MEDIA REVIEWS – April 16-23, 2019

Every year, the magazines publish their broker-dealer survey and rankings, and this year Financial Advisor came out with the first one, showing that BDs generally are enjoying revenue and profit growth.  Of course, the private equity folks have noticed; Lightyear Capital, Genstar Capital, Warburg Pincus and Thomas H. Lee are buyers.  The reps and advisors, meanwhile, want better technology and help dealing with increasingly complex regulation.

In addition, Ross Levin talks about how he has made graceful partings with clients, and Steve Gresham looks at the real world implications of widowhood when the husband handled all the finances.

Articles that received a “high” relevance rating:

“Shareholders Press Companies Harder on Human Rights”
by Jerilyn Klein Bier
Financial Advisor, April 2019
https://www.fa-mag.com/news/shareholders-press-companies-harder-on-human-rights-44017.html?issue=315
Relevance: high

The issues are immigration rights and detention, child sexual exploitation, hate speech and privacy.  One resolution asked Costco for its suppliers’ compliance with the Global Policy on Prison Labor.  Others have asked Wells Fargo and Bank of America to report on their lending practices to private prison companies involved in immigration detention.  Many expect companies to implement the United Nations’ Guiding Principles on Business and Human Rights, and to score well on the Corporate Human Rights Benchmark and the KnowTheChain benchmark.  (p. 18)

“FPA’s New Online Course Helps Planners Advise College-Bound Families”
by Jacqueline Sergeant
Financial Advisor, April 2019
https://www.fa-mag.com/news/fpa-s-new-online-course-helps-planners-advise-college-bound-families-44019.html?issue=315
Relevance: high

The FPA is partnering with Capstone College Partners on a self-study online course that helps planners advise clients on how to pay for college.  There are eight modules available in the FPA Professional Development Learning Center, on financial aid, tax strategies for college-bound families, how to analyze financial aid policies at institutions, types of student loans and forgiveness programs—and 11 CFP CE credits for completing the course.   (p. 20)

“Post the Salaries on the Fridge”
by Philip Palaveev
Financial Advisor, April 2019
https://www.fa-mag.com/news/post-the-salaries-on-the-fridge-43965.html?issue=315
Relevance: high

A financial planning executive accidentally sent the entire salary structure of the firm to all of its employees, and it caused a lot of consternation.  Palaveev says that you ideally want everybody to paid in a way where, if you posted the salary structure on the refrigerator, everybody would shrug and look for they yogurt they brought for lunch.

Many advisory firms have a labyrinth of exceptional circumstances; they hired somebody away from another firm and promised a higher salary, while another person has been with the firm for many years without getting a promotion, so the salary has been bumped up.  Better to openly formulate your compensation philosophy.  How are compensation decisions made?  Who is making them?  What are the skills and characteristics of each team member, and what are comparable professionals being paid at other firms?  This latter information should be treated with caution, because median salary information means that half of people in that position are paid more, half less.

If two staff members perform comparable duties, there should be good reasons why their pay is different.  Perhaps one has more experience, or more credentials, or he has been more productive.  Everybody should understand those factors.  (p. 25)

“A Tale of Two Widows”
by Steve Gresham
Financial Advisor, April 2019
https://www.fa-mag.com/news/a-tale-of-two-widows-43967.html?issue=315
Relevance: high

Two widows with husbands who handled all the finances.  In one case, the husband was diagnosed with cancer, and thus began an orderly seven-year transfer of financial responsibility.  The other became a widow when her husband had a heart attack, and she had no idea how to proceed.  She had to contact banks, brokerage firms and utility companies with death certificates and instructions.  The companies seemed to intentionally make things difficult. 

The first widow changed her investment approach from self-directed and somewhat free-wheeling to buying a long-term-care policy and an annuity to provide predictable income.  She moved the investments into a managed account with a focus on growth and income.

The point is that both families delegated the finances to the husband, and only one had the opportunity to help the spouse/partner organize finances before death.  The conclusion is that advisors and clients alike should consider the possibility and prepare in advance.  (p. 31)

“When to Part Ways With Clients”
by Ross Levin
Financial Advisor, April 2019
https://www.fa-mag.com/news/when-to-part-ways-with-clients-43968.html?issue=315
Relevance: high

Levin notes that the most common reason his firm (and yours) loses clients is investment performance—and he is kind enough to hope they will leave after a downturn (and thus participate in the inevitable upturn), than after a period when a diversified portfolio underperforms the S&P 500 (right before they are about to experience the benefits of diversification).  But he says that if clients are leaving due to performance issues, that means they are not aware of—or not valuing—all the other things that the firm does for them.  (At this point, the cynical reader might ask whether Levin charges by AUM and thus allows clients to assume the asset management service is his firm’s most important, but since this column doesn’t address that, we won’t either…)

Sometimes the parting has nothing to do with investments.  A widowed client or divorcee with a new partner raises complications that may not be what the client wants or expects.  Adult children may be taking over the clients’ finances, and they may not see things the same way that the advisor does.   

When clients have given up on you, Levin suggests that you help them find another comprehensive advisor who will take good care of them.  (p. 32)

“IBDs in Lush Times”
by Eric Rasmussen
Financial Advisor, April 2019
https://www.fa-mag.com/news/ibds-in-lush-times-43964.html?issue=315
Relevance: high

The annual broker-dealer issue for FA magazine produces the usual table ranking the firms by gross revenue, starting with LPL Financial ($5.1 billion) and Ameriprise Financial Services ($4.8 billion), down through Raymond James, Commonwealth Financial network, Northwestern Mutual Investment Services, MML Investors Services, AXA Advisors BD, Cambridge Investment Research, Securities America and Lincoln Financial Network, and on down through 65 firms (#65: Correll Co. Investment Services Corporation, with 8 producing reps and $1 million in gross revenues last year).  More interesting is the second chart (only two?), which shows that the 20 fastest-growing BDs are enjoying revenue growth in the double digits, in some cases two impressive digits (Woodbury Financial Services up 31;41%; Northwestern Mutual Investment Services up 28.40%; Securities America up 26.09%.

The article says that as banks and insurance companies have exited BD ownership (not enough cross-sales, apparently), private equity firms are the buyers of the moment, including Lightyear Capital, Genstar Capital, Warburg Pincus and Thomas H. Lee.  One wonders where the growth in revenues is coming from, since reps are moving away from mutual funds (and 12b-1 fees and revenue sharing arrangements) toward ETFs (which pay none of those). 

The magazine lists some of the acquisitions, and finally gets to the focal point of the BD world: the reps, referred here to as “advisors”—and some of them are almost certainly not salespeople.  The reps want more and better technology and better help dealing with the increasingly complex regulatory environment.  Recruiting is brisk, but with the large brokerage firms pulling out of the advisor protocol, that may not last forever.

A number of the larger BDs are creating RIA-only custodian services for advisors (we can call them that in this instance) who want to go fee-only.  It is noted here that RIAs can fetch more money selling their businesses than they can get from selling a book of business as an IAR.    (p. 46)

“Stop Scaring Your Clients”
by Dan Moisand
Financial Advisor, April 2019
https://www.fa-mag.com/news/are-you-scaring-your-clients-44012.html?issue=315
Relevance: high

A reporter asked this author, in late 2018: “What are you telling clients now that their retirement is in danger?”  He says that many advisors urge caution too often; clients can afford to enjoy their retirement without worrying about every market downturn, and they should be encouraged to spend some of their money.  Meanwhile, emphasize to clients that bear markets are expected and seldom ruinous.  Clients who are too conservative with their withdrawals are more likely to leave a lot of assets behind than they are to run out of money.  They restrict their present.

At the end, Moisand asks: Do your discussions of economic conditions contribute to client worry about whether a recession is nearing?  Are you unwittingly encouraging clients to extrapolate economic concern into a bear market prediction?  If so, recalibrate.  It doesn’t matter much why the markets decline, but it matters a great deal what clients do in response to the declines.  (p. 76)

The rest of the articles:

“Smart Beta Still not a Grabber for Advisors”
by Jeff Schlegel
Financial Advisor, April 2019
https://www.fa-mag.com/news/smart-beta-still-not-a-grabber-for-advisors-44014.html?issue=315
Relevance: low

Only 21% of advisors are using any of the 1,493 smart seta products, according to Cerulli.  Those who do are looking for downside protection and the reduction of portfolio volatility.  (p. 15)

“Family Dynamics Can Muddle Estate Planning”
by Karen DeMasters
Financial Advisor, April 2019
https://www.fa-mag.com/news/family-dynamics-can-muddle-estate-planning-44016.html?issue=315
Relevance: moderate

A survey found, unsurprisingly, that the hardest part of estate planning is not the tax planning and procedural elements, but sorting out the family relationships and emotions.  Advisors said the biggest mistake their clients make is thinking they’re too young to think about estate plans.  Advisors have to initiate the estate planning conversation, and deal with concerns that sharing a client’s wishes will cause conflict among the heirs.  (p. 16)

“Withdrawal Rates for Asset Preservationists”
by Evan Simonoff
Financial Advisor, April 2019
https://www.fa-mag.com/news/withdrawal-rates-for-asset-preservationists-43966.html?issue=315
Relevance: moderate

Richard Marston, the James R.F. Guy professor of finance at the Wharton School, has been researching an interesting issue.  Suppose clients want to invest their portfolios like an endowment, where they take out income each year for living expenses, but they want the corpus to survive—because they don’t know how long they’re going to live, and also because they want to leave the legacy to their heirs.  How should they invest?

Very late in the article, we are given the key statistics.  Over the last 17 years, GDP growth in the U.S. has averaged 1.8% a year, and the Eurozone is lucky to achieve 1% a year.  So where are equity returns going to come from? 

Even if you assume that the S&P 500 will generate 7% real annual returns and Treasuries will generate 2.6%, there is an 18% chance that a portfolio applying a 3% spending rule will decline in value by up to 18%.  And when Marston asked banks that are running endowments what they thought of his assumptions, they corrected him down to something closer to 2-5% real (for stocks) and 1.5% real (for bonds). 

But… diversification will come to the rescue, right?  Hedge funds are unlikely to be any help for a variety of reasons, and private equity is probably out of reach of most planning clients.  (And still questionable at today’s valuations.)  Real estate and emerging markets are considered, but they aren’t likely to support an endowment-like return.  The outlook for today’s retirees is gloomy, but that will change once we finally get a big drop in the markets, and retirees can look forward to more robust returns again.  (p. 29)

“Moving In with Mom and Dad”
by Karen DeMasters
Financial Advisor, April 2019
https://www.fa-mag.com/news/moving-in-with-mom-and-dad-43970.html?issue=315
Relevance: low

The gist of the article is that many clients are becoming caregivers for their elderly parents, who may be mentally or physically declining.  The family needs to decide: who is going to take care of what responsibilities?  Who will take over the finances?  Caregiving involves significant costs—financially and in relationships and time and potentially lost career opportunities.  The article calls for more awareness of the challenges.  (p. 35)

“All in the Family Office”
by Dotti Reeder
Financial Advisor, April 2019
https://www.fa-mag.com/news/all-in-the-family-office-43971.html?issue=315
Relevance: low

Did you not know already that family offices are “businesses structured around custom financial management and services for a family’s investments, legal needs, accounting, taxes, philanthropy and household management”?  Or (I hope you’re sitting down) that “the backbone of the operation is the team of professionals running it, guided by the goals of the family…”?  The article tells us, helpfully, that a family should have $250 million before considering setting up its own single-family office.  And then most readers will be astonished to learn that “The best estate, tax and philanthropic plans are created when the family’s goals are aligned and understood and the financial picture is clear.” 

The focus shifts to multi-family offices, which, we are told, work with multiple client families.  The focus also shifts to a consumer audience; wealthy consumers (who probably are not readers of trade magazines) should examine how the organization structures its services teams and delivers its services.   (p. 39)

“Stress-Testing the Ultra-Wealthy is Essential”
by Russ Alan Prince
Financial Advisor, April 2019
https://www.fa-mag.com/news/stress-testing-the-ultra-wealthy-is-essential-43972.html?issue=315
Relevance: low

“Ultra-wealthy” is here defined as having $30 million or more to invest, compared with the “super rich” ($500 million or more).  Increasingly the former want what the latter have had: models that look at whether their wealth will hold up in different scenarios.  But after learning this insight, the reader will pore through several pages in a state of perplexity, wondering when the column will tell him/her HOW to stress test a client’s financial situation.  Finally, we learn that BlackRock has made its Aladdin platform available to advisors, and RiXtrema and Riskalyze will do some of this analysis.  Nothing is said about how to use these tools with the ultra-wealthy, although we are told repeatedly that most advisors are not very good at providing stress testing.  Maybe if the column had given more details about the process, that would be less true.  (p. 41)

“The Bond Between Impact Investing and Philanthropy”
by Betsy Brill
Financial Advisor, April 2019
https://www.fa-mag.com/news/the-bond-between-impact-investing-and-philanthropy-44004.html?issue=315
Relevance: moderate

The author works at a “philanthropy advisory firm,” and sees an uptick in impact investing.  The process starts with understanding each client’s philanthropic strategy, what they are giving to and what they care most deeply about.  Several times we are told this, and how this understanding of clients is important, and it’s also important to follow the strategies this understanding implies.  A lot of preaching, without real content.  (p. 44)

“Living Up to the Hype?”
by Debbie Carlson
Financial Advisor, April 2019
https://www.fa-mag.com/news/living-up-to-the-hype-44006.html?issue=315
Relevance: moderate

The California State Teachers Retirement System has funded an ETF, through State Street Global Advisors, aimed at fostering gender diversity in the workplace.  The SPDR SSGA Gender Diversity Index ETF invests in companies with a high proportion of women in senior leadership roles.  Over three years, its annualized return is 12.1% vs. 13.8% for the S&P 500.  A new Impact Shares YWCA Women’s Empowerment ETF debuted last August.  It gives all its net profits after advisory fees to the YWCA.  (p. 59)

“Managers Tackle Slower Earnings Growth”
by Marla Brill
Financial Advisor, April 2019
https://www.fa-mag.com/news/managers-tackle-slower-earnings-growth-44007.html?issue=315
Relevance: low

A profile of the William Blair Large Cap Growth Fund.  (p. 62)

“Guiding the Retired Entrepreneurs”
by Ben Mattlin
Financial Advisor, April 2019
https://www.fa-mag.com/news/guiding-the-retired-entrepreneurs-44010.html?issue=315
Relevance: low

Many clients retire to new careers, whether paid or unpaid.  Some of them start new businesses.  How do you help them embark on this new venture and still protect their retirement security?  How’s this for advice: don’t start a business that requires a lot of capital or that you have little knowledge about.  Some retired professors have become expert witnesses and are presenting testimony in court.

Advisors sometimes have to shoot down their clients’ ideas.  And sometimes the business will grow so rapidly that it ruins the relaxation of retirement.  (p. 65)

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