Monday Morning Jumpstart with Dan Richards
10 minutes to drive your week
Topic for August 30, 2010: Four lessons from the Barrons Winners Circle Conference
For the past two years, I have been a regular contributor to Horsesmouth.com, the leading practice management website for U.S. financial advisors.
In late March, I read a column in Horsesmouth by Debra Taylor, a New Jersey financial advisor who wrote about four lessons from a conference in Palm Beach sponsored by Barron's that she'd recently attended.
While written almost six months ago, these four lessons are just as relevant today and I reprinted them with her permission.
For several days, Barron's Top 100 Women Financial Advisors in America (and another 400 women advisors who attended by invitation only) discussed their practice management ideas, investment philosophies, and what has worked and not worked for them during the past year.
The Top 100 women all had minimum assets of $250 million each (and most had much more), and many of them had overcome additional roadblocks on their way to the top.
Lesson One: The need to validate your process
The first lesson was that no single asset will save the day
One of the common themes of the conference was that every asset class courts risk: opportunity risk, credit risk, market risk, and so on. Therefore, although bonds may have saved 2009, when inflation kicks in, this approach will catch up with you.
Every investment recommendation should serve multiple purposes – for example, dollar hedge and inflation protection. In addition, advisors should always be concerned about downside and stress-test everything.
Participants were also urged to think carefully about the sources of information they relied on.
Some clients want to know that they can rely on your recommendations, so they need to confirm your research process.
Debra Taylor wrote that she is being asked this question more than ever before, and comes prepared to every meeting with her research binder and other examples of her investment process and performance.
Lesson Two: The need to tighten your ship
A second message from the conference that Debra Taylor wrote about was that everyone on an advisor's team needs to operate as a unit and be organized, just as they would be in the military.
Over and over, advisors heard from top producers that they should fire borderline staff and keep only the A players. As hard as this may be, it is a recurring theme of these top producers.
These top producers all shared stories of revolving-door turnover, new hires that didn't make it through the day, and so forth. Throughout the industry, advisors find it hard to hire quality people who are truly passionate about their jobs.
Of course, to maintain and motivate the A players, advisors should compensate well and continue using incentive bonuses.
And top advisors often reiterated the need for uniform systems and morning meetings (or "huddles.")
One ongoing theme of top advisors with large teams was to have a chief of staff or chief operating officer on your team to manage the troops and keep the team on target and accountable. More and more, Debra Taylor talked about seeing that higher-producing advisors have a COO so that the advisor can focus on client relationships and sales.
Lesson Three: Focus on the client experience
Charlie Johnston, president and CEO of Morgan Stanley Smith Barney, discussed the evolution of the financial advisory business and highlighted the need to strive for investment excellence, which he believes is becoming critical again.
He also discussed the importance of the client experience, and focused on the client discovery process, listing several key questions as critical:
- What does money mean to you?
- What do you try to teach your children (or grandchildren) about money?
- If you could give just one thing to your children, what would it be?
- What are the values you hold most dear?
- If you could live your life over again, what would you do differently?
- Of all the gifts of your time and money that you have given to charity in the past years, which was the most meaningful to you?
- If your doctor gave you 24 hours to live, what would be your biggest regret?
As part of customizing the client experience, advisors should consider sending asking clients about what they're looking for and then standardizing the responses in a uniform format.
The information from clients could include things like preferred method of contact, how often clients would like to hear from you, how often they'd like meetings, whether they'd like a phone call when markets go down and whether they'd like a market commentary or additional materials.
Debra Taylor wrote that the biggest challenge for successful advisors is meeting (and trying to exceed) client expectations, and yet often advisors do not ask or identify clearly what our clients' expectations actually are.
Instead, they have a tendency to create the service model in the ways that they see fit and are most convenient to us, and then provide it to our clients as if they should have no choice in the relationship. Johnston admonishes us to do better and to use enhanced communications and technology to customize this experience.
Lesson Four: Prospering in a sideways market
The final lesson related to the kind of investment climate we'll in in over the the next while.
One of the speakers was Mary Anne Bartels, managing director and head of technical and market analysis at Merrill Lynch/Bank of America.
Bartels predicts that the market will be range-bound for the next two to three years, and that we are most like the 1975 market coming off of the 1973-1974 low. Having said all of this, she reassured us that you can make money in a sideways market, and that 1975-76 was a phenomenal time to accumulate equities.
Some strategies recommended by Bartels to navigate through this market:
Rebalance more often, forget about buy-and-hold, but don't try to time the market.
There is a bull market in commodities that started in 1999, will continue for 10 years or more, and could cause assets to triple in value.
We are in a market that favours growth, as earnings are scarce. The equity leadership is in mega-cap/multinationals with $20 billion or higher in revenue, 25% of sales overseas, and positive cash flow.
Bartels favored technology, energy, and materials (a play on commodities), as well as industrials and consumer staples. She is avoiding utilities, telecom, and financials.
Bartels likes opportunistic income opportunities that can provide a 5% to 6% yield, such as energy, master limited partnerships, consumer staples, and tobacco. Dividends produced 43% of stock market gains during longer periods of time and therefore can represent 60%-70% of returns.
A final lesson:
The final takeaway was that today clients are watching their advisors.
According to a recent survey of 1,500 clients between the age of 55 and 64, 76% are paying more attention to news, and 60% are reviewing their portfolio more carefully these days.
In addition, only 10% of clients "strongly trust" their financial advisor, although 69% report that they have not made any change in their financial advisor.
These survey results tell us that although our clients may be staying with us for the time being, many of them are wary. This is where nailing down our investment philosophy and enhancing the client experience will go a long way toward building trust again.