We’re happy indeed to welcome you to Research magazine’s fourth annual ETF Hall of Fame.
It’s no wonder that exchange-traded funds are the industry’s fastest growing investment vehicle: ETFs are powerful tools that offer a host of client benefits — plus, they help make advisors’ practices more profitable.
Two of our honorees, recognizing ETFs’ advantages back in the 1990s, began using the funds to lower costs and for broad access to the market. Within the last decade, upon introduction of hundreds of new ETFs, they likewise expanded their use to gain exposure to specific sectors for even greater diversification. Our third winner, using ETFs a scant three years, already has 30 percent of his team’s AUM in these funds.
The arena is dynamic: $824.70 billion is now invested in ETFs, and their number has increased to 933, according to National Stock Exchange figures. Further, this year three brokerages — Charles Schwab, Fidelity and Vanguard — began offering commission-free exchange traded funds.
ETFs’ liquidity, transparency, low cost and tax efficiency make these tools, which offer all-day tradability, extremely hard to ignore.
It was particularly challenging for contest judge Ronald L. DeLegge, who writes Research’s monthly ETF Report and is publisher-editor of www.etfguide.com, to choose this year’s winners among the growing number of contestants.
Here’s what’s most impressive about our 2010 honorees:
Stefan J. Contorno
Vice president, financial advisor, portfolio advisor-Personal Investment Advisory program (PIA); Crisci, Contorno & Associates Merrill Lynch Wealth Management
Home base: Naples, Florida
ETF AUM: $48 million of total $160 million
Community activities: Board member, Naples Italian American Club; active member, Naples Chamber of Commerce
To be sure, the global financial meltdown brought profound changes. That dark cloud’s silver lining? For Stefan Contorno, it was his decision, during the turbulence, to use ETFs for reducing clients’ costs and supply liquidity to cope with the market’s wild swings.
“In a volatile environment, ETFs, with their ability to make tactical changes, really add value. It’s a huge benefit. Mutual funds don’t have that same liquidity, but it’s extremely important to a client’s portfolio. I really like the fact that, if necessary, you can get in and out of an ETF,” Contorno, 37, says.
The advisor co-leads a team serving about 200 affluent households. Though he has implemented ETFs for only three years, already they represent 30 percent of the team’s business. Some clients are invested in all-ETF portfolios, which are diversified among fixed-income, equities and cash.
Rather than research and choose ETFs himself, Contorno relies on Merrill Lynch’s managed ETF models based on the firm’s research. The portfolios are diversified across the board and include fixed-income, equity, commodity and international exposure.
“I choose the best and most suitable portfolio according to clients’ risk tolerance. Using Merrill’s research and recommendations saves a lot of leg-work,” Contorno says.
And using the models has helped Contorno streamline his practice, permitting him to take a more “consultative type of approach,” he says.
To pick the most appropriate portfolio, he profiles each client based on their responses to a detailed questionnaire discussed in face-to-face meetings.
The advisor was initially attracted to ETFs because of the upbeat press they’ve received. After looking into them further, especially Merrill’s platform, he gradually incorporated them into his practice. Though most clients had heard or read about ETFs, Contorno embarked on a thorough education program, furnishing ETF research reports and discussing portfolios that dovetailed with clients’ personal risk tolerance.
In seminars that he conducts for prospects, the FA also enthusiastically spreads the word about ETFs.
“As popular as ETFs have become, a lot of the competition still talks strictly about traditional mutual funds. So we’re able to speak to prospects about a type of investment they’re not necessarily hearing about from their current advisors. It puts us in a unique position,” he says, “and gives us leverage to discuss ETF strategy and portfolios that will ultimately help performance.”
From Staten Island, New York, Contorno — who by age 12 was charting stocks on graph paper — earned a B.A.A. in economics from Baruch College of the City University of New York. In 1999 he began his career as a UBS trainee in Red Bank, N.J. Next, he moved to Wachovia Securities, in Edison, N.J. He was at the firm for eight years until joining Merrill in 2008 and immediately began working with an affluent Florida clientele.
Last year Contorno added Certified Special Needs Advisor to his quiver. That designation helps him work with clients who have children with disabilities as well as to liaise with local attorneys that develop special needs trusts.
A big advocate of using the firm’s research, Contorno says: “A pitfall to ETFs is getting too wrapped up in the selection — spending too much time doing your own research and tracking them every minute of the day.”
His general advice to FAs who haven’t embraced ETFs? “In today’s complex times, not only do our clients need us more than ever, they need solutions. To ignore all the different solutions that are available is a disservice to clients. Advisors should be looking at ETFs, where suitable. Otherwise, we run the risk of our competitors doing that for us.”
Mark A. Frugoni
Vice president-investments, financial advisor, private investment management portfolio manager (PIM), Hubert & FrugoniWells Fargo Advisors
Home base: Houston, Texas
ETF AUM: $60 million of total $150 million
Community Activities: Member, Former Student Advisor Board, political science dep’t., Texas A&M University; lifetime member, Houston Livestock Show & Rodeo, raising funds for college scholarships
No more outsourcing for this advisor: Mark Frugoni has taken ownership of managing his clients’ assets — and for that, he has ETFs to thank.
A decade ago, unhappy with the high fees and manager underperformance of mutual funds and separately managed accounts, Frugoni started using ETFs for fee reduction. Back then, his strategy for ETF-only portfolios focused mainly on broad-based equity, fixed-income and commodity holdings.
But in 2008, he moved away from the broad-based approach and, in addition to adopting a targeted allocation, added a tactical risk-management overlay with buy-sell signals. A few of his favorite ETF providers are First Trust, iShares, Market Vectors and PowerShares.
“We have a buy-sell strategy for our three stock models, our commodity models, our currency models and our bond exposure as well,” notes Frugoni, 41.