Opportunities aplenty, for advisors ready for a bumpy ride into the future.
More than 1,200 investment advisors and other
professionals from around the country converged on an unseasonably warm
Chicago in early November to attend the 8th Annual Financial Advisor
Symposium, a four-day event designed to show advisors how to move their
firms to the next level success. The conference featured presentations
by more than 120 speakers including consultant and author Nick Murray,
consultant and wealth expert Russ Alan Prince, trainer and author Mitch
Anthony and energy analyst Charles Maxwell.
As the opening keynote speaker, Maxwell, an analyst
at Weeden & Co., outlined changes in the oil business that he
expects to unfold over the next decade. He predicted that non-OPEC oil
production would peak in about 2010.
Although the price of oil could fall to $50 a barrel
in the first half of 2006, it is likely to start rising at 7% to 10% a
year shortly thereafter, he continued. "At first, that doesn't bother
you, but after 10 years it will," Maxwell warned. "Global competition
for oil reserves will [intensify]. Look at China. It will get a lot
worse."
As supplies dwindle, Maxwell said, investors are
likely to divide oil producers into two groups: Those with ample
reserves could warrant significantly higher price-to-earnings multiples
than others, like Exxon Mobil and Chevron, which are experiencing
falling production and will be forced to focus on low-margin refining
and marketing activities in the next decade. Despite their record
profits, "Exxon is in trouble now," Maxwell said.
A special event at the conference was when Richard
H. Thaler, Ph.D., a leader in behavioral economics and finance, was
presented with the Skip Viragh Award. The award is given annually to a
company or individual who offers a new and innovative service, benefit
or product that positively impacts the financial advisor community and
its clients. Thaler was the second recipient of the award, sponsored by
Rydex Investments, Financial Advisor magazine and others, including
Nasdaq and Standard & Poor's. The award honors Rydex Investments
founder Skip Viragh, who lost a long battle with cancer in 2003.
"[Thaler's] accomplishments in behavioral economics
and finance have positively impacted and contributed to the industry,
and truly exemplify the spirit of the award," said Tom Lydon, chairman
of the award selection committee and president of Global Trend
Investments.
Thaler is a partner in Fuller & Thaler, an
investment management firm with more than $3 billion in assets, and is
a research associate at the National Bureau of Economic Research. He
has written numerous articles and books on behavioral finance and has
taught at Cornell University and the Massachusetts Institute of
Technology.
A centerpiece of the symposium was a marketing
workshop that showcased some of the brightest senior advisors in the
business and the extensive marketing plans they've developed in just
the past year. "Just because we haven't had to do it, doesn't mean it
shouldn't be done," said Greg Sullivan, president of Sullivan,
Bruyette, Speros & Blayney, a northern Virginia-based firm that
manages a whopping $1.4 billion for 800 clients.
"Today we run $10 million in revenue, and would like
to add $1.5 billion in new assets under management by 2010. The moral
of the story? It's easy to double assets when you have zero," joked
Sullivan.
To sustain the firm's growth, partners spent much of
2005 designing a careful marketing program that would encourage and
reward referrals. "The world is just more competitive and we need to be
more thoughtful," Sullivan said. Besides asking for referrals, the firm
is sending out thank you notes to clients who provide them. They've
also instituted a prospect tracking system to tap into what they do
right and wrong. Retirees and executives facing a stock event who have
assets in the $5 million-plus range are the primary targets of the
firm's new marketing initiatives.
Ideas in the works at Sullivan's firm include
"factory tours" to show prospects how the firm does what it does; a
looping slide show in the lobby, including "day-in-the-life" videos of
different staff at the firm; flatscreen TVs in meeting rooms that allow
planners to play "what if?" more impressively during client
presentations; and updating what Sullivan said is very stale Web site.
While the firm is working aggressively to ensure
that it communicates often and on an intimate level with 800 clients,
it is also bringing its marketing program inside. "We believe it's just
as important to make sure folks at the firm have an awesome
experience," says Sullivan, who helped create a chill room at the
firm's headquarters, complete with a massage chair, candles, mood
lighting and an "occupied" sign. "I encourage everyone on the staff to
use it," Sullivan says. "It changes their outlook and creates passion
and energy."
Rick Adkins, CEO of The Arkansas Financial Group in
Little Rock, which manages $125 million for 140 doctors and wealthy
individuals, said that he gets the best bang for his firm's buck by
advertising in very targeted media. These include the Arkansas Medical
News and other publications clients read, such as the symphony's
playbill. He reprints his ads in client packets, along with any kudos
his firm has gotten in "planner" stories and lists in Worth and
elsewhere. "The Yellow Pages and local newspapers just don't draw the
clients we want. They're a waste of time," Adkins said.
What's important is to let clients know how well
you're doing. "They want to work with successful people," said Marilyn
Capelli Dimitroff, president of Capelli Financial Services, Bloomfield
Hills, Mich. "We tell them about the new business we're attracting, how
we're growing, when we're on TV. We make them a part of it and thank
them for the success," she said.
A bond fund panel produced an interesting exchange
of views between Loomis Sayles Vice Chairman Dan Fuss and YieldQuest
Advisors President Jay Chitnis. Fuss voiced fears that the U.S. federal
budget deficit could rise to the $600-billion range next year, and that
while the Fed might cut interest rates later in 2006 if the economy
slows, the next economic cycle could produce significantly higher rates
as corporations were forced to compete for debt with the U.S.
government.
Chitnis argued that the forces of globalization,
with 2.5 billion seeking to work in global industries, are so powerful
that this deflationary steamroller would overwhelm U.S. domestic
problems. Looking two to three years out, he warned, the biggest risk
for bond investors could be reinvestment risk.
Making sure clients are successful, especially when
it comes to preparing for retirement, was another resounding theme at
the symposium.
The greatest risks to retirees, said Doug Zarookian,
a senior vice president at Fidelity Investments, is longevity,
inflation, poor asset allocation, unsustainable withdrawal rates and
the wildcard of health care expenses. "Clearly for many people,
retirement will be as long as their working years were," Zarookian said.
A healthy 65-year-old has a 44% chance of living to
age 90 and a 23% chance of living to age 95, so advisors have to plan
on retirees outliving the odds. At the same time, Zarookian said, even
a benign 3% inflation rate will double expenses in a retiree's
lifetime. One solution? Annuities, which advisors can use to finance a
client's core monthly costs, thereby freeing up more of the portfolio
for needed equities investing.
Another glaringly hot topic that some advisors are
ignoring as Boomers move into retirement? The explosion in charitable
giving, which constituted a $248-billion market last year, as opposed
to the $150 billion in IRA rollovers and the $170 billion in U.S. oil
imports, said David Brosnan, a vice president and planned giving
consultant with Fidelity.
While advisors gear up to accommodate the retirement
income management and charitable giving needs Boomers will have,
there's still the Securities and Exchange Commission to worry about.
Advisors' focus should be on avoiding surprises wherever possible, said
veteran compliance attorney and former Securities and Exchange
Commission staffer Stephanie Monaco. She warned against filling out
forms using boilerplate language that may not suit your firm. "Be
careful of the blanket process of adopting boxed compliance. Once you
adopt it, you'll have to live with it," added Monaco, who had a client
get "dinged" during an SEC audit for not testing their continuity plan.
While that might seem hard to do, "everything is
procedural with the SEC," said former SEC staffer Brian Hamburger, a
managing director of Market Counsel LLC in Teaneck, N.J. "That means
they want to see how often you send compliance reports, how they're
prepared, how you handle restrictions imposed by clients and how you do
testing and sampling to ensure the restrictions are honored."
Another hot button? Your policy regarding gifts and
entertainment, whether you're on the receiving or giving end. The time
has come to set definitive limits on gifts and entertainment costs and
then ensure that everyone at your firm lives within those limits. "I
have three to four possible enforcement actions in this area," said
Monaco, a partner with the Washington, D.C.-based law firm of Mayer,
Brown, Rowe & Maw.
Not surprisingly, the panel discussions focusing on
real estate investing attracted large crowds at the symposium. The
question on most advisors' minds: Where and when is the bubble likely
to bust? While experts admitted they are avoiding some types of
developments, particularly condos in overheated markets like southern
Florida and Las Vegas, they remained optimistic that the expanding U.S.
population will continue to drive profitable development, leasing and
management. The key is investment in the right properties in the right
location, said Martin A. Stever, a principal with Pacific West Land
LLC, a private real estate investment trust in Bainbridge Island, Wash.
The company currently has 20 properties in various stages of
development with a conservative valuation of $200 million. With
targeted investor returns of 13%, "what we like to do is master
residential communities with anchor shopping centers," said Stever.
On the international front, the red hot real estate
market, fueled greatly by credit, has already peaked in countries such
as Australia and New Zealand, said Charles de Vaulx, who manages the
First Eagle Family of Funds. "That said, in our global funds, we keep
about 24% in U.S. stocks (he likes Costco and Microsoft), but we still
feel strongly today that the U.S. is much more expensive than
overseas," de Vaulx added.
Lynnette Schroeder, manager of Driehaus Capital
Management's international and international discovery funds, said she
is bullish on Japan's accelerating top line growth, especially as it is
playing out for good retailers and office building developers. De
Vaulx, however, told advisors that he believes China is heading for a
slowdown that is likely, along with any downturn in the U.S., to hurt
Japan and Korea, which depend on the superpowers to fuel their exports.
Morningstar's Don Phillips conducted his All-Star
panel, traditionally one of the conference's most popular general
sessions, with Ron Muhlenkamp of fund concern Muhlenkamp & Co.;
George Grieg, William Blair & Co.'s international growth guru; and
John Calamos of Calamos Investments.
Muhlenkamp told attendees he recently screened thousands of companies
to see if they met three criteria-revenue growth above 10%, returns on
equity (ROE) above 14% and price-to-earnings multiple below their ROEs.
He was surprised to find that many if not most of the names were in the
Standard & Poor's 500 Index. "We don't predict the future, but
we've made a career of buying companies that are putting up numbers
that the market doesn't believe," he said.
Author and consultant Nick Murray served as the
event's closing keynote speaker, and he urged attendees to create a
"new" and "less stressful career" in which they can do "infinitely more
good for the client." Part of this, he warned advisors, involved
not succumbing to the temptation to overemphasize investment
performance.
Advisors who do this create a situation where "your career is dependent
on three variables over which you have no control: timing, selection
and relative performance," he maintained. "It's a marathon run on a
gerbil wheel."
Murray noted that beginning on January 1, "every ten
seconds a baby boomer will turn 60 [years old]." The implications, he
continued, are "career-making."
About 20% of the U.S. population holds 33% to 40% of
all U.S. household net worth, and another huge chunk, perhaps 40% of
the rest, will pass through their hands in intergenerational transfer.
"Give them the advice they need, not the advice they want, since that
will destroy them," he declared. "This generation has been
preprogrammed through earliest life for financial ruin."
Successful advice is more dependent on modifying
behavior than on investment outcomes. "If people could perceive
reality, they wouldn't need us," he said. "At 60, [clients] want an
advisor who can help them negotiate a truce will reality."
The symposium finished up after running from
November 1-4 at the Chicago Hilton & Towers. The show is sponsored
annually by Financial Advisor magazine and Intershow Productions. The
2nd Annual Financial Advisor Retirement Planning Symposium is planned
from April 27-29 at the Mandalay Bay Resort & Casino in Las Vegas.