Archive for the ‘Investments’ Category
The number of financial advisers in the country fell from 314,000 in 2004 to 310,000 at the end of 2008, according to a study by Cerulli Associates. Given that the average financial advisor is 49 years old and that 14 percent of advisors are over 60 years of age, the decline is expected to accelerate as more brokers reach the age of retirement. “As the Baby Boom advisers retire, the financial advisory industry runs the risk of not being able to meet” investors’ demands, analysts at Cerulli wrote.
The perceived problem is the lack of young trainees- paraplanners- assistants- who want to take over for these retirees. But there are other critical mega-trends, beginning with the definition of “financial advisory industry.” Traditionally, that has meant a human being who manages investments. But the term must be expanded to include any media from which an individual investor obtains information upon which they rely for investment decisions. Many people- for good or bad- will get advice from a television show or magazine or online web site. For them, in their mind, the financial advisory industry is alive and well.
But let’s look at the traditional method of delivering financial advice. Why aren’t more individuals called to this profession? The first reason may be the general distrust in our financial system. With all of the negative publicity over the past few years, ranging from Madoff to mortgage brokers, is it any surprise that young people are opting for a career path that is less littered with problems?
Another consideration is that most financial advisors “came of age” during the introduction of financial planning and the accompanying boom in the mutual fund industry. Previously, the American public saved their money in banks; now, they invest through 401(k) plans and mutual fund accounts. Thus, for people younger than 40 years old, investing isn’t something new. They are comfortable with it and feel they can do it themselves, without the need for a financial advisor. And if they don’t see the need for an advisor, why would they choose that career path?
Finally, technology has impacted the investment world significantly. In the 50′s and 60′s, people who did invest would wait until they read their newspaper the next day to see how their stocks performed. Brokers were valuable simply because they had access to information not readily available to the public (e.g., company conference calls were restricted to analysts). But in today’s age of instant information, computers are a necessity. Younger investors are more apt to access a database than rely on a human being for financial advice.
Does this mean the death of the financial services industry as we know it? Yes and no. The need for financial advice and guidance will always exist. But the delivery method will be more technology-intensive. Older- and wealthier- investors will continue to prefer a personal touch. But as wealth is transferred to the next generation and subsequent generations after that, the preferred method of receiving financial advice may be via a mobile device.
To be successful, financial advisors must embrace technology and incorporate it into their practice. They must also become more transparent- sharing their research and conclusions with clients rather than keeping it a closely guarded secret. And finally, they must show the next generation why their profession deserves to survive.
Tags: business, clients, Investments, Marketing
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Yesterday, the Senate voted 60-39 to approve the 2,315 page financial regulatory reform bill. The President is expected to sign the legislation sometime next week. The final Dodd-Frank bill requires the SEC to conduct a comprehensive study of all the issues involved in harmonizing the regulation of all providers of retail financial advice, including a fiduciary standard of care and enhanced supervision of RIAs. When signed by the President into law, the SEC would be required to report the results of the study to Congress within six months. At the conclusion of the study, the SEC may promulgate rules that would impose an obligation to act in the best interest of the client without regard to the financial or other interests of the broker, dealer, or investment adviser providing the advice.
“After almost two years of legislative activity, the real work begins as implementation of regulatory reform falls to the SEC and other regulators,” said Dale Brown, President & CEO of the Financial Services Institute. “We are already working to articulate unintended consequences and to bring the unique perspective of independent broker-dealers and financial advisors to this process.”
Our ultimate goal has been, and remains, a standard of care that works in all client situations and in all business models, combined with an industry-funded self-regulatory organization for investment advisers. We have supported the inclusion of the SEC study in the final bill throughout the legislative process. We believe the study represents the best available opportunity to achieve our goals.
We would like to thank everyone who acted on this important issue.
Tags: business, Compliance, Legislation, regulation
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The SEC has announced that they plan to publish a proposal to reform Rule 12b-1 in June 2010. The proposal is intended to address the SEC’s concerns that the fees no longer serve their intended purpose of supporting fund distribution, represent additional sales compensation, and are poorly disclosed to clients.
The Professional Alliance is a member if The Financial Services Institute (FSI) and we have long held the position that Rule 12b-1 provides fair compensation to financial advisors for providing middle-class Americans with critical support and guidance in planning to achieve important financial goals ranging from retirement, to college funding for children, to caring for aging parents. We have vigorously advocated for the retention of 12b-1 fees as an essential way of aligning the interests of the advisor with the interests of their fund shareholder clients. For this reason, preserving 12b-1 fees for the benefit of small investors has been a top advocacy priority for FSI since 2007, when the SEC initially announced its intention to review Rule 12b-1.
In an effort to preserve 12b-1 fees, the Financial Services Institute has meet with senior members of the SEC’s staff and held meetings with each of the five SEC Commissioners in the last month. We are closely monitoring developments and will alert you as soon as the proposal is made public.
Tags: business, clients, Investments, Legislation
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Market volatility has recently returned and I’m sure the number of phone calls from your clients has picked up as well. Hopefully, you have used the past year to prepare your clients for this type of environment (i.e., a secular bear market). The bottom line is diversification- but that doesn’t mean a whole bunch of stocks and bonds! It means using many different non-correlated asset classes that possess different risk characteristics.
It’s safe to say that the days of picking one mutual fund family and putting all of the client’s eggs in that basket are over. Your clients are counting on you to help them preserve and grow their savings, so be sure you’re using all of the investment tools available to you. I have been talking for some time about this current bear market, economic recession, and the problems that sovereign debt presents to us. As professional advisors, we need to look towards alternatives in this type of environment. Let’s assume that the typical investor’s portfolio is 60% equities and 40% fixed income. What if you allocated 30% of that portfolio to a diversified blend of alternative investments? I think you’ll be surprised by the result. I encourage you to review these alternative trading strategies and see how a blend of active trading strategies might optimize your clients’ portfolios. Alternative investments may include absolute return and/or tactical managers as well as managed futures and structured CD’s. Remember, an ounce of prevention is worth a pound of cure.
Tags: asset management, clients, Investments
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At first glance, your reaction may be, “Duh- of course asset management is important- it’s what we do!” But let’s look a little deeper into the whole concept of managing investments and how the decisions we make as financial professionals will have a profound impact on our clients’ lives- and our livelihood.
Asset management should begin with compliance. From selecting appropriate investments to knowing your client’s risk tolerance, everything we do must be in the best interest of the person(s) we are serving. Recently, there has been discussion about increased fiduciary standards for financial professionals. Whatever course legislation takes, it is fairly certain that our compliance burden will increase- perhaps significantly.
Some advisors are going back to the classroom and obtaining securities and/or insurance licenses that enable them to provide clients with products and services that better meet their needs. This is a trend that makes a great deal of sense in the current economic climate and one that will ultimately benefit both the client and advisor.
The decision whether to manage assets yourself or to hire a money manager is another critical element. Some professionals want the freedom to select investments and create a portfolio they can manage themselves; like a conductor, they prefer to lead the orchestra. But other advisors choose to delegate investment selection to a money management firm with substantial resources; in so doing, they concentrate on the client relationship rather than the minutiae of portfolio management.
Finally, the type of investments and insurance products we use with clients will continue to evolve. Diversification does not mean stocks and bonds. Strategies such as absolute return and tactical management will become more familiar as clients demand- and we provide- a more favorable risk/return scenario.
There has never been a better time to be a financial advisor!
Tags: asset management, business, clients
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A growing number of Senate Banking Committee members are indicating their support of a provision that would replace the regulatory reform draft legislation’s requirement that all financial advisors become registered investment advisers with an amendment that would direct the SEC to study all the issues surrounding harmonization of Broker/Dealer and investment adviser oversight.
I support the adoption of the study because it will provide an opportunity to shape regulatory reforms in a manner that is workable for all client situations and across all business models. Furthermore, I continue to support the creation of a new universal standard of care and an industry-funded self-regulatory organization for investment advisers. I believe the proposed study represents the best available opportunity to achieve these goals.
I urge you to call or write your Senator in support of an SEC study of these important issues. The Financial Services Institute provides a link that can help you quickly contact your Senator through the FSI Advocacy Action Center: http://www.bipac.net/issue_alert.asp?g=FSI&issue=Senate_Banking_Committee_Study&parent=FSI
I have personally contacted my Senators and asked them to support this study. I urge you to join me so we can maximize our impact.
Tags: business, Compliance, independence
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I recently had an enlightening conversation with a financial advisor who told me that her broker dealer was charging her $300 for each advisory account- and she couldn’t pass that fee along to clients. Another Representative confided that his brokerage firm charges 30 basis points on all advisory accounts- even those that he manages himself.
The bottom line is that payout isn’t the only thing to consider when evaluating a broker dealer. Be careful to ask about ticket charges, account fees and other “add-ons” that can significantly impact your take-home compensation.
Tags: business, transition
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Much has been written and discussed lately about alternative products. That is, those investments that are not deemed to be a “standard” part of a client portfolio. Of course, that could lead into a significant dialogue on what is “standard” or “normal” and what isn’t, but we’ll leave that for another time.
When considering alternative products, the first step is to “know your investment.” At Cambridge, we are fortunate to have a top-notch due diligence staff that carefully screens products before they are made available to Rep/advisors. This extra attention enables Rep/advisors to better assist clients with alternative investment programs.
But the result of such scrutiny is a wide variety of alternative investments that Cambridge Rep/advisors can choose from. Managed futures, direct participation programs, non-public limited partnerships, structured certificates of deposit and other products enable the Cambridge Rep/advisor to create a portfolio that better meets the client’s needs.
Alternative investments won’t be the core of a client portfolio. But they can be important components that are critical to helping someone reach their financial goals. I know many of our financial professionals are using these products confidently, thanks to the work done by the Cambridge due diligence staff!
Tags: business, clients
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