financial advisors

A Quick Look Into FinTech

Posted by Anu Heda on Mar 13, 2017, in Thoughts , tagged with

Last week I visited the offices of a New York FinTech leader. FinTech is attracting copious news mentions and billions of investment dollars (see chart below). We’ve helped a handful of asset managers understand and plan for the emergence of robo-advisors (a subset of FinTech), so gaining a fresh perspective was very exciting to me. As I walked around the offices and spoke with people in different business functions, three thoughts came to mind:

  1. This company understands the long game is just starting. They talk in traditional consumer financial services terms like cost of acquisition and lifetime customer value to predict future profitability with psychographic, life-stage, and attitudinal data. It is a different mindset than intermediary-oriented asset managers. When speaking of financial advisors, I often hear some sort of bracketing of financial advisors (i.e., dabbler, bronze, silver, gold) based on past sales production.
  2. The competition is Google, Facebook, and Amazon. The team sees those companies as the primary competition because they all possess massive, active, and trusting customer bases. Seeing these technology companies as the competition reinforces the emphasis on cost of acquisition as a company like Amazon could immediately begin marketing an end-user FinTech service to a global customer base (similar to marketing Prime to the 260MM+ customers worldwide) and have a cost of acquisition many times lower than a new entrant.
  3. People spoke to me about asset managers as key partners and not competitors. Not one person I spoke with mentioned a desire to start buying/selling individual securities in a commingled vehicle. So FinTech (robo-advisors in particular) becomes a new distribution channel for asset managers. And with any new (and successful) distribution channel, the incumbent channels will lose share.

This was a highly interesting afternoon. I started to mentally sketch a few conclusions lightly. For now, I’ll keep them to myself but would love to hear your thoughts. Send us a quick e-mail with ideas or better yet, a place and time to discuss over beverages.

 FinTech

Are We Overrating Millennials?

Posted by Mike McLaughlin on Jun 23, 2015, in Thoughts , tagged with ,

Millennials are a hot topic in the industry. We have done multiple millennial-centric projects this year, and every day seems to bring another conversation focused on the same set of questions:

  • How can we help millennials overcome their conservative, fearful attitudes about investing?
  • How should we leverage their (self-stated) interest in socially-responsible (ESG) investments?
  • And most importantly, how do we make sure we capitalize on the $41 trillion (or is it $59 trillion?) in wealth they will inherit over the decades to come?

This has made for interesting discussion and interesting work. Yet at the same time I can’t shake the feeling that the importance of millennials to asset managers over the next 10 years is being overrated.  … [read more]

100% Alternatives in Your Portfolio. Why Not?

Posted by Mike McLaughlin on May 14, 2012, in Thoughts , tagged with , , , , , ,

Third in a series of posts about marketing alternative investment vehicles to financial advisors. Click to read Part I and Part II.

What’s a reasonable allocation to alternative investments within a portfolio? Most everyone agrees “more than 0%” is true. After that? Things get foggy.

For an asset manager marketing alternative vehicles, the allocation issue is important. Not only do many advisors struggle to understand alternatives in the first place, but they also have a lot of uncertainty when it comes to implementation.

I started with a simple review of the allocations firms use in materials that introduce alternatives:

  • BlackRock’s Investing for a New World sets the initial bar at 15%.
  • A Guggeheim (Rydex | SGI) tool implies that the answer is somewhere up to 30%.
  • A similar Altegris tool goes further, showing that a 50% alts allocation may improve results.
  • Raymond James highlights endowments’ 40% allocation to alts, then quickly notes that this is “too high for the majority of individual investors”.

From Raymond James overview of alternative investments.

To complicate things, consider yet another tool offered by Hatteras Funds, and what happens if you select a portfolio that is 100% alternatives (the Model Portfolio below):

In this tool from Hatteras, a 100%-alternative portfolio provides the best results.

Now an appropriate answer for allocating to alternative strategies is not just 15%, 30%, or even 50%. Here, a portfolio of 100% alts is the right choice. Confronted with this, advisors or investors are asking: what should I do?

Clearly there’s a lack of consensus. By itself, this lack of consensus is no big deal. After all, the goal isn’t for all firms to have the same perspective on alternative allocations.

The real problem is that firms only provide allocation guidelines implicitly. In the examples above, no rationale or explanation accompanies the percentages of assets that can (or should be) invested in alts. The data does the talking, and it gives a pretty vague (“more than 0%”) message.

I see two paths for firms in resolving this issue:

  • Punt on allocation, making it clear that alts have a role and the advisor is in the best position to decide what exposure is best for clients.
  • Build a concrete case for a baseline allocation, including the necessary caveats that one-size-does-NOT-fit-all.

Either approach can work, with the key being that the messaging is explicit. Not only will this close a confusing gap in alternatives marketing, but it will help make it clear that providers have a strong grasp on how their products should be deployed.

Marketing Alternatives: The Importance of Education (Part II)

Posted by Mike McLaughlin on Apr 11, 2012, in Thoughts , tagged with , ,

Second in a series of posts about marketing alternative investment vehicles to financial advisors. Check out the first post here.

Last week I made the case for why educating advisors needs to be a focus for any investment manager attempting to market alternative investments.

Today I’ll make the case that I was wrong. And I’ll start, again, with a graphic:

from Rydex | SGI via getalts.com

The above is from Rydex | SGI’s getalts.com, and it communicates a nearly-identical message to the one from Natixis I referenced last week. Namely, that alternatives can enhance portfolio returns while reducing volatility.

This story sheds light on a major reason not to expend a lot of effort on educating advisors about alternatives: everyone is broadcasting a similar message. While often viewed as table stakes in messaging alternatives, the fact is that it’s very tough to stand out when it comes to the basic “Why Alternatives?” conversation.

Besides sameness, two other reasons support focusing efforts away from education:

  • Distribution partners will get more picky. Yes, distributors need help educating their FAs, but they’re also seeing an influx of similar materials. We’ve had a few managers tell us they’ve gotten lukewarm responses to educational offerings. I think that’s in part because there are many already out there. Not every firm can be a go-to resource for informing advisors.
  • Usage of alternatives is concentrated. This is the exact same statement I used to justify including education as a core marketing component – because so many FAs are dabblers. The converse, and also valid, view holds that there’s no point in focusing on the dabblers. Instead, flows to alternatives will come primarily from the 10-20% of FAs who are heavy users, at least for a while. And they are the ones that don’t need the education.

Given that most firms have limited marketing resources and a finite slice of advisors’ attention, it’s perfectly justifiable to focus on the proprietary aspects (e.g., firm, strategy specifics) of the alternative story at the expense of educational content.

Ultimately the importance of education when it comes to marketing alternative vehicles presents a tricky situation for firms. In the next post, I’ll address the mixed messages being provided on how alternatives should be used in clients’ portfolios.

Marketing Alternatives: The Importance of Education (Part I)

Posted by Mike McLaughlin on Apr 05, 2012, in Thoughts , tagged with , ,

First in a series of posts about marketing alternative investment vehicles to financial advisors.

My guess is that the graphic below is (conceptually, if not specifically) familiar to most investment management marketers:

from Natixis Global Asset Management via AdvisorPerspectives.com.

It’s a concise, data-driven way to illustrate the potential benefits of incorporating alternatives into portfolios, namely that alts can:

  • Enhance returns,
  • Reduce volatility, and
  • Improve downside protection

With $120+ billion in assets across nearly 350 mutual funds, the alternative push into the mainstream, specifically aimed at advisors, continues. And this type of educational content has become pervasive. The risk/return angle is often complemented by:

  • An introduction to the types of alternative investments
  • The importance of extending traditional asset class and strategy diversification

So let’s say you’re charged with marketing new alternative products. How important is selling and educating advisors on alternatives as an asset class? Should you expend significant effort on information that isn’t directly tied to your specific vehicle? How much education is necessary?

I see this is one of the toughest issues in marketing alternatives. The rationale for including educational content has three key points of support:

  • Education provides context. The why and how for including long-only, US large cap strategies in portfolios are fully-ingrained in advisors. But that same information is NOT secondhand knowledge for many FAs when it comes to alternatives.
  • Distributors want it. Large broker-dealers in particular have been asking for educational support for years. They realize it’s a long, effort-intensive process to get their advisors up to speed on how to effectively incorporate alternatives. And they’re more than happy to share that responsibility.
  • Most advisors are dabblers. According to Cogent Research, almost 80% of advisors use some type of alternative product. However, only 15% of FAs allocate more than 15% of client assets to alts. That means many advisors are simply dabblers at this stage, in part because they lack a complete grasp of how alts should be used.

Together I think those points form a strong case. And most firms agree, given their inclusion of educational content in alternative product marketing. That said, if I was launching a new product tomorrow, I’d at least consider skipping over the educational component in my marketing.

I’ll get to why that is next week.