Changing Roles of Advisor

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MerrillNowBofA's picture
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Joined: 2008-12-15

I have a general question for the established advisors.
I remember when I started in the business there were only a few brokerages and we called and sold stocks and bonds.  Then there was deregulation and everybody was an advisor most didn't and still don't know how to pick a stock or bond much less manage a portfolio.  They don't have the skills to give solid advice beside modern portfolio theory and buy and hold.
Today it seems the industry is moving towards salesmen who only sell managed money.  Is the days of an acutual advisors dead?    Is the industry moving towards salespeople who don't know how to manage money but instead only know how to sale somebody elses services?  The new advisors in our office just fill out risk tolence questionaires and put people in the corresponding managed accounts, i.e. "it says your moderate so we put you in a moderate account, it automatically rebalances and I don't even have to manage it".  Is this the future of our business?

MERRILLBANKER's picture
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Joined: 2008-11-05

Very interesting thought. I would agree with you for the most part that the industry has changed and the training has changed towards sales and away from advising.

Phan2om's picture
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Joined: 2008-10-25

BofA,
 
I am a one stop shop @ ML.  I take a planning approach (am CFP) and then manage the money in my own discretionary portfolios for a fee- i agree with you that allot of people are simply selling other's services...but in a bear or sideways market, this isn't going to work...how can you charge 1.50 or 2.00% and then be down 30 or 40%??  These really large money management shops (like ML/BofA uses) are just processors of money, and not really "money managers" (in my opinion).  It's a business model that's not sustainable.
 
Just my 2 cents.

Gaddock's picture
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Joined: 2007-02-23

I'm new and do my own thing. I call it "Managed to loose money" I can loose money for far less than they can. Luckily I've bewen making money through all this. I think the salesman thing is nothing new. I asked a sr. broker who's been in gor 25 years if he shorted againts the box as a hedge much these days. He kind of looked at me sideways and said he had not shorted a stock in years. The other sr. broker when asked what he's been using to hedge positions paused and said "go to cash I guess" blew me away.

MerrillNowBofA's picture
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Joined: 2008-12-15

I am a CFP, CRPC, CIMA and CFM.  I've been in the business for almost thirty years and feel the business has changed with the new advisors.  I spoke at the training meeting today and our trainees asked me how to buy a stock, how to short, how hedge.  What to do if they do not want managed money.  Our branch manager said to only focus fee based managed money, he even said avoid fee based business.  I thought this was strange and they should have the skills needed to an advisor.  I've helped clients plan their retirement and future and feel this job is more than just sellling a third party service. 

B24's picture
B24
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Joined: 2008-07-08

I think it really depends where you are. It seems to me that with fee-based business, the focus SHOULD be on planning. But most of my wirehouse friends - they just put people into managed money or L-share annuities and invite them to fancy parties. They do very little real planning. Most of them have so many damn clients they're tripping over themselves. One of my friends at Merrill has like 1100 households, but his average account size is like 125K. Half his book is crap that he has inherited or brought on early in his career due to a local relationship they have with a large employer in the area. So he probably has 750 clients in a small basket of C share MFD's that he never calls, and the rest are "A" clients in mutual fund wrap accounts. Planning? No. He does stock options planning for some of them, but that's about it.

Hank Moody's picture
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Joined: 2008-11-10

Think back to 2000-2001. It was the firms that pushed very hard for recurring revenue, as the clients stopped trading stocks. The firms did this to shore up the damage to the top line by finding a new way to generate revenues. Then, all sorts of products/programs/managers hit the market that could be used for asset based fees. This was NOT something that the clients demanded like the firms misled everyone to believe.

buyandhold's picture
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Joined: 2008-09-23

First of all, NOT an established advisor ....I think the future belongs to the guys who have knowledge, who can advise as to how to use insurance or stocks or annuities or index funds and lay out out a plan to help the client reach specific goals. I certainly thing insured products will be bigger. I think income guarantees will be huge.I don't think you can just go out and flash the ICA guide and 'gather assets.'

howie's picture
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Joined: 2008-04-14

MerrillNowBofA,
 
I understand what you are saying in that nobody wants their advisor to be a brainless robot. But I am a new advisor, and my humble observation is that sometimes activity is mistaken for results. We have a managed money platford that is a diversified blend of etfs of various asset classes. I have been advising my clients get into the account and hold it for the next however many years. Why would this approach be substandard? Doesn't the fact that 80% of actively managed funds tell us as an industry that much of what we call being productive is actually just smoke and mirrors? Where are the higher returns for all of the "advisorly" activity?

Anonymous's picture
Anonymous

80% is actually over 99% for u.s. large caps over a 20 year period.  just thought you'd like to know. 

Vet20's picture
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Joined: 2008-10-29

Response to the original post.....
 
Our role should never deviate from "taking care of people."  If that is done through managed money or advising from "our" skills or perspective, it doesn't matter.  I would say that today's advisor needs to continually be a student of the business; to go after higher designations and be well rounded and well read.  An advisor has to try to push away distractions that hinder the focus on his/her clients.
If you personally manage a client's account or many client accounts, you have to be willing to sit in front of your computer screen all day long.  How tied to that do you want to be?  If you free yourself up, by acknowledging someone else's skills in managing money (fee-based models etc...) then you can work on the client relationship more and act as a quarterback in the relationship.  This provides guidence for the client and takes you off the front line of day to day decisions in their account.  There is a lot of freedom in that.  However, that's not to say that an advisor shouldn't know what he/she is doing....thus the higher designations in various areas....
 

B24's picture
B24
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Joined: 2008-07-08

howie wrote:MerrillNowBofA,
 
I understand what you are saying in that nobody wants their advisor to be a brainless robot. But I am a new advisor, and my humble observation is that sometimes activity is mistaken for results. We have a managed money platford that is a diversified blend of etfs of various asset classes. I have been advising my clients get into the account and hold it for the next however many years. Why would this approach be substandard? Doesn't the fact that 80% of actively managed funds tell us as an industry that much of what we call being productive is actually just smoke and mirrors? Where are the higher returns for all of the "advisorly" activity?
 
Simple example.  I have a client - not very big, few hundred thousand.  He comes to me with portfolio of stocks in NQ account, some IRA's and a 401K (this is about 18 months ago).  His NQ account is going to be used for home reno's the next several years.  He has about 50K in it.  It's all stocks.  I advise him that he should not have ANY of it in the market, that he can't afford to lose any if he wants to do these projects (we itemized out the costs).  He was reluctant, and paid a few bucks in taxes, but did it.  We put it into some CD's at around 5%.  I estimate I saved him about $15,000 on that one little decision alone.  Then, we took an old VUL policy he had with about 40K in it and exchanged it for a fixed 5-year annuity paying 5.125% (GTD rate and no tax impact).  The policy had been bleeding value (due to underperformance), and would have hemorraged had he left it in the subaccounts it was in (due to outright losses).  Saved him another 15K or so there (there was no tax impact on this one).  On top of that, both of these paid him 5% or so that past year, on top of avoiding losses.  There were some other things we did that were less "impactful", but the point is, don't just assume that every advisor is taking one good portfolio and stuffing into another good portfolio in order to make a commission or collect fees.  Your motivation should be to improve on the client's situation.
 
The scenario played out above happens all the time, by numerous advisors.  I would love to say I did all that in anticipation of this market.  The truth is, I never IMAGINED this happening, but for that specific money, he needed to be protected. 

Vin Diesel's picture
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Joined: 2007-04-18

I think wirehouse and banks want reps to be "asset gathers"...thats it. It creates recuring revenue and reduces compliance risk. firms want high level sales reps focused on raising money not managing it.
the days of a rep building a stock & bond portfolio for a client and charging commissions is much harder these days because of compliance. 

Anonymous's picture
Anonymous

Great example B24.  Awesome.
 
To the o.p....just curious, but what are your qualifications to 'pick stocks' and 'manage money.'  Are you a CFA?  Ph.D in Finance?  Just curious. 

smokescreen agent's picture
Joined: 2008-08-19

.

Anonymous's picture
Anonymous

smokescreen agent wrote:
 
Funny... don't you think it's a bit ironic that the fund managers with all these designations and Ivy MBAs can't even "pick stocks"? I mean really since when did someone need a "CFA" to pick a stock?! You think the fundamentals matter with guys like Madoff running around? These over-studied guys can't even come out on top this thing is so rigged, textbook analysis methods seem to be about as consistant as a dartboard with ticker symbols in this market. Years ago "picking stocks" was not considered a big science, every broker did it, now everyone wants to spin stuff like it's open-heart surgery or something. The market is more complicated now than ever before but we've seen the funds collapse right along with the market, so you get some guys with CFAs and Ph.D's in finance and all they can do is hug a fucking benchmark, I'm not impressed.
 
 
the only thing that's funny is that i agree with you about the inability for cfas and mbas to 'pick stocks' - but your reason is based on your own incompetence and failure to learn from anyone but the ivory tower types. 
 
if all the cfas and mbas at the fund companies, rating agencies, research firms, and hedge funds are getting hammered, how is it that you expect brokers on the retail level to 'pick stocks?'  - your pov is pathetically misinformed.

Sportsfreakbob's picture
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Joined: 2008-08-24

I will be trashed for this, but i dont see why you have to sacrifice so much "client relationship" time in order to run portfolios. If you have a platform that allows you to run client portfolios with discretion, and the technology to do a block trade for all clients within say , group A, and you run 4-5 models, it doesnt take a whole lot of time unless you are day trading, which is not what i am talking about.I run portfolios this way. I set them up, review them once a week, maybe look at them if there are specific events that occur that call for more closely monitoring a sector or whatever, and spend the rest of my time asking clients about there estate plan.I dont buy crazy sh*t, I pay attention to sector exposure, occosionally write some calls against positions.I run a portfolio of individual stocks, and a portfolio of ETF;s which is mostly about sector rotation, but will ocasionally use an index fund, or other "idea etf's", i.e. REITS, commodities, currencies, etc.Yes, it equires me to be on top of whats going on in the market. But thats what i enjoy and what brought me into the buseinss.I do my share of planning, and i am committed to it, am a CFP, and still get to do what i really enjoy.I have beaten the money managers that i've used (but am moving away from more and more every week) every year, over the last 5 years (which is how long i have been doing it.I didnt beat them because i am smarter then Marty Sosnoff, or the folks over at Lord Abbett. I beat them because i have the ability to be flexibile. I can go to cash, and do other things that the managers cant do.So if you have the right platforms, and the right technology, you can still run money yourself and still have deep relationships leading to sticky clients and ancillary business that a planning practice produces. 

smokescreen agent's picture
Joined: 2008-08-19

iceco1d wrote:smokescreen agent wrote:
 
Funny... don't you think it's a bit ironic that the fund managers with all these designations and Ivy MBAs can't even "pick stocks"? I mean really since when did someone need a "CFA" to pick a stock?! You think the fundamentals matter with guys like Madoff running around? These over-studied guys can't even come out on top this thing is so rigged, textbook analysis methods seem to be about as consistant as a dartboard with ticker symbols in this market. Years ago "picking stocks" was not considered a big science, every broker did it, now everyone wants to spin stuff like it's open-heart surgery or something. The market is more complicated now than ever before but we've seen the funds collapse right along with the market, so you get some guys with CFAs and Ph.D's in finance and all they can do is hug a fucking benchmark, I'm not impressed.
 
 
the only thing that's funny is that i agree with you about the inability for cfas and mbas to 'pick stocks' - but your reason is based on your own incompetence and failure to learn from anyone but the ivory tower types. 
 
if all the cfas and mbas at the fund companies, rating agencies, research firms, and hedge funds are getting hammered, how is it that you expect brokers on the retail level to 'pick stocks?'  - your pov is pathetically misinformed.
 
Don't sell it to me, sell it to your clients... Clearly the formula is broken at this point if these guys at the fund companies and research firms are getting hammered, so if the formula is broken why assume these guys are really that good at anything? Afterall, you said it yourself, they're getting hammered. If everyone is stepping in the same pile of shit you'd think the "pros" would be smart enough to not step in it.  I'm not saying let every cowboy new college graduate start selling stocks but it's pretty clear the firms discourage active management of portfolios by the broker and for obvious reasons stated within this thread. My point is that the whole logic of "leave it to the pros" has fallen apart, and you too said "what are your qualifications to 'pick stocks' and 'manage money.'  Are you a CFA?" I mean, you're buying into this horseshit too, it's all marketing, and believing that these guys actually know what they are doing, if they knew what they were doing would the funds and wrap accounts be down right along with the benchmarks? Advisors that sell model portfolio mutual fund solutions have their pants down right now with their hand out collecting a fee while the client is sucking egg down -40%, where's the value in this structure in this market today? Don't tell me about the future because we all read that textbook and went to those training sessions, it's really all up for grabs at this point, the only thing that is certain is today and where are we now? I know I am painting this with a broad brush right now, this is a very general statement as I am sure there's a fund here and there that are holding up better than the rest but then the Ponzi shit comes out don't even get me started on these guys...
 
Regardless of anything I wrote above, the whole point the OP was making was that the wirehouse model is different than back when people were collecting commissions on transactional accounts. It's all about relationship management, fancy dinners, and setting the money into managed product- not an opinion but a fact.

Anonymous's picture
Anonymous

I just.  Can't.  Argue.  With.  Deaf.  Ears.  Any.  Longer. 

Pants's picture
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Joined: 2006-10-18

As much as we'd all like to believe that there is a strong demand for true planning, it will never exist without a baseline understanding of finance by the general public. I can't tell you how many times I've met with someone, discussed higher level concepts like NUA, ILITS, or even tax loss harvesting, and all I get are glossed over looks followed by " how much does that cost/pay?"  while watching other registered monkeys close big deals by pitching an investment that "pays 7% or whatever the market does".  Frustrating as hell.  people want to lose weight by taking a pill. mention diet and exercise and they'll bail for the guy who will sell them a pill.

Bullroar's picture
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Joined: 2008-10-28

I'll bite.I'm an established advisor.   I have 98% of the money I manage in managed accounts.  SMAs or Mutual Funds (and Mutual funds picked and allocated by my firm - MER).    I got INTO this business to advise clients on their portfolio and on their entire financial situation and specifically not to be a stock picker/broker.   I have yet to see, hear of or meet an individual broker selling one off stocks or even tiny portfolios that outperform over any meaningful period the portfolios I have for my clients.   Simple reason is that individual brokers sitting on main street cannot compete or consistently outperform professionally managed money.I do not see myself as a salesman at all - any more than a stock picker is just selling the stocks his firm recommends.   I'm a CFP - have an MBA in Finance and advise my clients on a huge range of financial, planning, retirement and estate issues.  This consumes 90% of my day and when I ask my clients what they value - hands down - this is what they value - being that one - go to guy.You can buy any financial product anywhere - and ALWAYS for less than what you would pay from a full services firm like MER - so what is the differentiator?    Its the comprehensive knowledge of your client's financial situation and the ability to provide meaningful advice regarding their entire financial situation.If I were a client and ONLY interested in picking stocks - I'd do what I used to do.    Join Schwab, buy a newsletter and trade online - its much much cheaper.    In order to justify the fees I charge I have to bring a lot more to the table than just recommending stocks from the US-1 List.

Hank Moody's picture
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Joined: 2008-11-10

Bullroar wrote:I'll bite.I'm an established advisor.   I have 98% of the money I manage in managed accounts.  SMAs or Mutual Funds (and Mutual funds picked and allocated by my firm - MER).    I got INTO this business to advise clients on their portfolio and on their entire financial situation and specifically not to be a stock picker/broker.   I have yet to see, hear of or meet an individual broker selling one off stocks or even tiny portfolios that outperform over any meaningful period the portfolios I have for my clients.   Simple reason is that individual brokers sitting on main street cannot compete or consistently outperform professionally managed money.I do not see myself as a salesman at all - any more than a stock picker is just selling the stocks his firm recommends.   I'm a CFP - have an MBA in Finance and advise my clients on a huge range of financial, planning, retirement and estate issues.  This consumes 90% of my day and when I ask my clients what they value - hands down - this is what they value - being that one - go to guy.You can buy any financial product anywhere - and ALWAYS for less than what you would pay from a full services firm like MER - so what is the differentiator?    Its the comprehensive knowledge of your client's financial situation and the ability to provide meaningful advice regarding their entire financial situation.If I were a client and ONLY interested in picking stocks - I'd do what I used to do.    Join Schwab, buy a newsletter and trade online - its much much cheaper.    In order to justify the fees I charge I have to bring a lot more to the table than just recommending stocks from the US-1 List.
You sound like a very special lady. Thanks for being born.

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