If you're an investment management consultant whos just cracked the corporate market, you may be feeling uncomfortable. The tools you used to build your consulting business may not be good enough to compete for corporate assets. If you're lucky, your firm knows you need more sophisticated performance reporting tools, flexibility in choosing money managers, innovative marketing campaigns, and speedy entry and delivery of client data. But you may end up putting in time and money to create the support platform you want.
The senior consultant is tough to support. Needs change dramatically through the typical progression of a consulting relationship. Heres how John Vann, an independent consultant in Plano, Texas, describes it:
You start by capturing the personal assets of a high-net-worth entrepreneur. Youll have no trouble getting adequate tools to select and monitor managers, and satisfy the clients need to see the results on one page. Then you diversify the account into different management styles and capitalizations, says Vann. Now you need to be able to draw the data into a meaningful report--still on one page--and explain to the client why all the managers styles dont perform the same way at the same time.
The real monkey wrench comes when you start handling various trusts. Now you have to do individual account reporting for each entity, but integrate it all into a master trust report, says Vann. Set up 401(k) and profit-sharing plans for the client, and you move into peer and relative-risk return reports, says Vann, not to mention ERISA reporting requirements. Then the client may decide that reducing taxes is a priority. Youll have to start evaluating tax management styles and provide gain/loss analysis. Still, the client wants it all on a one-page report.
Theres a repetitive challenge issued to consultants to stay competitive, says Vann. We need a vertically integrated system, the ability to add on modules as a relationship grows more complex.
Seamless Platform Jay Schmallen began specializing in consulting to ERISA plans while at Piper Jaffray in Fargo, N.D. He chose to go out on his own in 1994, he says, because the firm couldnt provide a seamless platform to service his accounts. I needed to wrap in managers, true no-load funds, and trust, administrative and custody services, he says. We didnt have no-load mutual funds, and couldnt bundle trust services with administrative services. If I have to go outside the firm to get trust services, I cant be competitive.
At Piper, he says he had to put two people on his team just to handle the repetitive client data entry for all the components of the consulting process. On his own now, he says no duplicative data entry is needed, and his staff can focus on client service. Yet Schmallen is battling a common problem of consultants who opt to do it themselves: Too much of his time is spent on administrative details. To help focus him on clients, he dropped the firms brokerage license and put together a prospecting system.
The license was too much trouble to maintain in terms of compliance costs and the negative connotation it had with a certain class of our customers, says Schmallen.
For prospecting, Schmallen customized a prospecting software program to create eight campaign templates that his staff can run, measure and repeat without involving him in the oversight.
Leon Spheeris of Dain Rauscher in Brookfield, Wis., had already bought his own support software by the time his firm came out with adequate technology. After 17 years in brokerage, the past eight solely consulting, Spheeris says high-quality forecasting tools are a major need.
Im trying to get clients away from relying on benchmark indices, he says. Using Frontier Analytics system, Spheeris says he can customize forecasting, change assumptions and show how a clients specific goals can affect their future net worth. Although his firm now offers a proprietary version of the system, Spheeris says he sees no need to switch over.
He sticks to his own Morningstar Principia system to do mutual fund searches. What I like about it is that it can print out a funds true asset mix and show in quarterly reports a funds five-year rolling return compared to its index, he says.
For performance monitoring, Spheeris now turns to the firms system. I can track a total portfolio with it, he says. It shows when each holding was bought, what we paid for it, gains and losses.
Spheeris produces reports with Microsoft Office. The feature he finds most valuable is the ability to create a cover page with a graph showing quarterly tracking of a client portfolio. Large clients dont want to see 30 pages on each holding, but if they have a question after seeing the cover page, they want to know all the detail is available. The firm now prints reports for him, allowing some customization. But it takes a long time to get the reports to clients, says Spheeris. I know this will always be a problem because of so many brokers here who need reports, Spheeris says.
Lowest Common Denominator Senior consultants agree that across the Street, firms have been spending a lot of money on tools for consultants. But those whove left senior consulting positions at wirehouses contend only newer, retail-focused consultants can find good support in a wirehouse.
Wirehouse consulting departments are mainframe-driven, geared to the lowest common denominator with a product-driven sameness, says Vann, who went independent in 1996 after 11 years with Dean Witter.
On the performance reporting process, for example, Vann says Dean Witter provided a good base report, but wouldnt allow consultants to use the firms system to send out more complicated reports. The consultant would either have to find a way to get around the approval process to issue the report he needed or set up a different platform on his own, he says.
Vann claims hes now spent $1 million to create his technology platform. Its PC-driven, backed up by Advent. The system provides consolidating and baseline performance, and directly links into our two-level reporting system, says Vann. Level one analyzes an accounts performance and level two provides peer group comparisons. Clients get these reports two to three weeks before mainframe providers can, Vann says.
The system includes a proprietary manager database, an Internet home page and separate Internet data site. Vann is readying the data site to deliver to clients real-time daily performance measurement.
When Vann needed to create a more systematic, sophisticated marketing program to reach the employee benefit plan market, he says he found virtually no support in a wirehouse environment. Now, hes able to turn to third-party marketing providers. Fidelitys Advisor Advantage program, a service offered to firms that use Fidelity as a custodian, allows Vann to advertise along with Fidelity and helps him design his own ad and seminar campaigns. Vann also is planning an audio business card with Cold Call Cowboy Productions, an advertising tool that Dean Witter hadnt allowed.
For $2,000 per quarter, Vann participates in Charles Schwabs investment adviser referral program. Schwab refers four to six of its clients to him a week. For the first quarter this year, Vann has captured $17 million through the program. I never got one referral from Dean Witter, he says. Vann has set an annual $500,000 budget for marketing.
Understanding the Business Top-notch support is possible in a traditional brokerage environment, Dane Madsen has found. After over 10 years working for Merrill Lynch and Shearson, Madsen now manages a consulting branch in Las Vegas for Sutro & Co. He had grown frustrated with a corporate culture he believed put shareholder needs first.
Consulting department and operations staffers Madsen worked with often didnt understand the day-to-day business of advanced consulting. Marketing staff would promote money manager styles according to their standard deviation.
Thats the most useless piece of information, Madsen says. They dont understand the real risk measures.
Department-run manager searches would yield too predictable results. A search shouldnt be heres the three answers we want to come up with, make it look like we did a search, Madsen says. And its tough to look beyond an approved list of outside managers. The problem of conflict of interest is growing so big at wirehouses because theyre squeezing managers down to 30 to 40 basis points to be included in in-house wrap programs, says Madsen.
Compliance departments would arbitrarily limit money manager selection, says Madsen, by setting a minimum number of assets a manager must have to be on the firms approved list--now close to $1 billion. Madsen had known a Las Vegas-based money manager for many years who manages $70 million. In the first quarter this year, he was up 16% with half of the assets in cash, he says. You tell me my clients shouldnt know about him.
Firms also often settle for manager databases and asset allocation software that are too simplistic, Madsen believes. They often have accountants making the decisions on consulting software based on costs, not on what the software does, he says. Many asset allocation programs provided to consultants are really financial planning programs suitable for retail portfolios of no more than $250,000, Madsen contends. The probability software that senior consultants need can cost a consultant $500 a year, something a firms accountants may not want to do.
When Madsen took a team of consultants to Sutro & Co., they found the firm had been using an abbreviated version of a manager database, chosen mainly on its low $12,000 annual cost. Madsens team demonstrated the features of the system they had been using, but at triple the cost. To the firms credit, says Madsen, once someone showed them what the program could do, they agreed to switch.
The support here is reactive to a branchs needs, says Madsen. Because our CEO and retail director dont come from a consulting background, they depend heavily on people in the field who know the business. They dont put together a task force to look into whats needed to support consulting.
Senior consultants at wirehouses say support has been improving in almost every area. Now, they want more help in keeping current with the latest trends and issues impacting their specialties. They also want their firms to help educate the client about consulting.
One area where Smith Barney has made some changes is performance reporting, says William Rice, Smith Barney Consulting Group marketing director. Consultants want complete automation, and clients increasingly want to know where their money is and whats happening with it.
The firm has streamlined the performance reporting process for consultants by allowing consultants to download client data off the mainframe and use a template to create a summary page or rearrange pages. What took a consultant two to three hours of real manipulation to customize a report now takes eight or nine minutes, Rice says.
Rice also has been producing white papers for clients on topics senior consultants have asked for. Hot topics have been how money managers are selected and the difference between using a mutual fund and money manager.
Bud Pallechia, director of institutional consulting support at Prudential Securities, also has been fielding senior consultant requests for marketing materials, client newsletters and white papers on specific topics in the consulting process. Weve been asked, for example, to produce pieces for clients explaining fiduciary responsibilities and index management versus active management, he says. Consultants dont want to reinvent the wheel every time they talk to clients.
Vic Rosasco, a senior consultant with Prudential Securities in Palo Alto, Calif., cant think of any way the firm could improve support. Prudential gives its senior consultants an annual budget to use in buying technology or other services outside the firm to enhance their business. Rosasco keeps up to date on issues impacting the institutional consulting market by participating in the Senior Consulting Council. The group holds monthly conference calls and an annual two-day meeting. He also serves on the firms money manager review committee, which allows him to do on-site money manager visits.
That committee is a real value-added we have, Rosasco says. I can focus on managers more personally with clients, more accurately customize who they would work best with.
Dain Rauscher is doing a good job of developing individual parts of support, says Leon Spheeris, a senior consultant in Brookfield, Wis. But they need to draw it all together, he says. Parts of their recent training program were very good, but I still go outside for training. Hed like more help keeping current on issues such as the growing focus on tax-efficient portfolio management.
Charles ReCorr, a Merrill Lynch consultant in Raleigh, N.C., believes theres now a level playing field among wirehouses as far as supporting consultants. Maybe our technology is a bit further ahead, but other firms will catch up quickly, he says. The client doesnt know the difference if I push one button to give them information and another consultant takes 20 minutes to deliver the same information. The most significant thing a firm can give you is their reputation. I dont think [support] services make a competitive difference--its how the individual consultant applies the services, ReCorr says.