Reach Out in Good Times and Bad

Sue Bergin, President, S Bergin Communications

It’s no secret that clients like to hear from their advisors. In fact, failure to communicate is one of the top five reasons why clients become dissatisfied with their advisor. According to a Spectrum study, 40% of clients said they consider leaving when the advisor makes them do all the work (make all the calls).[1]

A recent study by Pershing, however, shows that advisors do make the calls—when they have bad news. Here are some of the key findings when it came to communication choices.

• 58% of the advisors contacted clients during market downturns, yet only 39% reached out to discuss market gains.
• 68% of advisors reached out to clients when personal investments declined, while only 53% initiated contact with the client in instances when personal investments increased in value.[2]

How News is Delivered
The telephone is the most frequently used communication vehicle for both good and bad investment performance news. A quarter of the advisors surveyed used email and face-to-face meetings to communicate market losses, while 58% of the advisors picked up the phone. The only type of communication that happened more frequently in person than any other message was in the area of education. 52% of advisors said that they scheduled face-to-face meetings to educate clients while 48% did so over the telephone.

“No News is Good News” Applies Better to Weather than Client Relationships
Communication work is fundamentally about two things: trust and relationships. Good communication can strengthen relationships and deepen trust while poor communication can have the opposite effect. The “no news is good news” approach many advisors seem to take is problematic for a few reasons. It robs the advisor of the opportunity to score relationship-building points. It also increases the risk of clients feeling neglected. Finally, it makes it more difficult for the advisor to identify opportunities proactively because they become somewhat out-of-touch with what is happening in their clients’ lives.

[1] http://www.onwallstreet.com/gallery/ows/client-switching-advisor-top-five-reasons-2681390-1.html

[2] The Second Annual Study of Advisory Success: A New Age of Client Communications and Client Expectations, Pershing.

The views expressed are those of Brinker Capital and are for informational purposes only.

Embracing Innovation: Envestnet Advisor Summit Wrap-up

Greg Vradenburg, Managing Director, Investment Services

Last week we were honored to be one of the Premier Sponsors at the Envestnet Advisor Summit in Chicago. The theme of the event was “the next big thing” and it was evident everywhere. Envestnet Chairman and CEO Judson Bergman opened up the conference by talking about how advisors need to be disruptive innovators in order to succeed and overcome looming industry challenges. He stressed the importance of embracing technology, building brand and perfecting marketing and reminded us of past giants such as MySpace, BlackBerry and Blockbuster that did not take these steps and were not aware of happenings in the new markets and seemingly fell behind.

Envestnet President Bill Crager also talked about how the role of the advisor will become increasingly important in the next five years. As older advisors begin to exit the business, Crager projects that the average advisors assets will increase from $90 million today to $145 million in 2020. (Source: “9 Takeaways from the Envestnet Advisor Summit”, Financial Planning, May 20, 2014)

Conference attendees were also introduced to the Envestnet Institute, an online advisor education portal that features white paper, videos and webinars. Brinker Capital is proud to be one of the contributing content partners for this exciting new unified education portal.

Finally we were pleased by the informative “Liquid Alternatives Panel” that our CIO, Bill Miller, participated in. All panelists agreed the education around alternatives is key for both clients and advisors. Alternatives firmly fill a role in a portfolio by providing greater portfolio diversification as well as access to unique opportunities and strategies; however, they are just a piece of the overall pie.

Our thanks go out to Envestnet for hosting such a great event that allowed us to network with colleagues, investment professionals and Envestnet representatives! We look forward to next year’s Advisor Summit!

Bridging the Alternative Investment Information Gap

Sue Bergin, President, S Bergin Communications

The groundswell of interest in alternative investments continues to build, creating a thirst for clear, comprehensive and client-facing educational materials.

According to Lipper, alternative mutual funds saw the biggest percentage growth of any fund group, with assets under management increasing 41% to $178.6 billion in 2013. A recent report by Goldman Sachs projects liquid alternatives are in the early stage of a growth trend that could produce $2 trillion in assets under management in the next 10 years. In order for this to happen, however, investors must gain a better understanding of how alternative investments work, how they function within a portfolio, and where potential benefits and risks could occur.[1]

Alternative investment strategies are a separate beast than the traditional methods of investing and traditional asset classes that most investors are familiar with. From divergent performance objectives, to the use of leverage, correlation to markets, liquidity requirements and fees, a fair amount about alternatives is different from traditional investments. Understandably, investors have many questions before they can decide whether to and how much of their portfolio to dedicate to alternative investments.

The task of educating investors about alternatives is falling largely on the shoulder of the advisory community. Well over half (60%) of the high-net-worth investors recently surveyed by MainStay Investments, indicated financial advisors as the top resource for alternative investment ideas. Trailing advisors was internet-based research (41%), research papers and reports (35%), and financial service companies (30%).[2]

Historically, advisors have shied away from recommending alternative investment strategies because they are too difficult to explain. The conundrum they now face is that 70% of those advisors surveyed also acknowledge the need to use new portfolio strategies to manage volatility and still seek positive.[3]

It’s important that advisors start to value the use of alternatives and find ways to bridge the information gap for investors. The good news is that investors have tipped their hands in terms of what they really want to know. According to the MainStay survey, clients want more information in the following areas:

 

• Explaining the risks associated with alternative investments (73%)
• Learning about how alternatives work (71%)
• Finding out who manages the investments (54%)
• Charting how alternatives affect returns (46%)

[1] http://www.imca.org/pages/Fundamentals-Alternative-Investments-Certificate

 [2] “HNW Investors Turn to Advisors For Alternative Investment Guidance,” InsuranceNewsNet, April 3, 2014.

[3] “Few advisers recommend alternative investments: Respondents to a Natixis survey said that they stick to strategies that can be explained to clients more easily,” InvestmentNews, October 24, 2013

The views expressed are those of Brinker Capital and are for informational purposes only.

How to Become an Informed Consumer of Financial News

Dr. Daniel Crosby, President, IncBlot Behavioral Finance

Whenever given a microphone and a stage, I take the opportunity to warn investors and financial professionals alike against the harm of keeping too close a tab on the financial news. Since my exhortations to turn off the TV are so roundly ignored, I’ve decided to take a new tack—exchanging media abstinence with “safe watching” as it were. With investors, as with unprepared teenagers, the only sure-fire way to avoid trouble is to leave it alone altogether. However, being the realist that I am, I hope to provide some tips for safe viewing that will allow you to indulge without contracting “media transmitted irrationality.”

Of course, the irony of warning you about the ills of financial media via, well, financial media, is not lost on me. However, the very fact that you are here means that you may have a problem. Gotcha! It is a strange thing that an awareness of current financial events can lead to worse investment outcomes. After all, in most endeavors, greater awareness leads to improved knowledge and results. So what accounts for the consistent finding that those who are most tuned in to the every zig and zag of the market do worse than those who are less plugged in?

The first variable at play is timing. I won’t bore you with an extended diatribe on short-term market timing, but the fact remains that average equity holding periods have gone from six years to six months in the last five decades. This national case of ADHD has been precipitated in part by advances in trading technology, but is further exacerbated by the flood of information available to us each day. Unable to separate signal from noise, we trade on a belief that we are better informed than we are.

Another damning strike against financial media is that the appetite for new content flies in the face of investing best practices. Warren Buffett famously advised investors to imagine they have a punch card with 20 punches over the course of an investing lifetime. By espousing this strategy, Buffett encourages a policy of fewer and higher-quality stock selections, encouraging downright inactivity in some cases. Compare this time-tested approach with the demands placed on the financial press. Each night, Jim Cramer picks 10 stocks to pass along to his viewers to help sate the national appetite for cheap investment advice and the erroneous belief that more is better. Cramer has used up his whole punch card before Wednesday, and it’s not because it’s a sound investment strategy, it’s because it sells commercials.

Consumers of financial media who fail to account for these sorts of perverse incentives can feel disillusioned when the advice of such vaunted “talking heads” leads them so far afield. Conversely, a more informed consumption of media can enable each of us to separate wheat from chaff and learn to recognize a bona fide expert from a circus clown in a $2,000 suit. The following tips are a great place to start:

• Evaluate the source. Does this individual have the appropriate credentials to speak to this matter or were they chosen for superfluous reasons such as appearance, charisma or bombast?
• Question the melodrama. While volatility can be the enemy of good investing, chaos and uncertainty are a boon to media outlets hungry for clicks and views.
• Examine the tone. Does the report use loaded language or make ad hominem attacks? These are more indicative of an agenda than an actual story.
• Consider motive. News outlets are not charitable organizations and are just as profit-driven as any other business. How might the tenor of this report benefit their needs over yours as a decision maker?
• Check the facts. Are the things being presented consistent with best academic practices and the opinions of other experts in the field? Are facts or opinions being expressed and in what research are they grounded?

Financial media is always going to have an angle, but so do you and so does every person with whom you’ll interact. That being so, the best strategy is to become skeptical without being jaded and cautious without being paralyzed by fear. If you found yourself thinking, “Who the hell is this guy to lecture me on media consumption?” you’re off to a good start.

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of IncBlot Behavioral Finance, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor

Safeguarding the Family Enterprise: Children and Wealth

Tom Wilson, Managing Director, Private Client Group &
Senior Investment Manager

A blog in a continuing series on the safeguarding of the family enterprise.

There is a Chinese proverb that goes, “Wealth does not pass three generations.”  This fits the notion that when significant wealth is created by the first generation of a family, the second generation gets to enjoy it, but the third generation, which was so far removed from the work ethic of the first generation, squanders it.

The conversation of wealth is often missed between parents and children.  For wealthy parents, discussing money with children can be a daunting task.  When is the best age to discuss the subject?  How much is too much information?  What if I want to give my money away to charity?  The stress surrounding these questions can often prevent these conversations from taking place.

While these questions, and others, are difficult to bring up, they are essential.  They will provide the context to determine the balance between providing enough money so that the children can pursue their dreams without a concern for their finances, and not providing so much of an inheritance that a feeling of entitlement or loss of self-purpose develops.  Warren Buffet said it best when he noted that he wanted to leave enough money for his heirs so they can do anything, but not so much money that they can do nothing.

A Wall Street Journal article on the subject gave several suggestions on how to speak with kids about generational wealth.  A favorite was the example of a pre-teen son who approached his mother and asked, “Are we rich?”  The mother replied, “Your father and I are. But you are not.”

A holistic approach to wealth management can go beyond asset allocation and financial planning.  Make sure you participate in the educating of children around family wealth.

Educational Video: Crystal Diversified Income

In this video, Stuart Quint, Senior Investment Manager, introduces you to one of our absolute return products, Crystal Diversified Income.

Click below to learn what it is and how it works!

Understanding Behavioral Style in Developing New Business – Part 1 by Bev Flaxington

Have you ever been taken completely by surprise by a client or prospect? Or have you ever been unable to close a sale because you just couldn’t “get through” to them? Today, investors are being bombarded by so many advisors and business development people – all trying to connect and persuade them to become clients. However, one of the most fundamental ways to connect with prospects is often overlooked by those in a selling role: understanding behavioral styles and adapting one’s communication approach to the people s/he’s trying to persuade.

You may have at one time taken a training course on relationship-building, face-to-face selling skills, or something similar, but the key to understanding the buyer’s perspective necessarily begins with an understanding of behavioral style. This is because behavioral style is the crux of understanding communication style – and true communication is the key to developing great relationships in both your personal and professional life.
So, is it really true that your likelihood of signing new clients could come down to your behavioral style? Research conducted in 1984 and validated again every year since has proven three things: 1) people buy from people with similar behavioral styles to their own, 2) people in a selling type of role tend to gravitate towards people with behavioral styles similar to their own, and 3) if people in a selling or business development type role adapt their behavioral style to that of the prospect, sales increase.

Many advisors, business development and client service personnel have excellent communication skills, but have difficulty in relationships with prospects and clients – and don’t understand why. Something just doesn’t feel right, but they’re not sure how to diagnose the problem or modify their behavior for greater success. Often times, it’s not technique (i.e. the questions asked, presentation or negotiating skills, etc.) but rather a lack of understanding of one’s own behavioral style and motivators, and of knowing that behavioral differences can cause significant communication difficulties that hamstring closing a prospect or an ongoing relationship with clients.
One scientific way to understand behavioral style is through an assessment called DISC (Dominance, Influencing, Steadiness, Compliance). Based upon the work of Carl Jung, the DISC approach was invented by William Moulton Marston, inventor of the lie detector and holder of a Harvard MBA, over 80 years ago. The statistically based profiles show a person’s preferred styles on four scales of behavior – Problems, People, Pace and Procedures:

• Dominance (“D” factor) How one handles problems and challenges
• Influence (“I” factor) How one handles people and influences others
• Steadiness (“S” factor) How one handles work environment, change and pace
• Compliance (“C” factor) How one handles rules and procedures set by others

Depending on our differences in style and approach, we can either get along very easily together (because we’re so much alike!) or we can have significant clashes in our relationship.

A person’s behavioral preferences have everything to do with their communication approach and style. People who operate with very different styles have a difficult time “hearing” one another and communicating effectively. For instance, if I communicate only within my own behavioral comfort zone, I will only be effective with people who are just like me. However, in the corporate environment we are dealing every day with colleagues, prospects, clients and management – all of whom can be very different behaviorally. Not only is communication difficult where there are differences, but often individuals become hostile and conflict-oriented toward one another. Significant time, effort and corporate money is wasted because people are unable to “get along” and work together effectively toward common corporate goals. (Refer to the Brinker blog “Dealing with Difficult Clients” for a complementary discussion of this topic.)

In the next blog, we’ll take a “deeper dive” into behavior style – how you can identify it in your prospects and use this knowledge to improve your selling effectiveness.

Your Parents’ and Children’s Annoying Communication Habits Can Help Improve Client Relationships by Sue Bergin

Do you have someone in your life that has a cell phone, but refuses to turn it on? For me, it’s my parents. It doesn’t matter if my 76-year-old father is riding his Harley Davidson through the Blue Ridge Mountains and no one has heard from him in three days. We just have to sit tight until he gets sick of camping and checks into a hotel. Then, he’ll call us. We can tell him to keep his phone on until we are blue in the face. We can buy him an unlimited calling plan for his next birthday. It isn’t going to make a difference. The phone is for emergencies only. As long as he is ok, it stays off.

Have you ever threatened to take away your daughter’s cell phone because they won’t pick up your calls? You don’t understand why she doesn’t take your calls when she knows it’s you, and she knows you want to reach her. She doesn’t understand why you have to talk to her when you can just send a text. She probably doesn’t want her friends to know she must actually talk to her parents. She definitely doesn’t want her friends to hear how she talks to her parents. She would much rather you text her. That way she can whine in private. On the contrary, you’d prefer to hear her voice so that you can better gauge the situation.

With varying degrees of aggravation, we have learned to conform to communication preferences in our personal relationships.

When it comes to your relationships with clients, however, you want to avoid communication frustration. Recognize that clients have their pet tools, and demonstrate a willingness to communicate with them according to their preferences, not yours.

Ask clients how they want their appointments confirmed. Do they want a text, e-mail or a phone call? Would they rather your newsletters and routine correspondence come in the mail to their home or office, or would they rather have them e-mailed. Would they prefer Skype sessions to face-to-face meetings? What is the best number to reach them? Are they among the 33% of American’s that have chucked their landlines in favor of cell phone service?

Keep in mind, communication frustration is a two way street. A client you’ve worked with for years could now be tossing out your newsletters, when he or she used to pour over them. It isn’t because they no longer value your insights, but rather they read their “news” online. You won’t know this until you ask about their preferences. Maybe it is during the intake process, or the annual review, or even a midsummer survey. The key is to get ahead of the issue before it becomes an issue.

Using your clients’ favored communication methods is as much of an offensive play as a defensive play. You become more efficient and eliminate some frustration in your day. You also ensure that you never unwittingly earn the label, “that annoying caller/texter/e-mailer/snail-mailer/Skyper/or Facebook messenger.”

http://www.smartplanet.com/blog/business-brains/one-third-of-us-households-chuck-landlines-now-use-mobile-only/20746

Not Who You Think by Michael Zebrowski, Chief Operating Officer, eMoney Advisor

When asked to identify their most formidable competition, most advisors point to the advisor with the fancy office, lots of back-office support, fully integrated technology, and the book-of-business torn from the society pages. While such advisors do pose a threat, they probably are not enticing your clients so much as the computers those clients have on their desks.
The digital era has transformed the investment landscape, including the way in which clients manage their financial lives. More and more comfortable with online services for education and information, clients are intrigued by how well technology can help them organize their financial worlds, and they are migrating to direct-investment platforms, such as Fidelity Brokerage Services, LLC, The Vanguard Group, Inc., Charles Schwab & Co, and TD Ameritrade, Inc.
This trend is probably more pronounced than one might imagine:
• According to Cerulli Associates, Inc., direct-investment platforms grew from $2.6 trillion in 2008 to slightly under $3.7 trillion in 2010. This increase represents a two-year growth rate of 19%.1
• In contrast, the growth rate for the traditional channel, over the same period, was only 14%. Cerulli ranks direct-investment platforms as the second biggest distribution channel after the wire houses.2
• This direct platform growth happened organically and did so in spite of a lackluster market. In 2000 eTrade and TD Ameritrade had combined assets in the $53 billion range. In 2011 they accounted for nearly $426 billion in assets.3
Growth Drivers
There are a number of factors driving the growth of personal financial management platforms, including investments made in some key areas:
• Advertising and Marketing. With nearly $1 billion a year spent on advertising and marketing combined, self-directed investment platforms have become media darlings.4 No matter what information your clients seek on the Internet, they are likely to come across an ad or sponsored material from a personal financial management provider. The same goes for watching television, reading magazines or books, or driving on the highway. Direct-investment platform ads are everywhere. With so many dollars fed by personal financial management providers into both new and old media channels, no wonder anti-advisor headlines such as “Financial Advisors Are Biased, Study Finds”5 are on the rise.
• Education. Successful personal financial management sites have incorporated “research amenities” and robust client educational materials. When a consumer enters a certain section of the website, educational content appears. Users do not have to search for more information. It is just a click away.
• Technology. Personal financial management sites are focused solely on the consumer. Made as simple as possible, they are straightforward, intuitive, and interesting. They make trading easy and inexpensive.
• Client Service. While the sophistication of the support is debatable, one point is irrefutable: “help” is waiting in the wings 24/7. Many of the top self-service investment platforms have made enormous investments in call-center infrastructure to ensure that financial professionals are available at all times to answer customer inquiries.
The increase in personal financial management systems is a trend to watch. Clients, however, will always need financial advice. Their desire to work with a knowledgeable professional, someone who can help remove obstacles and keep them on the path to fulfilling their goals, will endure. As life gets more complicated, the need to work with a trusted financial professional will only increase.
The content above is from Michael Zebrowski of eMoney Advisor has not been produced by Brinker Capital, nor does Brinker Capital make any claims or warranties to its accuracy. Views expressed are those of Michael Zebrowski of eMoney Advisor and do not necessarily reflect those of Brinker Capital.

SOURCES:
1 Osterland, Andrew. “Advisers blind to threat of direct investing, study shows.” Investment News.
February 21, 2012.
2 Ibid.
3 Pew Research, 2010.
4 The Nielsen Company, 2009.
5 Berlin, Loren. Huffington Post. March 27, 2012.

Insights: Fixed Income Scenario Analysis with Tom Wilson and Andy Rosenberger of Brinker Capital

Tom Wilson, Senior Investment Manager and Andy Rosenberger, Senior Investment Manager, discuss fixed income investments and the potential impact that interest rates would have on these investments.