A Breakfast Treat

I attended a breakfast meeting the other day with executives from The Money Management Institute, which is a national organization for the managed account solutions industry. The Institute represents portfolio manager firms and sponsors of investment consulting programs, and the leading advocate for the industry on regulatory and legislative issues. Its membership list reads like a Who’s Who of firms that offer financial consulting services to individual investors as well as related professional portfolio management companies, among others.   Present at the meeting were Christopher Davis, its President, Kevin Hunt, Chairman of the Board of governors and Executive Vice President of Old Mutual U.S. Holdings, Len Reinhart, President of Lockwood, an affiliate of Pershing, and Mary Deatherage, Senior Vice President, Wealth Management, at Smith Barney.   It was a fascinating group who discussed various aspects of financial planning for clients including certain case studies and how they were dealt with. I learned that as recently as five years ago, financial planning for clients was pretty much handled by wirehouses for the planning and CPAs for the taxes. That has now changed dramatically, they say. Because of the advent of the Baby Boomers and their needs toward retirement, and the fact that people are retiring at an earlier age (57) than ever before, not to mention the broker/dealer and SEC business going on, CPAs are now replacing wirehouses in dealing with financial planning and investments. In fact, it was mentioned that insurance agents as financial advisors have slid downward somewhat because people simply don’t want to get involved with advisors who take commissions. It looks like it’s a question of trust, and many CPAs who have substantial financial planning practices tell me that clients are rather edgy whenever the CPA raises the specter of an insurance policy or certain investments that appear to have commission-strings attached.   So, the CPA who is doing fee-based or fee-only planning is rising rather rapidly, especially fee-only.   It is also interesting to note that the managed account solutions market grew at a healthy 6.7 percent to reach $1.34 trillion in assets just in the first quarter of this year alone. According to figures furnished, it outpaced the S&P 500 index, which returned only .64 percent during the same quarter.   What also came out of this meeting is the fact that those who use financial planners are more loyal to their advisor than individuals who use full-service brokers or investment advisors and that client loyalty is built on responsiveness and investment returns. According to the Spectrem Group in its Affluent Market Insights for 2007, once advisors have turned a prospect into a client, they must retain that client. “As important as investment returns, low fees and low expenses are, they are not the primary driver of loyalty among the affluent. Simply returning phone calls promptly is the best method for advisors to develop loyalty. It is also important to investors that advisors provide a contact if he or she is not available.”   In addition, Spectrem says that “giving “gifts at holidays, remembering birthdays and providing free tickets to special events does not develop loyalty.” Hmmm. How about a box of imported, dark chocolate? Does the trick for me.