WealthManagement Magazine

Idiot Reporters, Part II

Demand for personalized, knowledgeable service remains strong.A year ago in June, this column was titled "Idiot Reporters." Merrill Lynch had just announced it was slashing fees and getting into the discount business. A number of reporters from the popular press called me for comments on the impending death of the full-service broker.Hah! I told them then that their assumptions were all wet. I tried

Demand for personalized, knowledgeable service remains strong.

A year ago in June, this column was titled "Idiot Reporters." Merrill Lynch had just announced it was slashing fees and getting into the discount business. A number of reporters from the popular press called me for comments on the impending death of the full-service broker.

Hah! I told them then that their assumptions were all wet. I tried to explain what full-service brokers do and why you weren't going away.

My mother always told me it's not polite to say, "I told you so," so I won't.

Instead, we did the story, "Price Fighting," on Page 89.

Guess what? Brokers are doing just fine, thank you. Price pressures have not been a big problem.

For one thing, brokers don't compete on price. They compete with personalized, knowledgeable service. And for another, full-service reps have never targeted price-conscious investors.

Those death-of-full-service stories? They're in the newspapers' morgues.

Family Teams Our cover story highlights several family teams (see "Family Business," Page 67). This is a popular way to team up and eventually pass along the book at the same time.

But heed columnist Matt Oechsli's warning: Too many brokers are jumping on the bandwagon and impulsively forming partnerships (see "The Inner Game of Selling," Page 130). Impulsive relationships, be they personal or professional, are dangerous, he says.

Don't simply follow the crowd. Make sure you know why you're teaming up and what your partner(s) will contribute.

A Weak Market, Thank Goodness! Why shouldn't an investor put his money in an index fund, forget the broker and save some money?

Good question. At least as long as the S&P 500 and Nasdaq Composite go up and up.

Thank goodness that (as of press time in October) the markets have been in a bit of a funk. This is a good thing. It reminds investors about risk, about diversifying and about not overconcentrating on hot sectors. And hopefully it sparks thoughts about getting professional advice.

In "Easy as Pie" on Page 59, brokers share ideas on how they make asset allocation understandable, avoiding jargon like "standard deviation."

On Page 93, in the article "Concentrated Accounts," we give equal time to another theory on diversification - that it is a flawed strategy based on faulty analysis and designed to avoid adviser embarrassment.

Fair enough. My advice: You'll lose fewer accounts and have fewer problems by erring on the side of conservatism.

For years, wirehouses have pumped their own products. For years, we have reported that wirehouse funds were losing market share - big time.

The bull market has helped mask the problem. But now, wirehouse proprietary funds are suffering negative cash flows (see "Wirehouse Fund Businesses Suffer Negative Flows," Page 34). And the cash drain appears to be accelerating.

What's the problem? Fund industry watchers say it's poor performance, lack of marketing creativity, more product choice for brokers, and regulatory pressure to stop blatant sales bias.

The business model of manufacturing and distributing products via a captive sales force is not viable. That's why some wirehouses are finally taking steps to sell through outside channels. But if they don't completely insulate the financial-advice side of the business from the manufacturing side, those new plans still won't work.

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