Discussion helped dismantle myths about investments, boomers and more.

CEOs of 50 financial services companies gathered in San Francisco in April for the Tenth Tiburon Strategic Advisors CEO Summit. The objective of the two-day meeting is to share opinions on current issues and trends in the financial services industry. Chip Roame, president of Tiburon Strategic Advisors, hosts the event, structures the programming and shares his firm's current research.

We've all attended industry conferences, in different shapes and forms, with the goal of walking away with a few gems of information. This gathering produced more than the typical conference. Not only were the speakers impressive and candid, but their remarks also led to interesting hallway banter.

If you are a fee-only advisor and wonder what it is like to be affiliated with an independent broker-dealer, Mark Casady, CEO of LPL Financial Services, made it sound appealing. The core value of LPL is to encourage, protect and support the culture of their independent reps, and he really means it. Casady billed LPL as a technology-outsourcing firm, which helps advisors grow their business without worrying about the back office. Tif Joyce, an advisor affiliated with LPL, in the heart or Sonoma County, feels it's much more than that. "I couldn't do it without them," said Joyce.

Greg Johnson, CEO of Franklin Templeton, mapped out his company's global strategy. They are clearly years ahead of most global players in offering investment products and services in global regions and many individual countries. For example, Franklin Templeton commands 80% of the fund market in Germany. There's not a developed country where they don't have a strategy, and each strategy is different depending on the culture, political structure and economic conditions. As Johnson did a cursory overview of the global markets, one got the feeling that they will be major world players in the coming decades.

Norton Reamer, CEO of Asset Management Finance and former CEO of United Asset Management, showed that he still has intriguing ideas. Reamer was one of the pioneers in the mergers and acquisitions game and continues to be innovative in the way he structures deals.
    In exchange for an upfront capital payment, AMF receives a finite percentage of the firm's gross revenues for a specific period. Then they walk away. That's right; at the end of the payment period, they walk away and you still own the business.
    The most impressive speaker, hands down, was Dave Pottruck, former CEO of Charles Schwab. Dave has been through the ringer. Today, he's a different man; trim, casual, relaxed and very candid. When somebody can stand in front a group of his peers and say, "I was good at this and lousy at that," you gain more respect.

When listening to Pottruck talk you get the sense that he's happier than he's been in a long time. He's involved in a few ventures, including EOS Airlines, which provides first-class-only flights between New York and London. As a board member of Intel, he has a keen respect for maximizing technology.
    After spending years wrapping his arms around the advisory world, he finds it ironic to be just a client now. Pottruck spent years promoting the Schwab brand as a champion of low fees. Today he has no problem paying the freight for his alternative asset managers. As a high-net-worth investor, he is concerned as much about risk management as maximizing return in his portfolio. As you might expect, Dave has big expectations and is quite vocal about what he doesn't like. "Why does one of my managers send my monthly statement to me in a three-inch-thick box? What am I going to do with that?"
    The meeting produced research and discussion, which helped dismantle some current industry myths:
    Online trading is dead. While nobody was looking, monthly online trading volume recently passed highs reached in early 2000. Full-service firms continue to lose market share to the established online firms. Fidelity just recently passed Merrill Lynch as the largest investment company in the world. Schwab has Merrill in its cross hairs and should pass them this quarter.
    Exchange-traded funds (ETFs) are a passing fad. ETFs may never exceed the assets held in conventional mutual funds, but they are growing at a much faster clip. ETFs make up only 5% of mutual fund assets, but more than 20% of net new assets are directed toward the growing list of ETFs. Chip Roame feels ETFs are the single largest innovation in our industry in 40 years.   

Fee-only advisors and independent advisors look more and more alike. In fact the number of independent advisors working through independent broker-dealers is growing at a much faster pace than fee-only advisors. Many of these are jumping from wirehouses and national broker-dealers. Even though the number of fee-only advisors is growing at a slower rate, the assets they manage are growing more quickly. Fee-only advisors manage two-and-a-half times what independent broker-dealers control. The average size of a client relationship for fee-only advisors continues to increase as well.
    Separately managed accounts (SMAs) continue to gain in popularity. For the most part, SMAs are mediocre, much like other vehicles. The concept is valid, but the execution has been sloppy. Very few have beaten their respective benchmarks, and the notion that they're tax-efficient can be tossed out the window. Even with all the hype, manpower and marketing dollars behind them, they have yet to attract significant assets. ETFs are attracting more assets than SMAs.

Hedge funds and hedge funds of funds finally are attracting advisor assets. Advisors are putting less in hedge funds than they're allocating to SMAs and ETFs. The data on hedge funds is terrible. The small percentage of hedge funds that are providing alpha these days are either closed or not actively looking for new investors.
    Advisors are lining up to sell their practices. It's a market that's not clearing because nobody is selling. Mark Tibergien, principal with Moss Adams, pointed out that there are more than 1,500 registered buyers shopping for advisors. "The last time I looked there were nine qualified sellers," said Tibergien. Advisors enjoy the profitability of their practices and don't seem motivated to sell. Unfortunately, more than 50% of advisors don't have established succession plans in place.

Baby boomers will be forced to stretch their retirement savings. Two thirds of Americans believe they have enough saved for retirement. Unfortunately, with a negative savings rate, more than 75% of baby boomers over age 55 have less than $100,000 saved for retirement. In addition, the median value of a baby boomer's inheritance is only $48,000. Baby boomers will be forced to finance retirement not only through their retirement plans but also by the liquefaction of property and businesses. The total value of boomer-owned properties and businesses far exceeds current retirement plan savings. Incorporating retirement income planning will be a challenge for boomers but a great opportunity for advisors.

Advisors need more coaches. It's difficult to substantiate the claims that coaches provide a material benefit to advisors. Most advisors learn what they should do to increase the value of their business through case studies and benchmarking surveys. Coaches share many of the same suggestions. The key components needed to grow a successful advisory business are having a well-developed strategy and the discipline to follow the strategy over time. Coaches can't provide the discipline.

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