7 Best Practices of Successful NextGen Advisors

This is a summary of a panel from the Money Management Institute’s 2014 Annual Convention.  The panel included representatives from a wide range of distribution channels, including a wirehouse, insurance broker-dealer and an online advisor.

Moderator: David Berkowitz, President, Lincoln Financial Network
Panel:   Eli Broverman, Co-Founder & COO, Betterment, LLC
James J. Detterick, Managing Director, Corporate Client Group Director, Morgan Stanley
Andrew J. Wigzell, Senior Financial Planner, Barnum Financial Group, MetLife

How important is it to establish relationships with children of Baby Boomer clients?

Over the next decade, Baby Boomers will be retiring at the rate of 10,000 per day.  Since Boomers make up a large percentage of most advisors books, if they don’t reach out to their children, eventually they won’t have clients left at all, Wigzell pointed out.  As a 41 years old advisor, Wigzell will be retiring sometime in 2037.  He said that he plans to keep adding clients who are younger than he is so that he will have clients to manage when he retires.

Wigzell is used to working with clients in the 49-65 year age bracket, so he recently added a Gen Y’er to his team to focus on reaching younger generations through the use of technology. 

In sharp contrast to the other panel members, the median age of Betterment clients is a mere 35 years old, Broverman reported. The firm’s methodology of engaging with investors through digital means is the primary reason for this, he stated.

Broverman quoted a statistic that 71% of Gen Y’ers would rather visit the dentist than go to a physical bank branch.  (He didn’t mention who came up with that unusual question or how many people were surveyed, but I would imagine they have very healthy teeth)  While it’s well-known that younger people are more inclined to use technology, another statistic he cited was that 4 out of 5 people across all demographics prefer to bank online.
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Going Under the Hood of Models-Only Programs

This is a summary of a session from the Money Management Institute’s Fall Solutions Conference that was held in October 2013 in New York City.

Moderator: Heeren Pathak, CTO, Vestmark

Panelists:

Are some asset classes better suited for use in models-only programs?

Asset classes that are more liquid are usually easier to trade in a model, Lasker observed.  Communication is important here since some assets can become illiquid for short periods of time and the managers need to know when there are problems implementing model changes, he stated.

While some strategies are more challenging, most obstacles can be overcome so that they can be included in a model, Overway commented.  Fixed income is a good example, since the models are often provided in the from of a list of characteristics instead of individual securities.  This entails more communication between the Natixis overlay management group and the model manager about which securities would be acceptable in the model portfolio, he pointed out. Continue reading

7 Questions to Help Pivot Your Practice Towards Retirement

This is a summary of a session from the Money Management Institute’s Fall Solutions Conference that was held in October 2013 in New York City.

Moderator: Ron Fiske, Managing Director, Strategic Partnerships, Envestnet

Panelists:
Mary Deatherage, Managing Director, Wealth Management Advisor, Morgan Stanley
Samuel M. Kiefer, Director of Wealth Management, Partner, Risk Paradigm Group, LLC
Michael Lodes, Financial Advisor, Edward Jones

1. Do you need to pivot your practice towards retirement as your client base ages?

Deatherage, who was recently named to Barron’s Top 100 Women Financial Advisors, pointed out that the aging of investors will eventually affect the entire advisory industry.  The average Morgan Stanley client is 59 years old.  Retirement planning is an evolutionary process and advisors should be prepared to provide more customized planning services for their clients, she said.

Not only will the average client become older, but they will need more advice.  According to a survey by Lincoln Financial Group, 54% of affluent 70-year-olds found that controlling their finances throughout their lengthy retirement has proved to be more complicated than they envisioned.

The standard client meeting agenda at Risk Paradigm Group has changed from as recently as five years ago, Keifer explained.  The management of retirement income has become the top issue that clients want to discuss.  This runs parallel to traditional conversations about preservation, transfer and the gifting of capital, he noted.

In the past, it was common to base retirement planning on a 5.5% annual rate of return, Deatherage observed.  Recent studies have shown that an average return of as low as 2.8% should provide a decent probability of success (using Monte Carlo Analysis). However, in the current near 0% interest rate environment this could be tricky, she said. Continue reading

Has Rep as PM Growth Peaked? (2/2)

This is a summary of a panel discussion from the Money Management Institute’s 2012 Spring conference held in Chicago, IL.  This is part 2 of 2.  You can read Part 1 here.

Moderator: Jay Link, Managing Director, Merrill Lynch

Panelists:
Lorna Sabia, Managing Director, Head of Managed Solutions Group, Merrill Lynch
James Walker, Head of Consulting Group, Morgan Stanley Smith Barney
Matthew Witkos, President, Eaton Vance Distributors.  Chairman of MMI.

Is your firm coming out with any new product offerings?

According to Witkos, Eaton Vance has developed a new product that they are calling Exchange Traded Managed Funds.  It is like an ETF since it trades like a stock, except without the transparency of an ETF so that the money manager’s intellectual property is protected.

What is the sponsor perspective on mutual fund velocity?  

No one wants advisors over-trading mutual funds, Walker commented.  Firms look at trade velocity and try to keep it within a certain range, he said.  The industry should be more aware of the difference between selling mutual funds individually versus fitting them into a larger portfolio.  Walker thinks that market velocity won’t be going away any time soon.
Sabia feels that velocity is a complex topic and more data is needed to determine the impact that it might have on a portfolio.  She also stated that she believes that sponsors, advisors and managers all “own” the issue of velocity and everyone should work together to deal with it.

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Has Rep as PM Growth Peaked? (1/2)

This is a summary of a panel discussion from the Money Management Institute’s 2012 Spring conference held in Chicago, IL.  This is part 1 of 2.  You can read part 2 of 2 here.

Moderator: Jay Link, Managing Director, Merrill Lynch

Panelists:
Lorna Sabbia, Managing Director, Head of Managed Solutions Group, Merrill Lynch
James Walker, Head of Consulting Group, Morgan Stanley Smith Barney
Matthew Witkos, President, Eaton Vance Distributors.  Chairman of MMI.
Has the growth of RPM programs peaked?  According to Dover Research, five years ago, there was $1.2 trillion of client assets in managed solutions and RPM/RAA combined were less than 30% of that total.  Today, total managed assets have grown to $2.4 trillion while rep-driven programs have increased their share to 40% or almost $1 trillion.

How important is RPM to your firm?

RPM is Morgan Stanley’s fastest growing program, Walker reported, with $560 bil in all advisory programs, $150 bil in RPM globally.  Major change in past few year has been change from individual equities (now 34%) to include ETFs, mutual funds, etc.  This is a great solution for Reps that consider themselves to be active allocators.  Trend: move towards discretion, driven by FAs practice management, customers want outcome based investing.  From a regulatory sense, it’s easier to deliver on fiduciary duty.
Sabbia joined the Managed Solutions Group seven months ago.  At Merrill, RPM is called the Personal Investment Advisory (PIA) program and was launched in 1996, now $105 bil AUM.  Approximately 4,500 FAs leverage the program and they’re segmented into three buckets: it’s their fastest growing segment with a $15.7 bil net increase last year and they’re on track to beat that number this year, she said.

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