The Future of Our Business

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Jun 11, 2005 3:07 pm

Whether we like it or not, things change, especially in our business.



I have been in business for 24 years. I remember when you could do
$100M in bonds, and go home for the day. Mutual funds paid 8.75%, and
you won televisions for $100M in a US Govt. bond fund, and trips to
Hawaii and Europe for just $1MM. And the clients never knew.



I also remember when these things weren’t considered ethically-challenged. Thank goodness things are changing.



Our industry has taken great leaps toward transparency and objectivity,
though with much kicking and screaming. The transparency of pricing
changes things for us. What is necessary in todays investment advisor
is a skill set quite different from the salesmanship skills of the
perfected handshake and the happy cold call.



Todays investment advisor has
to be different. Today’s advisor must work in a bueiness where clients
know what they’re paying. This presents the true pros on our business
with an enormous opportunity. True pros will learn to be
"practitioners," rather than salesman. True professionals will offer
services that clients will value enough to pay fees. The only way that
can happen is if we educate ourselves, gather assets, and prepare for
the deluge that will wipe out nearly half of us from the business in
the next few years.






Jun 11, 2005 6:20 pm

[quote=Sailor25]prepare for the deluge that will wipe out nearly half of us from the business in the next few years.

[/quote]

What is the "deluge" that will wipe half out?

Jun 12, 2005 6:36 am

Don’t you see the changes happening now? Since 2001, the ranks of brokers have shrunk dramatically. It’s not going to stop here.



With visible fees, it’s going to require much greater assets for an
advisor to make a living. People with $10MM books are going to fall
away. Soon, you’re going to need $100MM and more.



There are too many people unqualified for these changes. You won’t
survive on a small book. You are not going to be able to sell annuities
and mutual funds with hidden fees.



With price transparency, clients will balk at paying, unless they know
they have a professional working for them, rather than a salesman
pitching product.


Jun 12, 2005 12:37 pm

I predict that the industry is going to eventually eliminate
commissioned advisors and pay salaried people to service those accounts
as they continue to gather assets and delegate management to outside
money managers.






Jun 12, 2005 2:00 pm

[quote=inquisitive]I predict that the industry is going to eventually eliminate commissioned advisors and pay salaried people to service those accounts as they continue to gather assets and delegate management to outside money managers.



[/quote]

Just wait 'til BigPayDay sees this.  I think you might be stretching a little bit, but agree with the idea in premise.  If it turns out to be true, EDJ is in trouble. 

Jun 12, 2005 3:17 pm

Ahh...New to field ( well not even in it yet) and really did not know what he was speaking of.

Jun 12, 2005 3:21 pm
I agree with most of what you guys have posted already. However, I also believe that a person who can specialize in certain areas will be ok. For example a broker who can focus on areas like stocks that relate to the growth in China and India will be able to do ok. Also I feel that those brokers that study  the financial markets and can talk about the potential weakness ahead for the Us Dollar ,and the investment cycle that we are in  now which is Tangible Assets (gold ,silver, oil, water) seperates you from the person who is selling the same American Funds with the 5.5% load. I am not demeaning them in any way because I offer them as well. In addition I believe that mutual fund wrap accounts may not be the bargain people think they are. When you are talking about fees on a quarterly basis in addition to funds that have a ratio of 1to 1.5% that can eat into returns. In addition turning the clients money over to a third party may take some of the personal touch that a client hopes to have with you. Another area that I believe can do well are Military and weapons stocks. We are in a war that may be lasting for a long while .So in essence we are in a war economy . Having said all this the financial pro that can become an expert in one to two areas will have an advantage and have more staying power.People will pay for good quality service and advice. Like my friend who does Long Term care only says," Do you want someone that does long term care 1 hour a week or 50 hours a week?" Commisions will always have a place in the investment world.
Jun 12, 2005 3:37 pm

Change happens in all businesses…it’s inevitible.  Those who can, adapt.  Those who can’t, well, find something else to do.  It’s evolution, and in my humble opinion, a good thing.

Jun 12, 2005 7:43 pm

[quote=radernation-1]


I agree with most of what you guys have posted already. However, I also believe that a person who can specialize in certain areas will be ok. For example a broker who can focus on areas like stocks that relate to the growth in China and India will be able to do ok. Also I feel that those brokers that study  the financial markets and can talk about the potential weakness ahead for the Us Dollar ,and the investment cycle that we are in  now which is Tangible Assets (gold ,silver, oil, water) seperates you from the person who is selling the same American Funds with the 5.5% load. I am not demeaning them in any way because I offer them as well. In addition I believe that mutual fund wrap accounts may not be the bargain people think they are. When you are talking about fees on a quarterly basis in addition to funds that have a ratio of 1to 1.5% that can eat into returns. In addition turning the clients money over to a third party may take some of the personal touch that a client hopes to have with you. Another area that I believe can do well are Military and weapons stocks. We are in a war that may be lasting for a long while .So in essence we are in a war economy . Having said all this the financial pro that can become an expert in one to two areas will have an advantage and have more staying power.People will pay for good quality service and advice. Like my friend who does Long Term care only says," Do you want someone that does long term care 1 hour a week or 50 hours a week?" Commisions will always have a place in the investment world.
[/quote]

So when you're the China/India expert....what do you do if those markets slow down?
Jun 12, 2005 11:57 pm
All markets slow down at some point . Those would be chances to buy. Take Gold and Silver stocks. A lot of them have pulled back in the last 6-9 months.China is importing 2.5 million barrels of oil and they expect that to increase to 8.5 by 2030  Mr Buffett has a nice position in PetroChina.  The Tangible asset cycle we are in now ties to China/India. By marrying up the ideas above and doing some research it seperates you from others . Then it opens up the door for you to offer Franklin Templeton funds or whatever.  If you are looking for a good link I might try www.completeinvestor.com  or look up Dr Steven Leeb
Jun 13, 2005 1:15 am

[quote=radernation-1]


All markets slow down at some point . Those would be chances to buy. Take Gold and Silver stocks. A lot of them have pulled back in the last 6-9 months.China is importing 2.5 million barrels of oil and they expect that to increase to 8.5 by 2030  Mr Buffett has a nice position in PetroChina.  The Tangible asset cycle we are in now ties to China/India. By marrying up the ideas above and doing some research it seperates you from others . Then it opens up the door for you to offer Franklin Templeton funds or whatever.  If you are looking for a good link I might try www.completeinvestor.com  or look up Dr Steven Leeb
[/quote]

Leeb was promoting his whole spiel for a long time, and he was finally right, for at least a little while.  Meanwhile, though, look at how much gold stocks have been hit in the last few months.....
Jun 13, 2005 9:40 am

[quote=inquisitive]I predict that the industry is going to eventually eliminate commissioned advisors and pay salaried people to service those accounts as they continue to gather assets and delegate management to outside money managers.



[/quote]

You may be able to pay salaries to people who simply service accounts, but you'll never be able to hire the risk takers that are good at gathering assets (which is more important to the firm than simply servicing existing accounts) with a salary.

Jun 13, 2005 9:44 am
Long Term trends still favor them and silver. www.buysilvernow.com   Sunday mornings from 7-9am p.s.t. Hard Money Watch -Financial Trends in the Marketplace you can go to www.kfnn.com and listen online.
Jun 13, 2005 9:50 am

[quote=radernation-1]

Long Term trends still favor them and silver. www.buysilvernow.com   Sunday mornings from 7-9am p.s.t. Hard Money Watch -Financial Trends in the Marketplace you can go to www.kfnn.com and listen online.

What a steamy load.....

[/quote]
Jun 13, 2005 10:06 am

Seems like there are 2 issues here:

Sailor suggests that transparency-creep may put pressure on commissions, fees, etc; for example, what will clients think if/when mutual fund expense ratios are stated in DOLLAR terms on their statements?  The 1% for advice on a C share may become harder to sell....and what if comissions on funds/wrap fees are deregulated somewhow?  In other words, the game change if I can charge someone I don't really want to work with 5.5% on A shares, but a good (but small) client I can charge 2%.

The other issue is that there will always be asset classes in favor that have low correlations to out of favor ones....that's true and important for us to understand, but still doesn't change the fact that many people are overpaid in this business for saying, "these are great funds....that'll be 5%!"

Jun 13, 2005 2:18 pm

[quote=stanwbrown]

You may be able to pay salaries to people who simply service accounts, but you'll never be able to hire the risk takers that are good at gathering assets (which is more important to the firm than simply servicing existing accounts) with a salary.

[/quote]

I'm with stan on this one. When the suits manage to turn this into a job most of the talent will flee. Too many other ways to make a living on your own hard work and ingenuity to stay with something that isn't doing that anymore. Yet, I don't see that happening. Not so long ago with the emergence of E-Trade everyone said our side of the biz was headed for the tar pits. Who was it who said rumors of his demise had been being greatly overstated? 5 years later and our side is gaining assets, not losing them. I do believe that the management suite will continue to reduce our slice of the pie. We're the biggest cost and the easiest target when it comes to increasing profits.

The other part of this topic, gaining client assets through asset distribution to China,metals,etc.? OK, if you say so. I have yet to meet a prospect, client, rollover recepient, Trust fund baby, business owner or any other investor who gives a sh*t. I don't think anyone has ever forked over their life's savings to me because of the investments I planned to make. They bought me, not an asset allocation model. It was and is assumed that I will make the right investments for them and make changes as necessary. It has nothing to do with correlating asset classes, efficient frontiers, sharpes ratios or anything else we can dream up to try to justify a fee. Not that there's anything wrong with those things, they can help us to do the  job, just that they have nothing to do with why people do business with us. Thus, have nothing to do with our ability to gather assets.

Jun 13, 2005 2:43 pm

I tried to start a thread recently involving this issue and got nowhere so I’ll try again within this thread.  When Great Britain went with greater transparency the number of brokers was reduced by about 50%.  Because so much of what we sell or advise our clients to buy has become commoditized, only those consultants bringing value to the table will be able to survive and prosper.  What are you doing to add client value?

Jun 13, 2005 3:39 pm

[quote=dashampersand]I tried to start a thread recently involving this issue and got nowhere so I'll try again within this thread.  When Great Britain went with greater transparency the number of brokers was reduced by about 50%.  Because so much of what we sell or advise our clients to buy has become commoditized, only those consultants bringing value to the table will be able to survive and prosper.  What are you doing to add client value?[/quote]

I apologise up front if I'm misinterpretating your post, but you seem to be hung up on pricing. Our business has always been about delivering the best value. That is, value as perceived by the buyer. From that point of view nothing has changed. As long as there are people who either can't or won't do this for themselves our business will thrive. There are those who will never pay our price and those who gladly pay it. It's not about price, it's about trust. 

The next ten years will see trillions of dollars of money in motion as the lions share of the boomers retire and at the same time inherit from their parents. A high percentage of these people are the same investors who burned themselves with E-trade in 01 and 02. I can here it now, "Honey, I know I lost most of our investment account on JD Uniphase and Ballard Power, but I want to take the dough from  mom's estate and buy some more stocks, I'll do better this time!" To which his wife will reply "Why don't you take it down to the casino and put it all on the Don't Pass line. At least that way you won't be kidding yourself about what your doing and the pain will be over fast." Many of our target market tried the do it yourself route and it wasn't pretty.

All kidding aside, there will will always be a place for good advisors.

Jun 13, 2005 9:32 pm
Well Stan you  would have needed to pay attention to my ongoing conversation with Joe Da Brkr to get a clue on what I was talking about earlier.
[quote=stanwbrown][quote=radernation-1]

Long Term trends still favor them and silver. www.buysilvernow.com   Sunday mornings from 7-9am p.s.t. Hard Money Watch -Financial Trends in the Marketplace you can go to www.kfnn.com and listen online.

What a steamy load.....

[/quote] [/quote]
Jun 13, 2005 9:44 pm

It’s going to be a lot harder for product pushers to survive. Only those that are positioned properly will survive. You must create a trusting relationship with clients and deliver more than just returns. Soon as their portfolio loose (1 out of every 4 yrs is negative) the client will bolt. Unless, you offer more. A true advisor/planner starts with the financial plan and conducts meetings at least 2 times a yr. If you’re not staying in touch with your clients on a periodic basis why shouldn’t they just buy no-loads or ETFs?



People should get something for the fees. Don’t tell me you’re picking superior funds, everything regresses to the mean in the long run.