Gathering vs. Managing Assets: Can You Really Do Both Well?

Investment and insurance professionals typically fall into one of two camps. Either they enjoy selling, which gives them the edge in attracting clients, thereby gathering new assets. Or their strength lies in actually managing the investment of those assets.

No matter where you fall in this equation, it is becoming clear to many that clients are interested in the solutions created during the selling process, as well as a higher level of management for their investments.

If you are like the majority of registered representatives with whom I have had the privilege of working, your talent probably lies in gathering assets, thanks to your expertise in developing solutions for your clients financial needs and your excitement for selling. Those solutions can involve a wide range of strategies and a variety of products, many of which have underlying investments, such as subaccounts within variable life and annuity products. Over time, these products will ultimately represent a large portion of your clients net worth and will warrant close monitoring.

But as an “asset gatherer,” you dont want to get into the awkward position of discussing investment details and changes that occur in your clients accounts, which can include style drift, capitalization movements and investment returns relative to benchmarks, to name a few.

Instead, your job is to balance the “gathering” needs of your practice and monitor investment performance–not to manage client assets by making proactive investment recommendations.

So what do you do? This is where the second half of the equation–managing assets–comes in. Registered representatives who are attracted to the asset-management side of the business often affiliate themselves with third-party investment advisor firms (TPIAs). The strength of these firms lies in managing, not gathering, client assets.

Using the services of a TPIA can give you the freedom to remain focused on growing and gathering new assets, while simultaneously providing your clients with a high level of proactive management. Often included in that proactive approach are dynamic, sophisticated management models that can be customized to individual client characteristics.

These dynamic investment strategies may better meet the needs of your clients who have used traditional strategic buy-and-hold approaches with some disappointment.

This disappointment stemmed from the fact that in the past, buy-and-hold asset allocation models, provided by product manufacturers or investment firms, met most clients investment objectives, thanks to packaged product features like dollar cost averaging and asset rebalancing. Therefore, an allocation strategy was not usually altered until a major change, such as a shift in risk tolerance or time horizon, occurred.

However, the performance of the market in these last few years has been a wake-up call to many that other investment approaches should be considered–and are available.

Of course, a more proactive, dynamic approach can present its own set of issues. One problem for many mutual fund and subaccount managers is that dynamic portfolio management models tend to require them to hold more cash than they would prefer or force them to liquidate holdings. Both can be a drag on performance.

In addition, investment performance can be negatively impacted by the trading activity of dynamic portfolio management models, higher fees, etc. The bottom line is that this dynamic management style may lower the funds overall performance. This is, of course, something fund managers are very sensitive about, since it might inhibit attracting new assets and affect their personal income.

So how do you offer dynamic management services if you are not a registered representative with strong money-management abilities? And, what type of products can you use that will not push your luck with subaccount money managers?

For strong money-management support, you may not need to look any further than your broker-dealer. Many broker-dealers have registered investment advisors and TPIAs who proactively manage money and can provide you and your clients with investment-management support.

Other broker-dealers have RIA entities that merely collect fees from outside TPIAs, who charge clients for their investment management services. If you are an investment advisor representative, you can share in these fees. Your broker-dealer is responsible for performing due diligence on potential TPIAs and approving them for use with their investment advisor representatives.

Before using TPIAs, you should determine if their dynamic portfolio strategies make sense to you and more importantly, to your client. TPIAs have client-approved materials that can be submitted to your b-ds compliance department for approval. These materials can provide insight into their dynamic alternative money-management techniques and illustrate how these strategies have performed, compared to other benchmarks and buy-and-hold investment strategies.

The answer to the second question, regarding fund managers resistance to more frequent allocation changes, is a bit more complicated. A few companies are addressing this issue with deferred annuity products and money managers that are geared to dynamic asset-management investment styles. Couple flexible subaccounts with the modern product features of variable annuities and tax-deferred growth, and you have an alternative approach to the buy-and-hold strategies that may be beneficial to both you and your clients.

In a time when many registered representatives are looking for additional ways to deliver value to clients and transition to more of a fee-based approach, dont you owe it to yourself and your clients to take a closer look at the benefits of developing a partnership with a TPIA?

Frank J. Howell, CLU, ChFC is vice president, broker-dealer sales for The Penn Mutual Life Insurance Company, Horsham, Penn. He can be reached at howell.frank

@pennmutual.com


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 6, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.