From the May 2010 issue of Investment Advisor • Subscribe!

Catching Up With...

Jeff Montgomery of AFAM

When we last reported on a conversation with Jeff Montgomery in these pages, the former NFP Securities honcho had recently become CEO of Al Frank Asset Management, the venerable money management firm--and the venerable newsletter The Prudent Speculator--that features the respected talents of CIO John Buckingham. The timing guided the conversation then, since in the Spring of 2009 we still didn't know that we had reached the bottom of the market in March, and were well on our way to an economic and markets revival that in Spring 2010 now seems more secure, if still shaky. In an impromptu conversation over coffee at Artisanal in New York, Editor Jamie Green caught up with Montgomery about Al Frank--now being renamed AFAM to reflect its broader business umbrella--but also about the overall business and what advisors are looking for these days from their asset managers.

How are advisors building portfolios these days?

Old-fashioned asset allocation is gone. The game now is not buy-and-hold, but buy-and-harvest. Follow Modern Portfolio Theory, but manage risk more closely.

Are they doing more due diligence with their asset managers?

Great advisors are evaluating money managers like they used to evaluate individual stocks; they're going ten times deeper in their active oversight.

What do you think about financial services reform in the wake of Bernie Madoff? Is it too much, or too little?

Well first, I should tell you I'm a recovering attorney--you can defend yourself against a thief, but not against a liar. That's why any law against Madoff won't work.

What about the SEC? Is it staffed appropriately? Can it find the thiefs and liars?

AFAM is considered low risk by the SEC, but the SEC should change the number of risk profiles it uses, and then staff accordingly. I would double the SEC's investment in technology and actually check the data of the firms it regulates.

What about the trend toward fees?

With firms like Fusion Advisor Network (which works through NFP Securities, which Montgomery once led), we finally have a hybrid model, and I think the trend toward hybrids will continue, but E&O insurers are going to have to evolve [to provide coverage for B/D reps doing business away at their RIAs].

Tell me about developments at Al Frank.

We've acquired one of the hottest ETF managers out there [in December 2009, Al Frank bought Innealta Portfolio Advisors, doubling AFAM's AUM to almost $1.2 billion]. We have no debt; lots of cash, and we can do these mergers in our sleep; we're going to buy one firm per year. [I understand these because] I'm unique in being a CEO of an asset management firm that came out of distribution. We have 30 employees, so we're a mid-sized firm. This is a marathon in the dark, and at a time of market disruption, that's when you grow. Scale has never been more important for money managers.

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