Tuesday, December 20, 2016

The Increasing Probability of Unlikely

[1] Randomness is the lack of pattern or predictability in events. A random sequence of events, symbols or steps has no order and does not follow an intelligible pattern or combination. https://en.wikipedia.org/wiki/Randomness
[2]The Great Recession was a period of general economic decline observed in world markets during the late 2000s and early 2010s. https://en.wikipedia.org/wiki/Great_Recession

Thursday, August 11, 2016

The Culpability of Culture

According to FINRA, fines and litigation costs to firms or their parent companies related to cultural failures are estimated at over $300 billion since 2010. 

For a good part of this year, FINRA has been talking with numerous broker-dealers about their culture and whether that culture encourages the fair, flexible, and efficient participation of retail investors. According to agency insiders, FINRA is now completing their review of “how firms establish, communicate and implement cultural values, and whether cultural values are guiding business conduct.”[1] The agency will then prepare their next action steps regarding broker culture.

The reality is that most broker-dealers have spent little time to date doing any organizational soul searching.  Higher priorities associated with asset management and growth strategies including advisor recruiting/retention, succession planning, and anticipating the DOL fiduciary rule have relegated initiatives about corporate culture to the staff levels of their HR departments.  But not any more.

Broker-dealers now need to know how they stack up against known standards for the five major culture indicators identified by FINRA:

   1.     Whether the control functions  FINRA values are within the organization;
     2.         Whether policy or control breaches are tolerated;
     3.         Whether the organization proactively seeks to identify risk and compliance events;
     4.         Whether supervisors are effective role models of firm culture; and 
     5.         Whether sub-cultures (such as a branch, trading desk, or department) that may not conform to  overall firm culture are identified and addressed.

Broker-dealers are now well-advised to attain a comprehensive and objective assessment of their culture and its impact on their business practices.  Having such a critical baseline will be a cost-effective insurance policy that can help safeguard the firm when it comes under the increased level of culture scrutiny anticipated from FINRA.  It is time for the firm to reinforce those policies and procedures that may already be optimized for fairness, flexibility, and efficiency for their clients or shore up practices that are determined to be marginal or ineffective.

Contact neil@rifkinwernick.com to learn more about developing a thorough and comprehensive broker culture assessment along with specific and actionable recommendations to maintain your operating and compliance excellence.  

[1] http://www.finra.org/industry/Establishing, Communicating and Implementing Cultural Values

Tuesday, July 19, 2016

Financial Advisors: Let’s Get Political!

At least 100 of my Compliance colleagues just gasped.


While not suggesting that you take a public position on the presidential election, I am urging you to be proactive/pre-emptive in addressing client questions and concerns about its probable market impacts. As you already know, the most important thing you need to say to clients is that unless goals, time horizons, or risk tolerance have changed, stick with your current investment strategy. That said, it is both fair and appropriate to also speak to clients about the risk and uncertainty that will likely buffet the market over the next three to four months.

The markets dislike uncertainty. Duh. All considered, Hillary Clinton is a less-risky candidate than Donald Trump and, therefore, represents lower uncertainty for the markets and investors. By the time Election Day happens, however, a rolling avalanche of opinion polls with contradictory or ambiguous findings will drive the whipsaw market impacts of mercurial speculation. Such volatility in isolation will cause great unease among even your most mature clients. Against a context of global and national unrest like that which has dominated the recent news landscape, the market effects are likely to be amplified.  Add to that the dynamics of the predictable fear-greed psychology that accompanies historically high-level market indexes and you have a potentially perfect storm for severe market turbulence.

You cannot change the circumstances but neither can you ignore them. It is critical that you now inoculate your clients against the likely turmoil.  Speak directly to the issues mentioned above.  Speak about expected volatility, even the possibility of an unsettling correction. Some portfolios will probably need to be modified to accommodate diminished risk tolerance, whether reality- or fear-based. Some portfolios will need to be rebalanced, taking some heretofore unrealized gains. Some, perhaps most, asset allocations will not have to be changed at all. But speak and soon, especially to those clients you care about most.  Compliance will understand and probably even help in the process.

More from Neil and Rifkin-Wernick Associates

Monday, August 24, 2015

Vacation’s over, back to work

Admit it:  for nearly 6 ½ years, the livin’s been easy for broker dealers, RIAs, advisors, and financial reps.  For market analysts, media pundits and financial editors and producers it’s been downright boring.  So what if there’s an overdue realignment happening in China, several geo-political flare-ups, an oil glut, and one of the longest-running bull markets in history.
For long-term, goal-driven, risk-aware, and disciplined investors, it is ALL noise.  Really.  Are your clients in risk-appropriate, well-diversified portfolios with clear and comfortable time horizons?  If not, you’ve been sleeping on the job and all the hoopla about the DOL Fiduciary Standard was probably written with you in mind.

For the vast majority of financial professionals, it’s time to earn that fee.  In case you’ve forgotten or in case you entered this profession in the past five years, here is a three-step strategy for building or reinforcing your most-important client relationships.

  1. Reach out to your clients today…A, B, and C in that order…and advise them to turn off CNBC, disregard the market-related articles in their daily newspaper, and listen to music rather than talk radio in the car.  A’s and B’s mainly by phone (leave detailed voicemails) AND email.  C’s by email only.
  2. Remind clients that markets go through cycles and that fear, uncertainly, greed, and bad news sell airtime, print media, and professional services under the guise of help and hope.  Counsel them to expect more than the usual doom-saying across most--even authoritative-- media, for a while.
  3. That unless their goals, risk-tolerance, or time horizon have changed, they are well-advised to stick with their current investment strategy and discipline.

As in all crisis communications, tell it early, tell it all, and tell it yourself.

That’s all for now, there’s work to do.

Neil Wernick
I am a seasoned, globally-experienced financial industry executive (and gourmet food entrepreneur) who counsels broker-dealers,  firms and advisors on asset growth and retention strategies and relationship management. You can find me on LinkedIn and @neilwernick. Email neil@rifkinwernick.com

Thursday, January 1, 2015

Advisor Success Strategies for 2015

by Neil Wernick

First in a Five-Part Series

As advisors reach for a potent Cup of Joe, take a deep breath, and exhale slowly they are revving themselves to jump-start 2015. Coming off an excellent year by all counts, they are wondering, with excitement and trepidation, what problems, opportunities, threats and challenges await them.

Speaking tactically, the day-to-day of being an experienced financial advisor will present its usual flow of circumstances, situations, considerations and reactions.  Strategically, however, the most disciplined and focused advisors will pause today and reflect on that fresh New Year's resolution to become even more organized and identify methodical approaches to leverage the enviable value of their books of business.   The remaining 99.9% of advisors will, right out of the gate, resume the familiar routine of reaction, recoiling, and response, aka business-as-usual.

There is, of course, another way and it is neither difficult nor time consuming.  Rather it is simple and even elegant in its simplicity.  It is thinking and executing strategically with the help of a classic 2x2 matrix of Clients and Assets where each of these dimensions exists in only two states:  current and new.  Each of the four resulting quadrants represents a segment of the advisor's book and names the strategy for addressing the distinguishing needs, priorities and preferences of the clients comprising that segment.

Retention is the set of touch points, programs, and initiatives with the central goal of keeping the client and their current assets. Growth  Acquisition  Succession.

Wednesday, December 17, 2014

Now is the time to worry about advisor flight-risk

By Neil D. Wernick

It has been, overall, a great year to be a broker-dealer.

Your revenues are likely at an all-time high. You are probably retaining 90% of your advisors and their AUM.  The markets are in high stability.  Your top advisors are enjoying increasing income without your having to increase payout.  All is good, right?

Well, yes and no. 

The impact and momentum of current ripples of market volatility are not reliably predictable today. But the fragility of any nearly six-year-old bull market must be given a voice at the table of boardroom euphoria. It is no longer prudent to assert that tomorrow will be like yesterday or even, today.

The difficulty or ease of your recruiting and retention efforts, as always, hinge first and foremost on advisor (dis)satisfaction.  It is very safe to assert that today, your advisors, especially the majority of your top 10-20% advisors are probably satisfied. 

But for how long?  The markets will likely experience increasing volatility, at least some investors will become unnerved, at least some advisors will look to their broker-dealers for reassurance and at least a few of these advisors will not be satisfied with your response. The best recruiters smell advisor uncertainty from a distance and, as you know from experience, are expert at exploiting any weakness in a BD’s armor.

To be clear, it is not my intention to impart gloom and doom, especially during the holiday season.  On the contrary, I am advocating for proactive BD strategies for solidifying and even strengthening advisor satisfaction, especially in the face of predictable market erosion. While there are many complexities in discussing why top advisors stay or leave, there is little argument that the cost of retaining a top advisor is almost always less than the cost of replacing that individual (and the 80% of their assets likely to follow them out the door). 

Recent research by J.D. Power suggests that nearly one in four independent advisors are indifferent toward their firm or broker-dealer, making them at risk for changing firms. Flight-risk factors are of two complimentary types:  Satisfiers promised and dissatisfiers experienced.  Last year, Fidelity published a study showing that financial considerations, not surprisingly, are the top motivator behind advisors leaving their current BD or being attracted to another broker-dealer. Other flight-risk factors include firm reputation, improved work/life balance, and better investment solutions and client service. An often-cited area of dissatisfaction is marketing support.

Now is not the time for strong financial results to lull broker-dealers into a false sense of self-satisfaction.  By the time a sea change is widely apparent, the momentum for broker-dealer change may be irreversible.  Effective advisor-retention initiatives offer a defensible return on investment and, therefore, broker-dealers are well-advised to continually identify and evaluate alternatives for helping minimize top advisor flight risk. Hopefully your 2015 budget includes increased spending on advisor retention initiatives.  Proactive is preemptive.

Neil Wernick
I am a seasoned, globally-experienced financial industry executive who counsels broker-dealers,  firms and advisors on asset growth and retention strategies and relationship management. You can find me on LinkedIn and @neilwernick. Email neil@rifkinwernick.com