financial advisors

If You Want the Meeting, YOU Set the Meeting

Posted by Mike McLaughlin on Mar 28, 2011, in Thoughts , tagged with , ,

A recent Your Q&A on Ignites (subscription) focuses on ensuring accountability within a sales team, in part by having clear role expectations. As an illustration, the piece says, “For example, some teams require the internal wholesaler to call the advisor in advance of a meeting with the field wholesaler.”

The example leapt off the page for me. Why? Because I believe the external wholesaler should always be the point-person when it comes to initiating, confirming, and communicating an agenda for his/her own appointments.

The reason is perception. By having an internal wholesaler handle these tasks, the importance of the client is undermined. A signal is sent that the external’s time is too valuable to be successfully setting the table for an important prospect/client conversation.

Recently I was in an advisor’s office when a hot-selling fund family came up in conversation. The advisor said he’d never met with the wholesaler from the firm:

He’s always having his assistant call and try to schedule time with me. I don’t work that way. I want to deal direct.

The advisor felt slighted by the lack of genuine interest shown by the wholesaler. He views the wholesaler’s approach as saying “my time is more important than yours.” A harsh interpretation? Sure. An uncommon one? I don’t think so.

Salespeople, of course, want to send the exact opposite message. It’s the nature of being a product/service provider.  The wholesaler who wants the meeting (and the client), should make sure his commitment is clear to the client. Direct communication is a simple and important way to do that.

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.

Does Everyone Really Understand the Complexity of Index Investments?

Posted by Mike McLaughlin on Feb 18, 2011, in Thoughts , tagged with , , , , ,

Third in a series of posts on the sales and marketing implications of the ongoing debate between active and passive management.  Read the first and second posts.

Back the spring of 2009, David Swensen, who oversees Yale’s endowment, gave an interview about his investment principles.  A frequently-repeated quote from the interview is:

With all assets, I recommend that people invest in index funds because they’re transparent, understandable, and low-cost.

The word that jumps out to me is understandable.  I think most investors and financial advisors would reflexively agree that index vehicles are exactly that – a tribute to the way they have been described and marketed.

But there is a variable involved in index investing that makes me wonder if everyone understands index products as well as they believe they do:  the underlying indices.  We spent some time digging into a variety of investment indices, leading us to two conclusions:

  1. Indices are Complex: An index is an easy concept in the abstract, but not so in practice.  For example, to fully digest the methodology behind the creation/maintenance of MSCI indices, you’re going to need to read 119 pages of information.  And consider how different theories have emerged on how indices can be best constructed.

  2. Indices can be Volatile: The components of indices vary regularly, and sometimes significantly.  For example, almost 700 securities were added / removed from the MSCI Small Cap indices at the end of last year.  Even the US Large Cap 300 index had 5% turnover in November 2010.

In addition, index updates sometimes occur as infrequently as every six months.  2008 did a lot to remind everyone how much can change in six months.

In the marketing of investment vehicles, index investments are presented as the simplest, most straightforward option.  As Mr. Swensen stated, they’re understandable.  But as we talk with advisors, they typically get indices conceptually but not in great detail. Data like that presented above catches many by surprise.

For firms positioning themselves and their products against index investments, this represents a way for marketing and sales teams to potentially change the conversation.

The One Question to Ask Passive-Leaning Advisors

Posted by Mike McLaughlin on Jan 26, 2011, in Thoughts , tagged with , , ,

Second in a series of posts on the sales and marketing implications of the ongoing debate between active and passive management.  Read the first here.

A client came to us with an issue – internal wholesalers were repeatedly encountering the same objection when discussing the firm’s emerging markets products with advisors.  The objection:  I use index products for emerging markets exposure.

We suggested a number of ways to address this objection with facts (more on those later this week).  But given the relative inexperience of many internal wholesalers, we suggested that they pose the objecting advisor a simple question:

Do you use actively-managed products anywhere in client portfolios?

Why is this type of question effective?  Two reasons:

  1. If the answer is no, the wholesaler immediately knows that there’s not much point in further engaging the advisor.  No further, unnecessary investment of time by anyone.

  2. In the more-likely scenario where the answer is yes, the wholesaler can open up a conversation on the criteria the advisor uses in evaluating active products.  The discussion becomes advisor-centric, not product-centric, and sets the table for the wholesaler to better position the firm’s products.

So much of the active vs. passive management discussion is one that revolves around analytics and data.  And for good reason.  However, for firms dealing with this discussion in day-to-day field and phone interactions, it’s best to first focus on the client.

Active vs. Passive Management Debate Rises Again

Posted by Mike McLaughlin on Jan 21, 2011, in Thoughts , tagged with , , , ,

We’ve been asked to address the evergreen debate of active management vs. passive management with several clients of late.  Why?  Many firms with actively-managed mutual funds are experiencing challenges in specific parts of their product lineups (e.g., emerging markets, domestic large cap, etc.), leaving Sales and Marketing execs to answer:

  • How should our wholesalers handle the discussion with an advisor who is using (or considering) index products?
  • How can we counter an advisor’s move toward passive vehicles in our print/online messages?

Over the next week, we’ll use the blog to cover some of the answers we’ve come up with, including:

  • The one question wholesalers should ask advisors who say they use passively-managed products
  • The underlying complexity of investment indices
  • The sometimes imperfect construction of indexed investments

We’ll also cite some of the better research-driven arguments we’ve seen that can help distributors of actively-managed products with this challenge.  Stay tuned…