The Magic Number Is…

Sue Bergin

There was a time when someone earning a six-figure salary was said to be doing well.  Is that the case today?

Towards the end of 2010, in a survey by WSL/Strategic Retail, we learned that 18% of American households earning between $100,000 and $150,000 said they could only afford the basics.   Another 10% in that salary range reported that sometimes they couldn’t even meet their obligations.

The conclusion of the survey identified a magic number—$150,000.  This was the level with which the vast majority of consumers (88%) said they could buy what they need while still being able to afford extra items and have some savings.

A more recent study by Pew Research Center puts the $150,000 figure at a higher standard of living than just being able to meet basic needs and afford a few extras.  According to Pew, $150,000 earns a family of four the status of “rich”.  This is geographical; Northeast and suburban respondents upped that amount to $200,000 while their rural counterparts said that a family making more than $125,000 could be considered wealthy.

Whether the income level is $125,000, $150,000 or $200,000 doesn’t really matter.  Incomes this high are out of reach for the vast majority of Americans.  In fact, according the Census Bureau’s September 2012 report, annual household income has fallen for the fourth straight year to an inflation-adjusted $50,054.

Let’s assume for a moment the majority of your clients earn more than $150,000.  Do they all feel rich?  Many probably do not, particularly if they are among 29% of Americans underwater on their real estate.[1]

In fact, that rich feeling is fairly elusive.  Many millionaires don’t even feel rich.

According to Fidelity Investments’ latest report on millionaires’ attitudes towards investing, 26%of millionaire respondents said they did not actually feel rich, and that they would need an average of $5 million of investable assets to begin to feel wealthy.

Politicians, economists, sociologists and even our brethren in the financial services industry continue to confuse comfort and net worth, and perception and reality.  The fact of the matter is that the words “wealthy” and “rich” more aptly describe an emotional state than a statement of net worth.

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[1] The Week, Real estate crisis:  Americans Underwater 12.2.11

Selling for the Non-Sales Professional

Beverly Flaxington, The Collaborative

Many times advisors don’t like to think of themselves as salespeople. But just think: Client referrals. Strategic alliances. New prospects coming in. Even peers sometimes need to be sold on an idea or a strategy. So advisors are faced with a conundrum – the need to sell is there, but the experience of selling can be a negative one.

The selling process, to those who have not been trained in it, has its own mystique. The scripts, the proper words at the proper time, and the ability to listen past an objection someone is presenting to you in order to find what they really need, are all skills that not many people possess naturally.

Let’s look at five tenets of successful sales that anyone can use to help them – at a minimum – get more comfortable:

1. Define your goals. You wouldn’t create a financial plan for someone without knowing something about their goals, desired outcomes and current state. Selling is no different. Too many firms simply state “I want to grow,” “Our objective is growth,” or “Our strategy is to increase sales.” Instead, write quantitative and objective sales goals. Know who your ideal client is and target similar prospects, determine reasonable growth in assets and clients, and decide how much time you’ll devote to selling.
2. Work from a plan. It’s not enough to set your goals; you have to define who, what, when and how in order to implement them effectively. The plan should outline marketing tactics (events, emails, PR, etc.), and the number and types of contacts (direct calls, client referrals). It should also include training or coaching you (and your manager) believe will most benefit you.
3. Create relationships and deepen them whenever and wherever possible. While advisors talk about the importance of relationships and the depth of relationships they have with strategic alliances and clients, the truth is that there is always room for improvement. Find every opportunity to deepen a relationship by learning more about the person and what they care about, by holding events and providing education they could find useful, and by providing information they can use and share.
4. Solve their problem in an effective way. When it comes right down to it, selling is not even selling. It’s solving someone’s problem by offering them a product, service or solution that meets their need and takes away their pain, or offers them the pleasure they are seeking. It’s critical to know your market and the problems you solve (Step 1). Focus on listening and questioning, meeting objections, and mirroring their pace and style to communicate most effectively.
5. Qualify. Make sure they’re “real.” Here’s where many professional salespeople falter. A suspect, prospect or client can look like someone who offers an opportunity for a potential sale. As the hope-to-be seller, you may spend a lot of time providing information, following up with phone calls, keeping the person in your pipeline and assuming there are assets attached that will someday be yours. Check – and re-check – that the prospect meets your “ideal client” standards and ask questions that get at their current “pain.” Don’t waste time on non-serious or indifferent people!

If you think your sales process needs a change, consider one of these areas and choose to focus on it and see if it makes a difference.

Buzzwords

Sue Bergin

Buzzwords, jargon, and clichés have gotten a bum rap.  They can actually be useful communication shortcuts. So why do they aggravate people so much?  If we can say, “If you have a guaranteed lifetime annuity, you can sleep well at night knowing that you will always have a paycheck,” why go any further?

The problem is that the clients have heard “you’ll sleep better at night” from every product ranging from home security systems, to baby monitors, to long-term care insurance.

Every cliché, jargony phrase or buzzword probably started out as fresh and compelling.  Overuse, however, has rendered them impotent. Your client might instantly know what you mean, but the terms fall flat and feel like a shallow promise.  These phrases don’t conjure up riveting insights or evoke any depth or emotion whatsoever, except maybe mistrust.

When an investor becomes accustomed to his or her advisor’s buzzwords, does the investor picture a worry-free future? Probably not.

It’s unlikely that offerings like, “a holistic approach to financial planning”, “best-of-breed investment solutions” and “objective advice that give clients peace of mind,” give clients much confidence, yet countless advisors use such sentences.

Some people think that buzzwords exist for the sole purpose of allowing their users to hide.  They feel that buzzwords and clichés can confuse the audience or act as an enabling device for the communicator to avoid an issue.  Others feel that these phrases are mere fluff.  These sentiments are born out in AARP’s study of how Americans felt about financial services communications. 73% of survey respondents ranked financial professionals higher than car mechanics in their use of jargon; 52% said financial professionals use even more jargon than doctors.

• 54% believe jargon is used instead of simpler terms to distract people from focusing on fees.
• 63% say jargon is used to make products or services seem more impressive.
• 49% believe jargon is used is to make consumers feel less confident that they can handle their own finances.[1]

Clichés are easy, and often come with a regulatory stamp of approval.  We’ve used them before on compliance-approved marketing materials, so we know we can use them again.  They’re safe.  We don’t have to put a lot of thought in them.  The problem is, clients don’t put a lot of weight in them either.

15 of the most over-used phrases by advisors.

1. Sleep at night
2. Peace of mind
3. Holistic approach
4. Full transparency
5. Put clients’ interests first
6. Objective advice
7. Financial quarterback
8. Best of breed (investment platform)
9. Best-in-class
10. Cutting edge technology
11. Bleeding edge technology
12. Thorough due diligence
13. Client-focused
14. Client-centric approach
15. Bottom line oriented

Just for fun, run your web content through the BlaBla meter.  This gimmicky tool rates the amount of fluff that is contained in text.  A high score, such as the 76 that I got when I put a randomly selected advisor’s home page through the tool, generated the following feedback:

“This reeks (of BS). I bet you’re a PR-Expert, Politician, Consultant or Scientist.  If there is a message, it’s unlikely it will reach anyone.”

The tool is easily dismissed.  Its methodology isn’t spelled out anywhere, and it was not designed for specific use by the financial services industry.  It might be crass.  Then again, it might be on to something.

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[1] AARP, April 17, 2008.

Did Chairman Bernanke Seal the Reelection of Barack Obama?

Andy Rosenberger, Brinker Capital

Presidential and Vice Presidential candidates Mitt Romney and Paul Ryan wasted no time in criticizing the Federal Reserve’s newest measure to stimulate the U.S. economy through additional monetary policy, otherwise known as Quantitative Easing (QE3). Within hours of the Fed announcement, Mitt Romney likened the need for more easing to failed Obama policies while Paul Ryan later said it represented “sugar-high economics”. The two fiscally minded candidates are understandably frustrated with the new measures by the Fed.

According to intrade.com, a market-based prediction market whereby speculators can gamble real money on the outcome of future events, the probability of President Obama’s reelection jumped significantly after the announcement by the Fed. The spike in reelection odds is the largest since the death of Osama bin Laden in May of last year.

According to intrade.com, President Obama now has over a 66% chance of winning the election this November, an increase of over 5% since the QE3 announcement. With such a dramatic move in reelection odds, the news of new quantitative easing is certainly a blow to the Romney campaign and a major reason why Mitt Romney has publicly said he would not reappoint Chairman Bernanke if given the chance.

Chart Source: www.intrade.com, 9/17/12

Quantitative Easing Ad Infinitum?

Amy Magnotta, CFA, Brinker Capital

The Federal Open Market Committee (FOMC) launched an open-ended quantitative easing program yesterday. The Fed will purchase $40 billion of Agency mortgage-backed securities (MBS) per month with no specified end date. The Fed will continue its Operation Twist program through December, which includes the purchase of $45 billion per month of longer-dated Treasuries.

The MBS purchases will continue indefinitely until the outlook for the labor market improves “substantially,” which is a different approach than previous easing programs. The Fed also used a communication tool, stating that short-term rates will remain zero-bound until at least mid-2015 (instead of late-2014).

The Fed did not express any concern with inflation, stating it will likely run at or below its 2% objective over the medium term. However, the market is not convinced and inflation expectations moved up significantly after the announcement.

U.S. 5-Year Breakeven Inflation Rate (Source: Bloomberg)

Gold (white) and Silver (orange) Prices (Source: Bloomberg)

The equity markets reacted positively, with the S&P 500 Index gaining +1.6% on the day. An open-ended quantitative easing program may be even more supportive for equities. It is clear the Fed is not ready to stop easing until they see more meaningful and sustainable growth. They want to see more of an improvement in the housing and labor markets. Low rates are here to stay. While the Fed’s actions will increase the risk appetite of investors, we still need help from fiscal policy before year end.

The full FOMC statement can be found here and their updated economic projections here.

Budgets Get an Extreme Makeover

Sue Bergin

The tight economy and some hip personal financial management tools have done the impossible.  They’ve made budgets sexy.

No one ever used to admit that they liked to budget.  Creating a budget was tedious and uncool; sticking to it was even harder.  Thanks to recent technology, however, budgets are being seen in a new light. Today’s economy has made it necessary for more Americans to know, with certainty how much money they have coming into and going out of their household.  As consumers delve into the budgetary process, they are realizing it isn’t nearly as overwhelming and time consuming as they may have thought.

A recent study showed that most Americans follow a spending plan. Nearly half (48%) say they “loosely” follow a budget.  25% “strictly” adhere to their budgets.” Only 27% say they have no budget at all.

Household income is the primary determinant of whether someone will commit to the budget discipline.  36% of those who earned under $30,000 annually followed a budget faithfully.  Only 18% of earners whose salaries exceed $75,000 a year were as vigilant about the budgetary process.

Personal financial management sites such as Mint, Betterment, MoneyDesktop, Yodlee and PNC Virtual Wallet have given the budgeting process an extreme makeover.  They’ve simplified the budgeting process, brought it to life, and even made it fun.  Financial planning software such as the offerings by eMoney Advisor and MoneyGuidePro includes budgeting tools that make it easy for financial advisors to offer an insightful analysis to their clients on how to maximize savings and create user-friendly budgets.

The key innovations that have revolutionized the budgeting process are account consolidation, aggregation and automated expense characterization.  Once accounts are linked and tracked in many of these services, the expenses are automatically pulled in, categorized, and updated regularly.  This simplifies the task of routine budgeting and offers huge relief when it comes time to preparing mortgage and loan applications.

The transparency these services offer into actual spending habits may also be behind the positive ranking survey participants gave to inquiries about their financial holdings.  Nearly half (47%) claimed to know their checking and savings account balances, and 48% have a “rough idea.”  Only 5% say they “do not know”.

When it comes to spending, 36% say they can calculate the “exact amount” while 58% has a “rough idea” of what they pay out each month.  6% had “no idea.”

Innovative technology offers a gateway to help clients become more mindful about spending.  Until a website or mobile app comes along that effectively prevents people from overspending; however, the face-lift offered by technology is simply cosmetic.[1]

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[1] Survey statistics mentioned are from CashNetUSA, September 5, 2012

Have the Odds of More Quantitative Easing Increased?

Amy Magnotta, CFA, Brinker Capital

Last Friday’s disappointing employment report raises the odds of more quantitative easing by the Fed. Payroll employment increased by only 96,000, and the increases reported in prior months were revised lower. The unemployment rate fell, but only due to a decline in the labor force. The labor force participation rate has fallen to 63.5%, the lowest level since September 1981. With GDP growth of just +1.7%, the U.S. economy is not growing at a pace sufficient to create needed job gains. The chart below shows just how weak job creation has been compared to previous recoveries. (Bureau of Labor Statistics).

This employment report did not offer the Federal Reserve evidence of a “substantial and sustainable strengthening in the pace of the economic recovery”[1] that they are seeking.  As a result, the odds that the Federal Open Market Committee (FOMC) will announce further easing at their meeting on September 12/13 have increased.  Consensus seems to expect additional easing, and a lack of announcement to that effect could disappoint the markets.  There has been talk of an open-ended buying program of U.S. Treasuries and/or mortgage-backed securities.  The FOMC could also extend their rate guidance, perhaps pledging low rates into 2015.

Inflation remains within the Fed’s target level, so they still have room to ease; however, the effectiveness of further monetary policy easing is diminishing.  While the Fed feels obligated to act to fulfill their mandate of economic growth, the bigger problems facing the U.S. economy – the fiscal cliff, the Eurozone crisis and slower growth in China – are outside the Fed’s control.  More certainty surrounding fiscal policy would allow businesses pick up the pace of hiring and investment, boosting economic growth

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[1] Ben Bernanke, Federal Reserve Chairman.

The Seven Deadly Mobile Phone Sins

Sue Bergin

Prospects have always looked to attire, office location, furnishings, and framed degrees to get a sense of an advisor’s expertise. While those things are still influential in shaping perception, they are often trumped by the role technology plays in making an impression.

Technology can make you look smart. It gives you access to more information and helps you deliver better service. You can perform research in minutes that used to take you days. You have access to answers and can get those answers to clients quickly. Technology makes you appear progressive. You may have insights into the next cool trend that the client or prospect is eager to learn about.

On the other hand, technology can tarnish your image. Commit the seven deadly mobile phone sins, and you may leave clients with the wrong impression of you.

The Seven Deadly Mobile Phone Sins:

1. Taking a call or returning a text or e-mail during a meeting with a client or prospect.
2. Checking your cell for anything other than an update on the client’s portfolio.
3. Making your digital device the star of your pitch.
4. Leaving your headset in your ear during any client interaction. It’s distracting.
5. Taking your device with you during a meeting break. It implies that your return will be delayed because you are too busying doing making a call, returning an e-mail, Tweeting, checking a sports score, or any of the other gazillion things you can do on your phone.
6. Blaming technology as the reason you failed to respond to an inquiry. Clients buy the “my system crashed” excuse as often as a teacher buys “the dog ate my homework” excuse. Even if it’s true, they just won’t buy it.
7. Forgetting to shut off or mute your device. There is little more distracting during a meeting than a constantly ringing or vibrating phone.

The Lacquer Ind…

The Lacquer Index by Sue Bergin

Over a decade ago, Leonard Lauder of Estee Lauder, made an astute observation.  Lipstick sales went up when the economy went down.  When belt tightening restricts a Middle American woman from buying designer clothes, shoes and handbags, she seeks inexpensive ways to add luxury to her life.  The answer.  Cosmetics.

Have to wear a tired old suit and 2” black pumps to an interview?  Add a pop of color.  Dress it up with a fresh new shade or your favorite cosmetic.

Leonard Lauder dubbed the phenomenon the lipstick index. Now a sister indicator has surpassed lipstick. Renato Semerari, president of Coty Beauty, the parent company of top-selling brands like OPI and Sally Hansen calls it the lacquer index.

Nail polish and associated products have had a meteoric 65% rise in sales since 2008. Market researcher NPD Group cites nail polish sales up 63% from last year.

The increase in sales of nail polish can be attributed to the fact that many American women view it as a cosmetic staple. When thinking of cutting back on the family budget, they’ll forgo the professional manicure or pedicure and invest in a few bottles of nail polish instead.

Today that cosmetic staple is one of the most affordable fashion statements a woman can make.  To the manufacturers’ delight, women are no longer sticking to one look.  Fashion identities and nail preferences are becoming “as fluid and interchangeable as the wallpaper on one’s computer screen,” explains Peter Philips, Chanel Makeup’s creative director.

According to NPD, 627 new nail polish colors were introduced in 2011, as compared to 263 in 2010.  The average cost of a bottle of nail polish is anywhere from $8 to $30, but prices have crept up upwards as new “features” are added.  It’s reported that pop music sensation Rihanna showed up on the red carpet at the Grammy’s with her nails painted in a 24 carat gold infused gel, retailing at $5,000 per bottle.  Rihanna characteristically pushed it even a step further.  In need of more bling, she added a dollar sign to her pinkie finger.

Colors aren’t the only thing new about the nail product lines. Long-lasting gels, art materials and application instruments, three-dimensional and special effects have contributed to a 67% increase in the sales of department store brands over 2010, and a 29% increase in mass-market chains. NPD tallied these add-on sales at $710 million.

The real story here isn’t about consumer behavior in poor economic times, as it is about feverish and spot on product extensions and innovations.  The cosmetics industry has been able to capture lightening in a bottle with the convergence of consumer sentiment, and economic and fashion tends all perfectly aligned.

Central Banks Once Again Lift Stocks

Joe Preisser, Product Specialist

Stocks listed across the globe rose in dramatic fashion this week, carried on the wings of an announcement made by European Central Bank President, Mario Draghi that a program of unlimited buying of the distressed bonds of the Continent’s heavily indebted nations will be enacted. In a nearly unanimous decision, the ECB’s board endorsed Mr. Draghi’s proposal to reduce sovereign borrowing costs by making large scale purchases of short term debt, ranging in maturities from one to three years in a plan named, “Outright Monetary Transactions” (New York Times). As a means of countering German fears of increasing inflationary pressures through their actions, the money used by the Central Bank to buy the sovereign bonds will be removed from the system elsewhere, thus “sterilizing” the purchases. The bold action of the European Central Bank was characterized by its President as, “a fully effective backstop” for a currency union he deemed, “Irreversible” (New York Times).

The concern over the possible dissolution of the Continent’s monetary union, which has held sway over the global marketplace for the last two and a half years, was diminished by the resolute decision of the European Central Bank to embark on its latest plan to purchase the debt of its most heavily indebted members. Whether this action marks a decisive turning point in the struggle to end the crisis is yet to be determined, as obstacles remain, not least of which are the stipulations that the embattled sovereigns themselves must formally request aid from the Central Bank and adhere to strict conditions in order to be granted assistance. Despite the questions which continue to swirl around this collection of countries, the resolve of its policy makers to maintain their union has been affirmed. Doug Cote, the Chief Market Strategist for ING Investment Management was quoted by the Wall Street Journal, “it seems like there is a very clear and strong commitment that the euro will not only survive, but prosper.”

Speculation that the Federal Reserve Bank of The United States will enact additional measures designed to bolster growth in the world’s largest economy, following next week’s monetary policy meeting, increased in the wake of the release of a disappointing report of job growth for the month of August. According to Bloomberg News, “the economy added 96,000 workers after a revised 141,000 increase in July that was smaller than initially estimated…The median estimate of 92 economists surveyed by Bloomberg called for a gain of 130,000.” The case which Chairman Bernanke made for possibly employing additionally accommodative monetary policies, after the Jackson Hole Symposium on Aug. 31, included language which categorized the current rate of unemployment as a, “grave concern” (New York Times). The lack of progress made toward improving payrolls in the United States, as reflected by the weakness of this report, greatly increases the chances of the Central Bank taking action, which will be supportive of risk based assets. Michelle Meyer, senior U.S. economist at Bank of America was quoted as saying, “The Fed will not stand idle in the face of subpar growth, we expect additional balance sheet expansion before year-end, with a growing probability of an open-ended QE program tied to healing in the economy” (Wall Street Journal).