to the objectivity and fiduciary status associated with RIAs. Additionally, regional brokerages are not associated with banks, which reduces the pressure to cross-sell bank products.”

Our first quarter Unlocking Real Value newsletter is now available!

The bull market in stocks continued its impressive run almost unabated last year, surprising many market pundits, while the economy showed relatively good strength. Weakness in the economies of the rest of the world, however, along with geopolitical uncertainty in Russia and the Middle East are warning signs for 2015.

Volatility has already begun to increase, and the year is off to a shaky start in the markets. The problem is not the volatility itself, but how people react to it. Many investors use volatility as an excuse to exit the market. The problem, however, is they have no clear plan on how or when to re-enter.

We have updated one of our most popular White Papers – Protecting Clients From Themselves. This is a great piece to show clients to keep them calm and invested as volatility increases.

Click here to see the newsletter. Click here to download the White Paper.

Please let us know if you have any questions. Have a great quarter!

Time again to take out my crystal ball and have a little fun trying to guess what will happen next year. Here we go – these predictions are in no particular order:

10 – Hillary Clinton will announce her candidacy for the Presidency at long last. I am still not convinced that she really wants to run, but at this point I think the momentum is taking on a life of its own. However, I think she will be challenged by someone from the left of the party and her path to the nomination will not be easy as people thought a few short months ago. She will have to come-up with some new fresh ideas, and improve the effectiveness of her campaigning significantly.

Last week, I would have said that the challenge from the left would not have come from Elizabeth Warren. Now I am not so sure. Since I can’t stay on the fence, I predict that Elizabeth Warren will indeed eventually challenge Hillary. However, your politics aside, she has one glaring strike against her – she will be compared to Obama – a Senator with less than one term under her belt. Another candidate may emerge as well.

9 – Sticking with politics, but turning to the Republicans, I am surprised that Jeb has set-up an exploratory committee, but I would still not be surprised if he doesn’t actually run. As for the other Republicans, Christie will give it a shot, but he has an awful lot of baggage that will haunt him. Luckily, since the election is not next year, I don’t have to make the prediction of who will win yet.

8 – Political gridlock will continue in Congress to some extent, but I do believe that the Republicans will try for lots of small victories along the way as opposed to going for major pieces of legislation. The President has signaled a desire to fight since the mid-term elections, so I think the atmosphere will be bitter. But if the Republicans have any hope of winning back the White House they have to show that they can govern better than the last Congress.

7 – The President will actually continue to work better with the Republicans than the liberal wing of his own party. Bill Clinton faced similar changes and was able to rescue the last two years of his Presidency. However, I still think that given the President’s penchant for executive orders, these will all be minor victories as well and his status as a lame duck will be solidified in short order.

6 – The economy will continue to chug along with moderate growth, nothing spectacular but nothing terrible. The U.S. economy will continue to outperform the rest of the world. Europe will fall into a very short and shallow recession, and I think Japan will rebound now that the elections are behind them. Watch out for problems in the developing economies, in large part due to the drop in oil prices that we have seen.

5 – The biggest wildcard for the year is Russia – where the economic situation is deteriorating rapidly and sanctions are having a very major impact. The Ruble is in free fall, and the drop in oil prices is having a significant and negative impact. Continued turmoil in Russia could have a huge boil over effect in not only the rest of Europe, but the rest of the world as well. No one really knows how Putin will react and if these economic woes will make him more bellicose. But if any one thing can send the worlds markets and economies into chaos, it is Russia. Developments are worth keeping a close eye on.

4 – The Fed will raise interest rates by July of next year, but I think that they will do so in a measured way an more slowly than many currently believe – in part because of economic weakness around the world. Inflation remains under control, with the only thing that can really throw us a curve here is if wage growth picks up significantly (which I don’t see happening). The market will react negatively when rates do go up, but will rebound and regain all of the initial losses within six months (as is usually the case after Fed interest rate hikes).

3 – The stock market will have a below average year – and may in fact end down a little bit. There will probably be at least one 10% – 20% correction, either before or right after the interest rate increase. But corporate profits are still strong, and other economic positives will act as a floor on the market. But I see now compelling reason for a lot of upside in 2015.

For financial services specifically:

2 – Pundits will continue to focus on the growth of the RIA and independent channels, at the expense of the wirehouses and other traditional broker/dealers. But I see the continuation of the rebounds that the wirehouses have seen, and I think they will once again hold their own. There may be a few large mergers among the larger RIAs and perhaps one or two among the regional brokerage firms.

1 – The aforementioned Elizabeth Warren will continue to be a thorn in the side of banks and other financial services companies, and she will continue to fight anything or anyone that has a connection to Wall Street. While this may propel her into a run for President, I don’t see her having much impact on legislation, especially since the Republicans now control both houses of Congress.

Finally, a little sports. I see Alabama over Oregon in the National Championship Game and the Patriots over the Seahawks in the Super Bowl.

Feel free to share your own thoughts!

Our last blog talked about the disconnect between clients and financial services professionals when it comes to the importance of ethics. Client views were obtained as part of a survey sponsored by the CFA Institute and entitled “The CFA Institute & Edelman Investor Trust Survey.”

The survey also asked respondents which of the following factors was the most important to them in selecting an investment manager (while the question in the survey related to investment managers specifically, but I would argue that the results are relevant to advisors and other industry participants as well):

• Trusted to act in my best interest – 35%
• Ability to achieve high returns – 17%
• Commitment to ethical conduct – 17%
• Recommended by someone I trust – 15%
• Compliance with industry best practices – 8%
• Amount/structure of fees – 7%

By more than 2 to 1, more respondents felt that the most important thing to them in picking an investment partner is that they feel that they can be trusted to act in their best interest. Returns were less important, and fees were at the bottom of the list.

These statistics reinforce the notion that trust is the most important thing in our industry (if you add the 17% who mentioned ethics, those two issues represent the most important thing to more than half of the respondents). Investment managers and others who fail to establish trust first – before they talk about what they do and how much they charge – are putting themselves behind with, on average, one out of every two prospects they will speak with.

This issue resonates with clients as well. While establishing trust and demonstrating ethical behavior is the key to getting clients, industry participants must reinforce this trust as the relationship matures in order to keep the client.

This issue reminds me of the old lesson that the best salespeople speak the least – they listen more than talk. I think the same goes here. The best advisors, consultants and money managers will allow their clients and prospects to talk – tell them what is important to them, what worries them, etc. – and only then will they talk. Listen and you shall prevail.

Greg Smith is the proverbial straw that broke this camels back!  Having endured constant criticism of the financial services industry and its participants since 2008, I have had enough. Goldman Sachs is not perfect. The industry is not perfect. But Greg Smith is an opportunist, and I wouldn’t waste a penny on his book or a minute more watching him on TV.

Yes I’m mad. As with everything in life, the truth of this situation probably lies somewhere in the middle. Goldman Sachs has made mistakes and employees probably talked about some of their clients behind their backs in less than flattering terms. But let’s be realistic – it happens in every industry and every company. Capitalism is not always pretty, and yes we need to have effective regulation – but the free enterprise system is the best one out there.

And Mr. Smith was probably a decent employee; if he wasn’t, he wouldn’t have lasted a year in that environment. And we will never know if he did in fact ask for $1 million during the financial crisis and when others were being laid off (he didn’t answer that question when directly posed to him on 60 minutes).

What we do know is that he took his $500,000 a year in compensation for a number of years, don’t we? He was able to stomach the environment long enough to make some money. I guess he was able to put his disgust aside…..

I was upset when he first quit via a New York Times editorial – I thought then, as I do now, that it was grandstanding and self-serving. The release of his book is more of the same. I understand that American’s love gossip, and everyone loves to hate Wall Street and Goldman Sachs. But there is nothing earth-shattering in this book according to the reviews and interviews. It’s just part two of his plan to make himself more money.

I see nothing more than an opportunist here looking to take advantage of an anti-financial services environment to his own benefit. Period. Angry? Yes I’m angry. What gets lost again are all of the honest people. Goldman Sachs is not the enemy. Financial Services is not the enemy. Lets fix things – not try to make them worse and more divisive.

Mr. Smith – you have done yourself and the industry a disservice. I hope that your 15 minutes of fame is soon over for good.

As the year draws to and end, and before I release my predictions for 2012, I thought that it would be fun to look back on my predictions for this year. Here is the list with updated comments (which are in bold).

10 – Stocks will once again have a better year than the economy as a whole. I am “mildly optimistic” heading into 2011. The one thing that I have learned is that you can’t fight the market’s momentum. The market is essentially flat and the economy  remains weak with a few bright recent employment reports. Mild optimism was perhaps warranted, but not rewarded.

9 – Housing will continue to struggle in 2011 and unemployment will remain stubbornly high. The jobless recovery will continue, but there will not be another recession. This predication proved to be pretty accurate. We are pretty much where we were a year ago (wasted year?).

8- The much-talked-about municipal bond crisis may develop, but will not be as bad as the doomsayers predict. Increased municipal failings will not be surprising – but this will not be another crisis of the magnitude of the housing crisis. I was wrong here – this crisis never really developed even though a number of large bankruptcies occurred. 

7 – The bipartisan spirit of the lame duck Congress will end quickly – particularly over spending – and the gridlock predicted after the election will begin. This is not necessarily a bad thing for the markets – just the reality. Here I was correct – the political environment is worse today then it was a year ago. More on this in my 2012 predictions.

6 – The Federal Reserve will not raise interest rates (that will happen in 2012). Interest rates have not been increased and if anything, whatever inflation threat there was has abated.

5 – The crisis in the Euro zone will continue and the PIIGS will continue to give us heartburn – but the Germans will lead the EU to the rescue and the crisis will not negatively impact the US (maybe on particular days, but not overall). Kind or right – kind of wrong. The Euro crisis has gotten worse and the German leadership has been less than stellar. The jury is still out as to what the impact on the US will be – that again is more of a 2012 prediction at this point. But Europe = heartburn was certainly true!

As for the financial services industry:

4 – It will be another year of net advisor losses for the wirehouses. The allure of going independent coupled with continued negative press will be the straws that break the camels back and influence advisors to make the change. Yes and no – the trend toward independence continues but slowed more than I thought. However, this slowdown was do more to general inertia caused by economic uncertainty than by anything positive that the wirehouses did to make themselves more attractive. Few advisors are willing to make changes that will affect their clients when there is so much uncertainty already.

3 – UMAs will continue to grow at the expense of SMAs and ETFs will continue to grow at the expense of mutual funds, although ETFs will continue to fight negative press surrounding the plethora of derivative-type ETFs that are being developed. UMAs did continue to grow as did ETFs. The negative press about ETFs is still out there, although did quiet down somewhat during the year. Surprising was the growth of advisor-managed accounts – didn’t see that one coming!

2 – Fidelity will have at least one reorganization (not hard to predict based on past trends!) and Schwab will continue to grow its managed accounts AUM and surpass at least one, if not two warehouses. Of course Fidelity made news with changes in staff and strategy and Schwab continued to grow. 

1 – Consolidation among money management firms and RIAs will continue as firms continue to cut costs and search for synergies to help them distinguish themselves from the pack. Consolidation did continue, although slower than I thought – another symptom of a year in which economic and market uncertainty caused many people to sit on their hands and wait for the dust to clear.

All in all, I would say many of my predication were accurate. But the year was a frustrating one in that we find ourselves pretty much exactly where we were a year ago – the markets are pretty much at the same levels, the economy is growing at the same rate, unemployment remains high, etc. etc. etc.

I think 2012 is going to be a little more exciting – look for my new predictions next week!

My mouth is still open in amazement after just reading that Ameriprise Financial is imposing a new annual account fee on accounts between $100,000 and $500,000. ARE THEY KIDDING? The fees will be between $40 and $80  per account each year and oh, the good news – household fees will be capped at $200 per year. I ask again – ARE THEY KIDDING?

Many firms including Ameriprise charge smaller accounts (generally under $25,000) an annual fee; and honestly, such accounts are often times inactive and unprofitable. But to impose this new fee on accounts of up to $500,000, especially now, seems incredibly short-sighted (I’m almost at a loss for words for once!). I’mm sure that our friends at E-Trade and the like are salivating!

Yes, it is likely that advisors will “eat” these fees for their top clients and pay the fees themselves. In these cases, instead of unhappy clients you will have unhappy advisors. And lets not forget recruits – this is going to go over like a lead balloon with them! And while I don’t subscribe to the whole main street v. wall street rhetoric, I have to imagine that there will be negative press associated with this move.

Ameriprise is certainly making it easier for other advisors to compete against them; I would certainly use it to sell against them!

The only winner from this – if you want to call them a winner – is presumably the company itself, as they certainly will be collecting some new fees. But I certainly hope their revenue forecast considered losing some combination of clients and recruits for sure, and potentially some advisors.

Can you say – short-sighted ill-timed move?

Hilliard Lyons (a Louisville, KY-based regional brokerage firm) announced last week that it was migrating its entire book of SMAs (separately managed accounts) onto its UMA (unified managed accounts) platform. While when UMAs were introduced many, including myself, felt that they would be extremely popular, their relative growth has been disappointing at many firms. Does this move by Hilliard signal that other firms will follow and that the long-forecast death of SMAs is near? Here are my top ten thoughts on this topic:

10 – I’ll start with the conclusion – no, we are not near the death of SMAs. The relatively small size of Hilliard’s managed accounts business ($100 million) makes such a change easier for them than it would be for larger firms;

9 – Other regionals will try to emulate Hilliard, and again, because of their relatively manageable size, they may be able to accomplish this task;

8 – Hilliard is keeping its dual-contract program – so while its “packaged” version of SMAs is going away, they are not abandoning the idea of separately managed accounts altogether;

7 – While I am a fan of UMAs, high-end advisors (especially on the institutional side of the business) religiously undertake the two main benefits of UMAs to clients manually – rebalancing and tax optimization – and will not be willing to give up these responsibilities;

6 – Money managers will continue to fight UMAs – not only because they get paid less but because they lose control over the trading of the accounts – and to many, while the jury is still out, the potential impact on performance worries them;

5 – The push to model portfolio-driven programs (like at Merrill) is not the same as the push to UMAs. Top advisors are still averse to programs where they lose control over making the asset allocation/investment decisions;

4 – If firms do consolidate their programs under fewer umbrellas, a single sleeve UMA is equal to an SMA. If the drive is to decrease the number of products, then perhaps the SMA as we know it today may fade – but the concept will not;

3 – When the growth of SMAs began, we saw money managers making the distinct choice of whether or not they wanted to be in that market. I think we will see the same again, with some managers deciding that it is not the place they want to be, while others will embrace the fact that they are relieved of administrative responsibilities;

2 – Any wholesale shift on the part of sponsors that will entail inconveniencing clients (and advisors) will be met with stiff resistance, especially in this environment; and

1 – You can’t force advisors to do what they don’t want to do! Or you can, but don’t be surprised if the results are not what you want.

I think the bottom line is that there will always be a place for SMAs. Top advisors thrive on differentiating themselves from others in the services that they provide. If a platform becomes too “product-like,” they will not use it. While automatic rebalancing and tax optimization sound nice, many advisors recognize that part of their value-added comes in providing these services themselves. Don’t expect them to give up that freedom without a fight.