Money Management Executive
WASHINGTON — Financial advisers seek service above all else when it comes to picking separately managed account products for their platforms, according to panelists at the Money Management Institute's annual conference.
In the shove for shelf space in managed accounts, advice may be more important than innovative products or lower fees.
"I need someone who will step back from the specificity of the product and will talk to me about my practice, my clients," said Dickinson J. Miller, a senior financial adviser with Ameriprise Financial Services of Minneapolis. Specifically, he said, advisers are looking for support, tools, and training to help build their practices.
Details concerning open architecture and alternative asset classes become secondary, said James Tracy, an executive vice president and director at Citigroup Inc.'s Smith Barney Consulting Group in New York.
"What they want is best in class," he said — products that are easy to explain to clients, transparent, and come with added services such as adviser education on topics like estate planning, philanthropy, starting a second business, or helping finance a child's education.
"We are all going to be asked to validate what our advice is worth," Mr. Tracy said.
For companies that can effectively support adviser needs, it can be worth a lot, said Kevin Keefe, senior vice president of research at LPL Financial Services Inc. of Boston. After all, 85% of advisers of affluent clients said that their clients would prefer to use one financial company, he said. It's what Frank Campanale, president of Campanale Consulting Group in Birmingham, Mich., calls the "financial services bear hug."
But not all advice is equal,. John Scully, director of the consulting group at Lydian Wealth Management in Rockville, Md., said, "Our job is to find the performance."
Mr. Miller said, "We're not going to beat the benchmark if we're closet indexers."
Christopher W. Brown, a financial adviser with A.G. Edwards and vice president of investments at Brown/Miller Financial Group in Washington, said, "The cornerstone of what we do is allocation."
Mr. Scully said allocation is the driving force behind 95% of the returns he garners for clients.
Rather than unified managed accounts or alternative products such as long/short 130/30 funds, which none of the panelists use, advisers said the true value-added elements are those that increase the worth of their practices.
For Mr. Scully, that may mean a white paper or a visit from a manager offering a different outlook.
Mr. Brown said, "Someone knowledgeable and poised enough that I can put them in front of a client; that is the litmus test for me."
W. Jeffrey Carlton, a senior vice president for wealth management at Carlton Group in McLean, Va., also looks for market commentary, and analytical tools. "I want to know which product is selling most and which is your most liquidated investment," he said. "Nine times out of 10, I'm going to go to the most liquidated as a contrarian." Advisers said their clients seek simplicity.. Derivatives and alternative products often muddle the mix.
Similarly, advisers prefer managed products that are simple for their clients, the end users, to invest in. "It's how we pull it all together: one contract, one account and one price," Mr. Tracy said.
Mr. Carlton said clients also want to keep as much of their gains as possible, which makes tax-efficient products especially attractive. Advisers' clients also want to feel as though they have a personal relationship with their planner, so tools and technology that enable advisers to customize each product to their clients' tastes will most likely get on the shelf above those that are more rigidly structured.
And when all else is equal, advisers are likely to choose the brand with a strong reputation.
Mr. Keefe, said cutting corners to lower fees on managed accounts will undoubtedly result in lower service, and therefore less business. Likewise, setting prices artificially low, hoping to make up the revenue shortfall through mutual fund sales, is "dangerous," he said. "The SMA should always be the highest-quality product we can offer." Mr. Keefe said pricing them accordingly helps convey that.
Advisers agreed that investors are price-sensitive, but transparency, simplicity, and a promise of performance weigh more heavily on their minds. "The ability to own all types of assets: that's what the client wants, that's what a financial adviser wants," Mr. Tracy said. "It is incumbent upon us to give it to them."
