Archive for the ‘financial advisors’ Category

When I first began writing about mutual funds in 2000, I was horrified at how expensive many of them were and how diabolically clever and incomprehensible the expense ratio and load system was to the average investor. In fact, one of the reasons I started writing about mutual funds was that I owned some and wanted to understand how they worked (or didn’t, as the case may be).

In any event, one pleasing trend in the asset management industry is declining expenses. When I wrote about mutual funds regularly — for 10 years as the mutual fund columnist for Better Investing magazine — I was on a continual campaign of education about expenses and how they undercut fund returns.

So you can imagine how happy I was to find out that one of the casualties of the war on expenses has been Class B shares, according to the WSJ’s The New ABCs of Mutual Funds. These expensive, obnoxious fund shares tend to carry higher than average ongoing expense ratios plus a painful back-end load or sales charge. Once an investors is in a Class B fund share, it’s hard to get out for years without incurring a large sales charge on the way out.

And as anyone who is familiar with basic math in the asset management industry knows, the higher the expenses, the bigger the hit on returns. So in return for investing in generally worse performing Class B shares, investors pay higher fees and have to pony up to get out before five years, which is when the load typically disappears. Though, in some cases, it can last as long as seven or eight years.

I’m thrilled to see that investors as a whole are wising up and choosing lower fee options such as institutional class shares. And not a little of this trend is due to financial advisors, who have become much more proactive in protecting their clients’ best interest and placing them in low expense mutual funds.

As I see it, the extinction or at least marginalization of Class B shares is a benefit for all investors, In most cases, I don’t think it makes sense to buy a fund that carries any kind of sales charge, but if you’ve got to do it, the institutional class is the best deal.

Charles Schwab has given up – at least for the moment – on forcing its customers to waive their right to a class action lawsuit in case of a dispute. While it’s hand was forced by the Financial Industry Regulatory Authority (FINRA), Schwab could have retained the class action ban in its securities agreements until its dispute with FINRA is fully resolved.

As reported by The Wall Street Journal, FINRA brought a compliant against Schwab early last year, alleging that the the class action ban was against FINRA rules. FINRA rules prohibit the use of class action waivers by brokerages and investment banking firms and requires firms to only require arbitration of individual claims.

In February, part of the FINRA complaint against Schwab was dismissed as the FINRA panel hearing the dispute said that it couldn’t stop Schwab from forcing its customers to waive those rights. FINRA has appealed that decision.

Then came the Schwab decision to modify its customer agreements to remove the class-action ban beginning May 15 and “in the foreseeable future.” Of course, if they ultimately win they are likely to reinstate the class action ban — a company spokesperson said, “We have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decision.”

Regardless of the outcome of this dispute, it’s clear that the binding arbitration system in securities dispute needs to be throughly examined and eventually discarded by the federal Securities and Exchange Commission (SEC).

FINRA is the administrator and a major stakeholder in the current binding arbitration system, which requires customers of brokerage and investment banking firms to arbitrate disputes rather than take them to court. I’ve written about binding arbitration, which is biased against consumers, unfair and serves to abrogate the right of investors to access the U.S. justice system in a post entitled SEC should end mandatory arbitration clauses in brokerage contracts.

According to the consumer rights group Public Citizen, more than 7 million Schwab customers have been affected by the class action ban. In a letter urging new SEC Chairwoman Mary Jo White to take up the subject of either banning or modifying the use of arbitration in brokerage contracts, Public Citizen and 14 other organizations, including AARP, Consumer’s Union and the Consumer Federation of America, notes that “The 2008 financial crisis, the effects of which the country continues to wrestle with five years later, should be enough to motivate the Commission to restore investors’ legal rights.

“Brokerage firms were responsible for many fraudulent actions that led to or arose from the financial crisis. Indeed, the Commission identified Schwab as one of the firms that misled investors and ‘concealed the extent of risky mortgage-related and other investments in mutual funds and other financial products.’ Ensuring that investors can choose the forum in which to resolve disputes with broker-dealers and investment advisors is critical to both to remedying those past abuses and deterring future misconduct.”

Truth.

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If advisors aren’t being chastised for being too old, they are being dissed for being too young. It’s confusing, but apparently all that is needed to solve the problem is image consulting, according to this Wall Street Journal article.

While I agree that advisors need to present themselves in a manner that is in tune with their client base, odds are that an advisor who is knowledgable, empathetic and truly understands the needs and concerns of that client base will connect with that client base. Lacking those characteristics, no amount of “dressing up” will make up for serious shortcomings.

Most people know when their trusted advisors are genuinely authentic in terms of their interest in them as people — not just as a source of revenue — and know their stuff. If that isn’t the case, those gaps in knowledge or phoniness will be apparent in time, in many cases sooner, rather than later.

The best way to present yourself in an authentic manner is to have deep knowledge of your niche, be confident in your skills and stick to processes that will help your clients be as comfortable as possible. An attitude of respect for clients and your team members, an ongoing openness and search for new knowledge and skills and some humility go far in helping you connect in an ongoing way with clients and potential clients.

After all, they are trusting you with their life savings, placing faith in you that you can help them reach their financial goals. The best financial advisors that I have the privilege to know all exude these characteristics.

Forget about the image consulting — for those advisors who aren’t fiduciaries in the truest sense of the word (if not in fact by industry and regulatory standards) — no amount of lipstick will dress up that pig.

coke.photoConnecting with potential clients by telling your story in an engaging way through content marketing is the way to go today. It may not be easy to envision exactly how content marketing can work for you or what’s happening in the space. Here are some examples of great content marketing innovation and links to blogs and sites that can help you imagine and explore the boundaries of what you can create for your financial advisory practice via content marketing.

At the American Society of Journalists and Authors Conference last week, I learned about companies that are innovating in this space, including:

  1. Coke: Last Fall, Coke relaunched it’s website as Coca-Cola Journey, a digital magazine. Instead of focusing on static branding and information, the site provides interactive info that tells the story of Coke via a variety of channels including bloggers offering thought leadership and a ton of cool content marketing in a variety of formats from video to social media to infographics. This interview with Ashley Brown, director of digital communications and social media for Coke, published by the Custom Content Council, focuses on Coke’s story and how it is told through the new site. 
  2. IMB: Midsize Insider is a digital interactive content site designed to offer information to small businesses about technology issues that affect them and potential solutions. IBM is not pushing it’s own products and instead has hired thought leadership bloggers in the space and journalists to tell it’s story. The site covers a number of topics in a variety of formats, including mobile, social business, cloud computing, business analytics and security.

Check these sites out and think about what they are doing — they are offering a wide variety of content in different formats. While your financial advisory business isn’t likely to have the ability to match the depth and breadth of these offerings, they are a good example of what can be done and may encourage you to think creatively and outside the box.

stopsignYesterday I explored how a fundamental aspect of content marketing — storytelling — can benefit your financial advisory business. Alas, regardless of how compelling your story is, your efforts to reach your target audience will be stopped dead in their tracks if you can’t get it in front of them.

That’s where distribution comes in. And that’s why, even if you don’t have content ready to distribute, you need to get your distribution channels up and running. Here’s an overview of the major types of distribution channels and why they’re important:

  • Social media: Now that the compliance barriers are falling and more clients and potential clients than ever are on social media channels, there is really no excuse not to be there. That being said, not every channel is for every financial advisor. Some are more friendly to specific audiences and types of marketing than others. Facebook, for example, is a great way to connect with clients on a personal level and find out what their day-to-day concerns are. LinkedIn is the top professional network where you can find out about promotions and job changes. Twitter is the leading issues-oriented platform. There’s nothing wrong with picking one of these and focusing your efforts there for a while before broadening your approach. The one tool you must use, in my opinion, is blogging. More on that next week.
  • Website: To distribute content effectively, your website has to engage visitors and have the infrastructure to support that content. This includes the ability to create landing pages for specific types of content and gather information about visitors who want to read your content. You need someone — whether that is in your office or a contractor outside — who can create landing pages and help you gather the information you collect so that it resides in your client relationship management system (CRM)
  • Search Engine Optimization: Closely related to your website, you need to make it easy for potential clients, influencers and the media to find you. By using keywords and optimizing your site, content and social media, you can make it as painless as possible for people to find you and learn more about what you offer.
  • Email Marketing: Even if you aren’t engaged in content marketing yet, you likely have hundreds of email addresses, if not more, of clients and potential clients. E-mail marketing campaigns using the content you’re going to create are an extremely effective method for engaging with prospects and converting them into clients.

To get ready to engage with prospects via content marketing, do whatever you need to do to get your website upgraded and looking good, even if it’s just updating the copy to make sure it reflects what you do today. Keep tabs on Google analytics to see who is visiting your site when and check various search engine terms to see where you rank. Beef up your social media profiles or at least pick a platform and establish a presence if you aren’t there.

Tomorrow, I’ll continue this series on content marketing with a look at helpful resources.

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As the landscape for marketing changes inside and outside the financial services space, content marketing is becoming increasingly important in differentiating a brand and offering potential customers and clients the opportunity to interact with you, your company and your ideas before signing on.

I’ve been a convert to the content marketing philosophy for a while and am now even more convinced that it’s the way to go in the wake of attending the American Society of Journalist and Author’s Conference last week. The content marketing panels were excellent, and I learned about a number of companies, including IMB, Coke and Nike, that are pursuing innovation in this space.

The point of content marketing isn’t to sell potential clients on why they should hire you as their financial advisor. The point is to offer your thought leadership so you are perceived in the marketplace as an authority on specific issues who understands a specific client demographic and offers appealing solutions.

But for content marketing to be effective, it must tell a story. And that story must be framed by a well defined brand. The more specific the brand, the better the story.

When you focus in on an ideal client type and draw a very detailed picture of that client, that type of client is one that you know — or should know — inside and out. Typically, that client type is one that you know well and have interacted with for years, so you have the ability to understand their situation and offer tailored solutions to their problems and challenges.

What niche you occupy doesn’t really matter as long as you have one and it’s well defined. A recent slideshow in at financial-planning.com identified eight successful advisor niches; there are many more.

When work inside a very specific niche, creating a content marketing campaign is, or at least should be, a piece of cake. That’s because you know your audience so well that you can easily think of issues that concern them, which are exactly the areas that you should be creating blog posts, white papers, case studies, commentaries, articles and social media posts around.

When distributed widely and consistently, that kind of content will attract clients to you. It will also cut the conversion process because the clients who do get in touch will be doing so after they know something about you and are interested in learning more.

It’s exciting for me as a journalist with knowledge of the financial advisory space that content marketing is coming of age because it offers me so many opportunities to help my clients shape compelling narratives to help their clients and potential clients. That’s why they are in business in the first place — to help people achieve financial security.

In my blog posts this week, I’ll focus on other aspects of content marketing and how it can help you frame your story and attract clients to you. Stay tuned.

When an investor affiliates with a new financial advisor, a take it or leave it mandatory arbitration clause is part of the contract. This means that investors must submit any disputes to arbitration run by the financial services industry self-regulating agency, FINRA. 

In arbitration, investors and financial advisors and broker-dealers must submit to their dispute to a panel of arbitrators, a potentially expensive process that circumvents the traditional judicial system. Mandatory binding arbitration has been a sacred cow of the investor-financial advisor relationship for decades.

Until, perhaps, now. The Wall Street Journal reported that federal Securities and Exchange (SEC) Commission Luis Aguilar has called for an end to binding arbitration clauses. Aguilar cites the 2010 Dodd-Frank Act, which authorizes the SEC prohibit or restrict these types of agreements for broker-dealers and investment advisors. 

I started writing about binding arbitration clauses in business to consumer contracts nearly 10 years ago and believe it’s an inherently unfair practice for consumers and investors. I don’t object to arbitration per se, when arbitration contracts are freely entered into by parties with equal power in a relationship, such as in business to business contracts.

But when they are forced on consumers and investors en mass and the consumers and investors have few if any choice but to accept mandatory binding arbitration clauses in a contract, they just aren’t fair. This country was founded with a judicial process meant to provide the maximum amount of fairness to all parties involved. It’s not perfect, but consumers and advisors deserve to have the ability to avail themselves of it to solve disputes.

Instead, investors and advisors are forced into what is essentially a private judicial process with it’s own opaque rules and procedures, where conflicts of interest on the part of arbitrators are difficult, if not impossible to determine and decisions aren’t fully explained and are incredibly difficult to appeal, regardless of the justice of the ultimate verdict.

So I’m with Commission Aguilar: end binding arbitration in investment advisor and broker-dealer to consumer contracts. Now.