Marshall McLuhan, the legendary communications theorist, once observed that the price tag for the modern age is that "we live habitually in a state of information overload. There's always more than you can cope with." He made that observation in the 1960s, and it's safe to say that overload is now in overdrive-at an accelerating rate.
How do financial advisors cope? There's no silver bullet, but everyone has an opinion about what works, what doesn't and how to tell the difference. In search of some insight, Financial Advisor recently asked several planners for their top picks for tools, techniques and resources for managing client accounts, navigating the money maze and otherwise staying informed on matters strategic.
The question isn't really fair, of course, since any advisor worthy of the title taps into an array of products and services. Investing is too complicated in the 21st century, as are the associated analytics, to pick just one item. But we forced our interview subjects to comply anyway, and, being good sports, they played along. Good thing, too, for reasons you'll discover in the recommendations below.
Financial Counselors of Virginia, Portsmouth, Va.
Recommends: steelesystems.com (Steele Systems Inc.)
Everyone agrees that access to financial data is critical for managing money. Where advisors part company is choosing a source (or sources) for accessing the numbers. The good news is that the possibilities, while not quite endless, are certainly ample. There are numerous competitors in the marketplace for fund analysis, ranging from free or virtually free services on the Web to sophisticated products with price tags that can make even large institutional shops think twice before writing a check.
In the perennial quest to find some answers without breaking the bank, advisor Louis Hibbitts favors Steele Systems' mutual fund/ETF software. If you've never heard of Steele, a small, one-product vendor, you're probably not alone. "I never see [the company] marketed," Hibbitts says. Obscure or not, its product is an essential tool for his financial advisory business. "We've been using Steele Systems for at least 15 years," he says. "There's no way we could live without it."
He says Steele allows users to export performance data into an Excel spreadsheet for multiple funds for any time period. That's not possible with the competing products, he insists, and it's a feature he uses frequently for analyzing investment products. It's a huge time saver because he can load return histories for several tickers in a single exporting session, instead of one fund at a time, which he would have to do elsewhere.
He also appreciates that Steele offers subscribers additional risk analytics that aren't commonly available, if at all, in similar software packages (at least those priced for the retail advisor). In addition to standard modern portfolio theory metrics (beta, alpha, standard deviation, the Sharpe ratio, etc.), Steele also publishes so-called "post-MPT" measures, such as upside/downside capture ratios, semi-standard deviation, and skewness and kurtosis. "Steele at the moment has more computed data points, offering a wider set of ratios" than the competition, he says.
But there's still room for improvement, Hibbitts says. For instance, he'd like to see a broader choice of benchmarks that cover a wider array of asset classes. But he believes the Steele software is very cost-effective, partly because the subscriptions are available monthly or quarterly.
Kent "Chip" Addis
Addis & Hill Financial Advisors, Wayne, Pa.
Recommends: outsourcedanalytics.com (Outsourced Financial Analytics)
Time is the most precious commodity, especially for small independent financial advisory firms. One way advisors can save more time for themselves is by hiring extra staff, but not every shop can afford it. Computers and software products offer a less-expensive alternative for some tasks, but then you must also sink time into learning new programs and then performing ongoing maintenance and education-and that's assuming everything works glitch-free.
Chip Addis, a co-founder of Addis & Hill, thinks he's found a viable third way with Outsourced Financial Analytics, an investment consulting firm he says he uses as "an extension of our internal investment committee" for research for the firm's model portfolios. The consultancy helps Addis & Hill by looking into its securities mix, looking for sources of yield and ways the firm can further diversify. Outsource Financial also reviews Addis & Hill's ETF list to see if it can be streamlined without affecting the target risk/return profiles. The consultants, says Addis, ask questions like, "Is the added diversification we've used worth it? Can we scale back [on the number of funds] and still accomplish the same objectives?"
The relationship allows Addis & Hill a cost-effective way to tap professional analysts without the expense of adding new staff (or buying extra software). The firm can talk with quantitatively savvy finance professionals regularly in order to make strategic investment decisions. Perhaps the biggest advantage is that the relationship helps the small firm make better use of its time. "We're a growing practice and we need to develop new business," Addis says. Outsourced Financial is helping the firm achieve that goal by shouldering some of the research workload.
Scarsdale Investment Group, Blue Bell, Pa.
Recommends: A proprietary list of muni broker/dealers
The world of bonds may appear more serene and uncomplicated than stocks to the casual observer, but appearances can be deceiving. Those who buy and sell individual bonds-as Richelson prefers to do-face Byzantine variables. That's particularly true for his fixed-income preference-municipal bonds, which suffer from illiquidity, variations in call provisions, etc. The only way to navigate this maze is to develop a network of broker/dealers that specialize in munis, says Richelson, co-author of the book Bonds: The Unbeaten Path to Secure Investment Growth (Bloomberg, 2011). Otherwise, there's little alternative, since there's no consolidated, liquid marketplace for munis.
It's taken Richelson years to piece together his trusty list of 15 B/D sources, he explains, a critical resource if he's to find specific munis at competitive prices. "It's not like trading stocks," he emphasizes. "There are 500 big stocks and another 2,500 smaller ones, and they're all available, whomever you call." Bonds are different. "There are over 1 million discrete issues, and I'm just talking about munis."
He says it's no small advantage that 15 brokers are routinely advising him on their inventory. On any given day, he may be investing several million dollars for clients, although most of that comes from rollovers with maturing issues.
In the old days, he says, you could call Merrill Lynch and they'd quote from a huge inventory. But the muni market has evolved, and inventories at any one broker tend to be lean these days. Richelson's network also comes in handy when he's selling. In those instances that he's a seller, his ability to review five or 10 bids from brokers at once is a powerful advantage for securing a fair price.
His network includes several familiar names-Morgan Stanley, Merrill Lynch, Wells Fargo-along with less-conspicuous players such as small regional banks. But the real advantage-his proprietary edge, as he sees it-is his long-standing relationships with the individuals at these firms. "We've found brokers who spend the bulk of their time in munis."