MEDIA REVIEWS – June 1-7, 2020

This issue of Investment Advisor magazine focuses on ranking broker-dealers by revenues, number of reps, payouts etc. but you have to think that bigger is not always better, and that even BD leadership understands that they need to lead their reps out of the sales side of the business.  Better to focus on the profile of Carolyn Armitage of Echelon Partners, who talks about the challenges of managing human capital, or the farewell tribute to Mark Tibergien (Hint: he’s actually just taking the summer off before getting back into consulting projects), and the Angie Herbers column on the permanent changes due to our coping with COVID-19.

Articles that received a “high” relevance rating:

“Never Let a Good Crisis Go to Waste”
by Tim Welsh
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/never-let-a-good-crisis-go-to-waste/
Relevance: high

Some advisory firms are benefiting from “money in motion”—clients who have never worked with an advisor before, and those who are dissatisfied with their current clients.  The author says the key to marketing yourself during the pandemic is not to be too self-promotional, and simply ask how you can help.  The number one reason for losing clients is failure to communicate.  YCharts did a recent study showing that two-thirds of investors are not happy with the level and frequency of communications they are receiving from their advisor.  If you need to find out which of your clients are dissatisfied, simply ask.  (p. 13)

“How a Consultant Turns Her Own Career Into Client Growth”
by Ginger Szala
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/05/how-a-consultant-turns-her-own-career-into-client-growth/
Relevance: high

This is a profile/interview with Carolyn Armitage, managing director of the Echelon Partners M&A consulting firm.  She worked on Wall Street in the 1980s, then joined HD Vest, then worked with Financial Network and then ran the advisory firm for all the BDs that the ING Network had acquired.  More recently, she worked at LPL Financial, helping rep offices improve their organizations.  She joined Echelon in 2017.

In the interview, she says that the human capital in an advisory business sis the hardest part to manage, and CEOs need to be shown their blind spots and get an unbiased perspective on their organization and skill sets.  Women, she says, are more comfortable on the fee-only side than the sales side.  She recommends that advisors never stop learning, or let their personal wealth exceed their personal development.  The end of the article is a reading list: “Leadership and Self-Deception” by the Arbinger Institute; Napoleon Hill’s “Think and Grow Rich;” “Cowboy Ethics: What Wall Street Can Learn from the Code of the West” by James P. Owen; and “The Dash” by Linda Ellis.  (p. 22)

“Mark Tibergien Turns the Page”
by Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/mark-tibergien-turns-the-page/
Relevance: high

The outgoing CEO of BNY Mellon/Pershing recalls when he and his partners went without paychecks for a period before selling the firm to Moss Adams; it reminds him of today.  He says that advisors today should focus on their core.  Don’t forget what you’re in the business for.  Truly support and value what’s most key to your business—which for most firms is the people who work for the company.  And even as you go through moments of doubt, convey calmness and give a sense of direction to your clients.

He says that the Great Recession accelerated the evolution of many firms from practices to businesses, and this pandemic may do the same, and bring about “a transformation in how people do business.”  Firms learn about their strategy, structure, people and processes during times of crisis.

At Pershing INSITE conference, Tibergien has interviewed Green Bay Packers quarterback Aaron Rogers and former Secretary of State Madeleine Albright.  Tibergien plans to stay retired through the summer, and then he may do some writing or consulting.   (p. 35)

“4 Reasons Why There May Be No Turning Back”
by Angie Herbers
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/4-reasons-why-there-may-be-no-turning-back/
Relevance: high

Herbers says that COVID-19 is changing the independent advisor business.  Her firm conducted a survey that found that 78% of firm owners are focusing on revamping their firms’ operational processes—which, of course, they are forced to do now that everyone is working virtually.  59% of the firms reduced overhead expenses and decreased shareholder dividend payouts as a way to maintain profitability.  But less than 2% of the firms laid off any staff or employees.

Just 7% of firms are conducting marketing campaigns to attract new clients during the pandemic.  Instead, most firms are looking for ways to upgrade their client experience during the crisis, including more client contact and handholding.  For information and advice, they are primarily relying on peer groups, but many advisors are still turning to articles for information about industry and financial market trends.

Advisors have shifted their client communications from financial planning issues to market reports.  There has been a rise in video communications, and those messages have become more personal and question-oriented.

A growing number of advisory firms are looking at M&A transactions, and those discussions are happening leader-to-leader rather than through consultants, matchmakers and/or M&A firms. 

Herbers argues that, perhaps with the exception of the shift to more market-based communications, these represent permanent shifts in the way advisory firms do business.   (p. 39)

“Is the PPP Just a Loan?”
by Tom Giachetti
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/is-the-ppp-just-a-loan/
Relevance: high

By now you know that the CARES Act authorized forgivable loans through the Paycheck Protection Program (PPP), but offered little guidance on how, exactly, that would work.  Some advisors took the loans, and had to do it quickly if they wanted to qualify.

Giachetti says that last April 27, a month after PPP went live, the SEC issued guidance whether advisors must disclose their participation in PPP.  It says that advisors must disclose all material facts relating to the advisory relationship, including the fact that you required assistance to pay the salaries of your employees who are primarily responsible for performing advisory functions for your clients.  In other words, you need to disclose—or document why you think disclosure is unnecessary against the next SEC audit.  (p. 46)

The rest of the articles:

“Regulatory Groups Gear Up Remote Exam Requirements”
by Melanie Waddell
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/regulatory-groups-gear-up-remote-exam-requirements/
Relevance: low

FINRA and NASAA are finalizing the requirements for online test taking, for the Series 6, 7, 63, 65 and 66 exams, and the CFP Board has postponed its July certification exam.   FINRA is now allowing remote mediation.  (p. 10)

“Mutual Fund, ETF Assets Ravaged by Double-Digit Declines in March: Cerulli”
by Michael Fischer
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/04/mutual-fund-etf-assets-ravaged-by-double-digit-declines-in-march-cerulli/
Relevance: low

In March, there were net inflows into passively-managed equity ETFs, but pretty much everybody else saw outflows.  Fixed-income ETFs suffered $20.7 billion in negative flows.  (p. 15)

“A Better Route for Green Investing”
by Robert Sher
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/a-better-route-for-green-investing/
Relevance: low

The article doesn’t recommend any specific funds or investments; it mentions green technology, solar and wind farms and that these investment will serve as portfolio diversifiers.  (p. 16)

“Is It Time to Revisit the 60/40 Portfolio?”
by Josh Vail
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/is-it-time-to-revisit-the-6040/
Relevance: low

Don’t let the headline fool you; this is basically an advertisement for long-short equity funds disguised as an article, written by an executive with a firm that provides those strategies.  (p. 18)

“How TD Ameritrade’s Block Trading Desk Saves its RIAs Money”
by Ginger Szala and Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/01/how-one-block-trading-desk-saves-its-rias-money/
Relevance: moderate

The custodian’s 14 traders will take your order and ask at least two market makers to compete for the business.  There are examples of how much this has saved advisors on the spread, but it is unlikely any readers will make that size of a trade.  The traders also supply advisors post-trade reports and report performance by each market maker.  Currently the business splits about 80% ETF trades and 20% individual stocks, with the latter showing growth.  (p. 19)

“10 Steps to Buying a Practice in a Pandemic”
by Mark Elzweig
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/04/30/10-steps-to-buying-a-practice-in-the-pandemic/
Relevance: moderate

This article is mostly for BD reps.  It says there are still about four dozen buyers for every seller, so you need to spend hours a week or month to cultivate relationships with advisors who are tired of running a practice through the pandemic.  You can do this by attending conferences.  (Really?  In this environment?)  Look for those who have a business style compatible with yours.  Show the seller you can take care of his/her clients, and that you can grow the business so you can meet the earnouts.  Talk to your BD’s succession department, and talk to wholesalers and recruiters.  (p. 21)

“Push to Excel Means Beating one of the S&P 500’s Best Years”
by Ginger Szala
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/13/envesnet-investment-advisor-announce-asset-award-finalists/
Relevance: low

Announcing the finalists for the magazine’s annual Asset Manager and Strategist of the Year contest.  The list is too long to reproduce here; Instead of relying on a magazine list, you might want to dig into Morningstar if you’re not managing passively.  (p. 24)

“A Complex Picture”
by Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/the-2020-broker-dealer-presidents-poll-a-complex-picture/
Relevance: low

This is the magazine’s annual poll of broker-dealer presidents, and every year it tends to be embarrassingly fawning, as if the authors are there to solicit advertisements rather than find out hard facts.  The executives are allowed to engage in doublespeak, like this first quote from LPL CEO Dan Arnold: “These structural trends are creating opportunities to evolve certain aspects of how we work and serve our advisors, which we are incorporating into our plans.”  Huh?

But here, most of the reporting is not quotes; it’s poll results.  Most expect more consolidation in the BD world, driven by higher regulatory and technology costs.  Most see more market volatility ahead due to the coronavirus (duh!) and every year they complain about all the damn regulations they have to live under.  The article notes in a tone of vague disapproval that FINRA is cracking down on advisors with patterns of misconduct and the BDs that hire them; the BD executives say that dealing with reps with troubled regulatory records does not keep them up at night.

Interestingly, only 31.5% believe that Reg BI will produce compliance challenges and confusion, which basically tells you that Reg BI is not a milestone in consumer protection.   (p. 26)

“Best in the Business”
by Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/the-2020-broker-dealer-reference-guide-best-in-the-business/
Relevance: low

42 BD firms are included in this year’s BD survey, which tells us gross revenues, fee-based revenues and average gross dealer concession per rep.  The table is ranked by size; LPL Financial, Raymond James, Commonwealth Financial Network, Northwestern Mutual and MML Investor Services finished, respectively, in the top five, and number six, Cambridge Investment Research, rounds out the firms with more than $1 billion in gross revenues.  There’s a ranking based on number of registered reps, and one base on the percentage of rep offices that have their own RIA.  (p. 32)

“The Reg BI Battle Comes to a Head”
by Melanie Waddell
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/the-reg-bi-battle-comes-to-a-head/
Relevance: moderate

Right about as you read this, the U.S. Court of Appeals for the 2nd Circuit will be hearing oral arguments from attorneys for the XY Planning Network and seven state attorneys general, who want to put the brakes on the SEC’s new Reg BI initiative.  There’s some urgency; the standards will otherwise go into effect on June 30.

The article gives a crude summary of the issues that will be argued, but says that the the rule is incompatible with the language of the Dodd-Frank act and ignores its own studies—and also contradicts the SEC’s own past interpretations of the Investment Adviser’s Act.  The article adds that the DOL is nowhere near replacing its fiduciary rule with something that conforms with Reg BI, and anything new won’t be final until after the Presidential election.  (p. 37)

“Factors Affecting Social Security’s Future”
by Marlene Satter and Ginger Szala
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/04/29/4-factors-affecting-social-securitys-future-415-366647/
Relevance: moderate

The factors are pretty simple.  The ratio of workers to retirees has fallen from about 3:1 to 2:1 and people are living longer—and collecting Social Security benefits to higher ages.  The Trust Fund is projected to be depleted by 2035, but at that time payroll taxes will be able to cover 79% of promised benefits.  Also: there has been no replacement of the public trustees since 2015; those trustees oversee the program and communicate its status to the public.   (p. 41)

“Wirehouses, BDs and Brokerage Firms Share Results in the COVID-19 Crisis”
by Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/27/wirehouses-bds-brokerage-firms-share-results-in-the-covid-19-crisis/
Relevance: low

The ‘Broker-Dealer Beat’ lives on—although the BDs have been renamed “wealth firms” in this column.  Ameriprise Financial brought in 9% more revenue in the first quarter than a year ago.  LPL Financial’s top line increased 7%, while Raymond James saw a 35% drop, due to a bank loan loss provision tied to coronavirus fallout.  Merrill Lynch has seen its margins fall and recruiting is down due to the pandemic.  Morgan Stanley saw its quarterly revenue drop 8%, and Stifel Financial saw its Global Wealth Management brokerage revenue go up 17%.

TD Ameritrade’s net income fell 11% from the first quarter a year ago, While Wells Fargo saw its headcount drop.  UBS experienced revenue growth, while Schwab’s net income was down 18% from a year ago.  (p. 43)

“Schwab to Purchase Some Motif Assets”
by Bernice Napach and Janet Levaux
Investment Advisor, June 2020
https://www.thinkadvisor.com/2020/05/07/schwab-to-acquire-motifs-technology-in-all-cash-transaction/
Relevance: moderate

If you were scratching your head about this acquisition, Motif specialized in creating thematic investments, and it had a lot of them, and they were highly specialized—you could target virtually any sector of the business landscape with a certain degree of precision.  The platform also offered real-time fractional share trading.  A spokesperson with Schwab says that clients are interested in customizing their investment experience to suit their values and personal circumstances.    (p. 45)

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