According to Neesha Hathi, Schwab’s senior vice president of advisor technology solutions, “50% of advisors in the United States use a tablet device, and 86% of them use an iPad.”
It’s the latest statistic illustrating the increasingly connected advisor business. With the 2013 IA 25, our 11th annual list of the most influential individuals in and around the advisor business, we decided to do something different. We decided to provide examples of how, exactly, the industry is becoming more connected, using the individuals on this year’s list as proxies. How is it that an industry is growing, while at the same time shrinking and more engaged?
Each of the individuals were named to this year’s list for their creativity, success and—of course—impact, something they’re doing largely through interaction and engagement with the others on the list, interaction driven by technology, advocacy and a host of other reasons. It’s one more reason to take the time to get involved with issues and concerns beyond your own business. Use your webs of connectivity to learn from the wisdom of the advisor crowd.
Mohamed El-Erian hardly needs any introduction. The CEO and co-CIO of investment giant PIMCO, who since the end of last year also serves as head of President Obama’s Global Development Council, is one of the most talked about, influential figures in international finance.
He spoke with Savita Iyer-Ahrestani by email on what he feels are some of the more pertinent issues for financial advisors today, both with respect to the global environment as well as to the shifting dynamics within the United States and how they affect the advisory profession.
Q: Do you think financial advisors have the right combination of knowledge and tools to help clients achieve a satisfying retirement? What’s lacking?
A: I believe the sources of return that allowed investors to meet retirement goals in the past won’t necessarily be the same that enable investors to meet their objectives in the future. I also believe that correlations are evolving and the configuration of risks is changing.
As a result, the challenge for all investors, including financial advisors, is to keep an open mind in looking for additional sources of return that fit clients’ needs, both return objectives and risk tolerances. This translates into broadening the opportunity set to take advantage of positive risk-return opportunities in all parts of the world, across asset classes and with a keen eye toward downside protection.
Q: Investment objectives aside, we have been reading a great deal about the importance of behavioral finance. Should financial advisors be making an effort to incorporate the principles of behavioral finance into their practices in order to cultivate the kind of deeper client/professional relationships that this post-crisis era calls for?
A: I do believe financial advisors should focus on cultivating deep client relationships to understand their clients’ risk and return objectives and any biases that may drive behavior. This is particularly important during this time of global change, where fluidity seems to be the only recurrent theme.
In PIMCO’s New Normal, I expect markets to exhibit higher volatility and a bumpier investment road than pre-crisis. For this reason, I believe it is important to invest for the long term within clear risk parameters, seeking to maximize an investor’s potential without being held hostage to tactical traps and harmful unconscious biases. —Savita Iyer-Ahrestani
Read the extended version of Savita Iyer-Ahrestani’s exclusive interview with Mohamed El-Erian here. Click here for a schedule of when each of the 2013 IA 25 honorees’ extended profiles will be published.
All eyes will be on new Securities and Exchange Commission Chairwoman Mary Jo White as she decides which rulemakings to tackle first.
While White told members of the Senate Banking Committee during her confirmation hearing in March that she would “absolutely” make a priority of reviewing the public feedback the agency has been getting since March 1 regarding costs and benefits of a fiduciary rulemaking, she said that finishing rulemaking mandates under the Dodd-Frank and JOBS Acts “in as timely and smart a way as possible” will be her top priority at the agency.
One of her “focus” areas while chairwoman, White said, will be regulating the conduct of broker-dealers and advisors when giving retail investment advice.
She told lawmakers that bolstering the agency’s enforcement will be a priority, noting that while enforcement “must be fair, it also must be bold and unrelenting.”
Investors and all market participants, the former prosecutor said, “need to know that the playing field of our markets is level and that all wrongdoers—invididual and institutional, of whatever position or size—will be aggressively and successfully pursued by the SEC.”
White told lawmakers that among her list of priorities as she takes on her new job will also be to fully understand “all aspects of today’s high-speed, high-tech and dispersed marketplace so that it can be wisely and optimally regulated, which means without undue cost and without undermining its vitality”; and focusing on money-market funds, private fund advisors, credit rating agencies and clearing agencies. —Melanie Waddell
Read Mary Jo White’s extended profile here.
Last year, when we highlighted Elliot Weissbluth on the cover of our IA 25 issue, we said the HighTower Advisors CEO had changed the conversation on and about Wall Street. Where is that conversation now? “Like any other big topic, it hasn’t changed much in the past year,” said Weissbluth, before describing a rather big change: “More advisors have left the wirehouses,” he said. At the same time, “the level of tolerance that individual investors have has decreased.” What has increased is the “level of skepticism about these large firms—that they put their clients’ interests first,” while “the delineation between manufacturers and true fiduciaries is sharper.” Weissbluth said he’s “optimistic that the consumer is incrementally more sophisticated,” and he sees opportunity ahead as “the next generation decides what advisor they’ll use.”
It’s not so much that the next generation of clients doesn’t trust advisors, he said; instead it’s about “service model modality.” He argued: “Do millennials want to be serviced the way their parents were?”
He compared the future prospects of wirehouse firms and independent firms like his. “Do the incumbent firms servicing the majority of investors have the prescience and the commitment to invest and change their businesses” to meet the needs of that next generation? “No,” because the independent firms “are significantly ahead in innovative technology and solutions, and the big firms are playing catch-up and may never catch up.” —James J. Green
Read Elliot Weissbluth’s extended profile here.
For John Taft, head of wealth management at RBC Wealth Management, managing clients’ wealth is part of a higher calling.
“Our focus is entirely on quality and excellence, not on scale,” he said, adding that the firm has about 2,000 advisors. “We think that’s large enough to be relevant and meaningful, but small enough to be intimate. We’re happy with the scale. We’re just committed to being better in every way: hiring the best advisors, putting the best products and services on our shelf, and continuing to build out our technology and operational platform.”
Among the biggest challenges for advisors, of course, is the regulatory storm coming from policymakers. “Advisors and the wealth management industry generally, of which they are a critical part, are experiencing a tsunami of new regulation, some of which has already hit our shores, but a lot of which is on the way,” Taft said.
Another big challenge, though, is the shape of the industry itself. “The business model is evolving from a sales model to a far more consultative and professional model, and is evolving from product specialists to holistic wealth management,” according to Taft.
Fiduciary is a topic on most advisors’ minds, but Taft suggested they should set their sights higher. “Stewardship,” he said, “is all about responsibly managing what others have entrusted to your care.” Stewardship is a “close cousin” to fiduciary, Taft said, but it goes a little further. “Fiduciary is a minimum legal standard. Stewardship is a higher standard even than fiduciary. It means thinking about others, i.e., your clients, in everything you do.” —Danielle Andrus
Read John Taft’s extended profile here.
Envestnet may have begun as a turnkey asset management provider, where it remains a leader punctuated by its announced acquisition in mid-April of Prudential’s Wealth Management Services. Even that acquisition signals more of an evolutionary development than a turnabout for the company. When that acquisition was announced, Chairman and CEO Jud Bergman noted that “most of our new advisor and enterprise relationships are some kind of a conversion from a legacy” business model.
Even before making its acquisitions over the last few years of FundQuest, Prima Capital and Tamarac, “that kind of conversion became a core competency for us; it plays to our strength” as a company that, as we wrote in a June 2011 cover story here, Envestnet “stands at the crossroads” of the major issues facing advisors then and now.
Getting back to Envestnet’s primary goal, Bergman said “the fundamental undertaking of Envestnet when we started was to unify and fortify the wealth management process through good technology, and then the necessary services advisors would look for—back office, billing administration—to free advisors up to do their highest value activity—meeting with clients and prospects, and solving investment issues.”
What’s next for Envestnet and the industry? Bergman sees a “rapid movement from desktop solutions to fully mobile solutions; we already have advisors using the Envestnet platform with clients through their iPads.” Another example is benchmarking. “Larger firms are looking to deploy business intelligence—how certain advisors perform against certain benchmarks.” —JG
Read Jud Bergman’s extended profile here.
Mark Tibergien has been writing for Investment Advisor now for more than a decade. Not coincidentally, he is also the only person to appear on the IA 25 for all 11 years of its existence. But Tibergien’s influence on the industry started before his affiliation with us, and in the history of the independent advisory business, Tibergien’s influence will last far beyond 2013. That’s because almost single-handedly he has preached that to become a profession, advisors must be business people. Tibergien has consistently raised thorny issues that some advisors would rather avoid and has used his bully pulpit to challenge advisors to be not only good business people but true leaders as well.
While he’s achieved appropriate fame for focusing on the business side of an advisory firm, the needs of the end client are always front of mind.
His take on the fiduciary standard is similarly double-sided. While that standard might be the right and best approach for the client, it’s also the prism through which an advisory firm’s business practices should be measured.
Tibergien’s legacy is evident not only in his own leadership and unparalleled intellectual capital contributions, but in the loyalty and admiration of many of the other leaders of the profession.
The Tibergien gospel? Be a good businessperson; be a good leader in your firm’s culture and even (as he writes this month) in the language you use in your firm; keep a firm watch on your day-to-day practices and the eventual future of your firm; and make sure you are exercising your own talents and building an environment where your employees can grow and prosper. —JG
Read Mark Tibergien’s extended profile here.
“2morrow I speak at Long-term Global Trends & Their Implications for the IMF,” Nouriel Roubini recently tweeted, which is typical, since he’s everywhere and seemingly always reacts to the latest financial crisis in real time.
Davos, IMF meetings, on the phone with the ECB; you name it, he’s there. It’s enough to make one forget his day job as an economics professor at NYU’s Stern School. In addition to teaching, he’s chairman of Roubini Global Economics, a research firm on global economic strategy whose website is a gathering place for leading voices on political and economic affairs. But don’t take our word for it; Roubini.com has been named one of the best economics Web resources by BusinessWeek, Forbes, The Wall Street Journal and The Economist.
Then there’s his use of social media. His roughly 240,000 followers receive a daily dose of analysis that isn’t afraid to employ salty language from time to time (austerity proponents and the Tea Party are frequent targets of his ire).
Roubini received an undergraduate degree from Bocconi University in Milan, Italy, and a doctorate in economics from Harvard University. Prior to joining Stern, he was on the faculty of Yale University’s department of economics.
We highly recommend his latest book, “Crisis Economics: A Crash Course in the Future of Finance.” It’s a fun read with strong opinions that mirrors Roubini’s personality. But if you don’t have the time, don’t worry; he’s not hard to miss. —John Sullivan
Read Nouriel Roubini’s extended profile here.
Jon Sundt doesn’t have time for pleasantries. He’s got too much going on. He’s in liquid alternatives, after all.
“There is a tremendous demand for liquid alternatives, and in particular the products we’ve recently introduced,” Sundt, president and CEO of Altegris Investments, said at the outset of our interview. “I believe it’s a historic time for the industry. Return expectations are coming down for hedge fund managers and, in the wake of 2008, investors are afraid of lockups.”
Hence the demand for something more liquid, which means managers who “would not have looked at a mutual fund product a few years ago are looking at them now. They’re looking for more capital as well as looking to diversify. The retail investor base is where the capital is, and alternatives offer a number of ways to diversify.”
All of this explains the firm’s success; it’s at the nexus of these critical—and lucrative—trends.
“We believe every investor deserves access to quality managers,” Sundt emphatically stated. “We’re open-architecture and put best-of-breed managers into packages that retail investors can consume. As a result, from a distribution standpoint, we’re on all the major wirehouse platforms, and we’re running as hard as we can to complete our product suite.”
He pointed to two new products as proof; a multi-strategy fund that “gives an advisor access to 20 managers with the click of a mouse,” as well as a fixed-income long/short fund that is in “an incredibly attractive space right now.”
The excitement that seems to naturally flow from Sundt translates to the firm’s annual Strategic Investment Conference as well. The 2013 lineup of speakers was described by one attendee as “intimidating.” With Jeffrey Gundlach, Mohamed El-Erian, Nouriel Roubini, Ian Bremmer, Gary Shilling and David Rosenberg, among others, it’s easy to see why.
“The Strategic Investment Conference is a byproduct of what we do, which is to bring together top managers and economic thought leaders to capitalize on their perspective,” Sundt noted. “This is the 10th one we’ve done.”
Very well, but how exactly does he attract such talent?
“Well, San Diego is nice,” he laughed, before adding, “We have a good reputation in the industry. We have advisors in the audience that these managers want to get in front of.”
The type of people Mohamed El-Erian wants to get in front of; we think Sundt’s on to something. —JS
Read John Sundt’s extended profile here.
Jeffrey Gundlach and 40 or so loyalists started up their own firm, DoubleLine Capital, in the face of a lawsuit charging him with misappropriating TCW trade secrets.
Gundlach suffered dark days and accusations flew, but he and his followers kept their plucky startup going until the clouds parted.
Today, Gundlach is described in the business media as “a Wall Street savant” (even though he’s Los Angeles-based), “the king of bonds” and “a bond god.”
“We have the most popular fund in America,” he explained. “Being No. 1 is difficult on the competition, and they embark on negative campaigning. That goes with the territory. ”
Gundlach, meanwhile, is more interested in talking about the recent launch of his firm’s first stock fund, the DoubleLine Equities Small-Cap Growth Fund (DLESX), and the success of some pair trades he has recommended over the last year.
Back in May 2012, Gundlach said, he shorted Apple Corp. stock and went long natural gas. Sure enough, he said, that pair trade is now at 125%. Meanwhile, he noted, his “go long the Nikkei and short the Japanese yen” trade from December went up 65%. Now, he’s looking at going long Spanish stocks on the IBEX and shorting U.S. stocks.
“I look for pair trades where the risk-reward is dramatically skewed with ridiculous pricings,” Gundlach said. “Pair trades are interesting because you don’t have to have a definitive view. You just have to understand that things will keep happening due to policy manipulations.”
While it’s impossible to train people to think the way he does, Gundlach said, his DoubleLine colleagues are a happy bunch.
“No one ever leaves. It’s not like a revolving door. We like working together,” he said. —Joyce Hanson
Read Jeffrey Gundlach’s extended profile here.
For Chet Helck, CEO of Raymond James Global Private Client Group, and as of October 2012 the chair of SIFMA, the biggest challenge for advisors over the next year is simply dealing with the uncertainty in the markets and in consumers’ minds.
“People are still somewhat in shock from the business cycle we’ve just been through,” he said. “Even though the market’s come back, we’ve been through a long period of time where people have not seen a lot of positive market momentum.”
Further compounding the problem is that with the baby boomers, record numbers of investors are retiring. “It’s hard to get clients to have confidence in doing anything and certainly in being able to accomplish objectives without taking undue risk.”
To mitigate those challenges, the most successful advisors have become so by working “with clients early to try to accumulate enough principal where generating sufficient income is more doable,” Helck said. “Where they have not had the ability to do that, where it’s already retirement time and you now have to live with what you’ve accumulated, the strategies to create income have gotten to be far more sophisticated.”
That increased sophistication requires assistance from a financial advisor, Helck said, but also makes the job of the financial advisor far more challenging. “Rather than just generating interest in dividend income, it requires more elaborate strategies where you accumulate and then start liquidation of certain parts of the portfolio.” —DA
Read Chet Helck’s extended profile here.
“I haven’t seen a weekend since the wheels came off in 2008,” said Larry Roth. “All of this gives me energy.”
The “this” he refers to is his role as 2013 chairman of the FSI, chairman of the Insured Retirement Institute and his day job as president and CEO of Advisor Group, one of the largest IBD networks.
“FSI has been around for a number of years now,” he said. “It’s led by Dale Brown, who has brought in people to fill key positions who are CEOs of independent broker-dealers. Most of the big firms are now represented, as are mid-size firms and those that are privately held.”
Specific to the Advisor Group, which is owned by AIG, Roth is most excited about the fact that the network is “back in growth mode.”
“We have 6,000 advisors and a retention rate last year of 97%. We also acquired Woodbury Financial in 2012 [from The Hartford], and I am really excited to work with president and CEO Pat McEvoy and his team.”
In addition to recruiting financial advisors from other broker-dealers, Advisor Group is exploring ways to bring new advisors to the industry. For example, it’s partnering with a sister AIG company, AGLA, “to transform its career distribution force.”
Advisor Group is helping AGLA career agents “adopt a broader, full-service financial planning model. It’s a unique way to bring new advisors to our industry and one we’re confident will be successful.” —JS