Blog

Advisors are Less Willing to Compromise with Alternatives

Posted by Mike McLaughlin on Mar 10, 2011, in Thoughts , tagged with , ,

Scott Welch of Fortigent recently wrote an interesting article (FundFire, subscription required) about how the mentality of high-net worth individuals has changed toward alternative investments.  The big takeaway is his belief that retail-oriented, liquid alternative products will take significant market share from traditional hedge funds and fund-of-funds.

Turning toward advisors’ dealings with clients, Scott says:

An important question advisors can ask high-net-worth clients is, What is an acceptable trade-off between performance, liquidity, leverage and transparency?

A good question, but I don’t think this is the precise question to ask for two reasons:

  1. Performance isn’t part of the tradeoff equation anymore.  Hedge funds underperformed the broader markets in 2010 and had a slow start to 2011.  The time of assumed outperformance of limited partnerships compared to more liquid vehicles is passing.

  2. Without home-run performance, the other variables become non-negotiables.  Lousy liquidity terms?  Poor transparency?  Advisors will just take a pass.

These points reinforce what Scott is getting at – alternative products in retail packaging have huge potential.  Advisors are not going to want to choose among performance, liquidity, leverage, and transparency.  They’re going to want it all.

Impressions on Independent Insurance

Posted by Anu Heda on Mar 09, 2011, in Thoughts , tagged with

As part of a current engagement, we’re meeting with numerous independent insurance agents.  It’s exciting to have time with these agents as we recognize how difficult their jobs can be.

I’ve been asking “why do you recommend one insurance provider over another?”  The varied answers are interesting.  But three reasons come up frequently:

  1. Price
  2. Longevity
  3. Brand

The first makes sense.  It’s a difficult sale to tell someone to select a more expensive plan.  The second captivates me.  An agent will mention that a certain company has provided insurance “for over a hundred years” with a lot of enthusiasm.  I presume it’s effective because that message consistently and quickly came from each different agent.

Brand is straight-forward.  Interacting with agents, you can see the “mom test” (does my 70+ year old mother know that this firm exists?) in action when using a large firm.  For small firms, they revert to longevity when possible.  I hear messages such as:

  • Well, it’s The Hartford.  I’m sure you know The Hartford, right?
  • For that plan, I recommend Philadelphia.  I know you may not know them, but they’ve been in the business for over a hundred years; really great company.

I imagine over time, these reasons have become easy to close a client with.  Our nature to respond to them is pretty interesting and crucial for developing sales & marketing plans.

New Complexity with New Indexes

Posted by Anu Heda on Mar 03, 2011, in Thoughts , tagged with , , ,

Last week, Mike wrote a compelling post about index investing, specifically the complexities and volatility.   I thought that was timely after reading the news that Russell Investments and a partner were creating 24 new indexes based on the Fundamental index methodology.  This method uses adjusted sales, operating cash flow and dividends plus buybacks instead of market capitalization for weighting securities within an index.  It’s a really interesting approach and seems to have numerous merits.

I’m not the right person to discuss the merits of one approach versus the other.  This different approach brought a thought to mind: we should evaluate and scrutinize any backwards looking data closely.  I have some first-hand experience with that.  … [read more]

Framing a Conversation

Posted by Anu Heda on Feb 28, 2011, in Thoughts , tagged with

Earlier this week, I took a coffee homebrewing class.  While entertaining, I left the class a little disappointed.  And as I thought about it, I realized the disappointment stemmed from something many advisors say about product manufacturers (more on that in a minute).  The teacher  – while knowledgeable – wasn’t knowledgeable about my problems and issues.

 … [read more]

Subtle Ways to Keep the Client First

Posted by Anu Heda on Feb 22, 2011, in Thoughts , tagged with , ,

Where does the client fit in your business model?

You would probably say that they are in the middle of a circle that your entire firm orbits.  Maybe you even have an internal diagram like this one.   a client-centric modelIf that’s the thinking, consider these three simple changes to your Web site.

  1. Organize the site by the customer types that will visit your Web site.  For instance, if RIAs visit your site, consider a specific section of the site for them (like Nuveen).
  2. Direct your Web site users to specific sales people.  For instance, clearly list your RIA sales team on a US map with clear delineation for territories.
  3. Include case studies or examples of your customers. For instance, have articles such as “How a newly Independent FA added our funds to his asset allocation strategy.”

Enhancing your site with changes like this will truly keep the “customer” in the center of your business model.