Around the RIA Web with Adhesion, May 2016

A few great reads from the month of May, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

How does an RIA differentiate in a world full of “advisors”. By casting a tighter net, NOT a wider one. A must read from Michael Kitces on connecting with one prospect vs. trying to appeal to all of them.

We all want to embrace technology in the name of “efficiency”. Smart adopters take the time to think through the larger opportunity of better allocation of resources, and the right path to getting there. HarvardBiz with a great article on the flexibility, new learning opportunities, and advancement prospects that are possible with the right human/tech combo.

Banking on expected returns carries its own risks, but the danger gets magnified when future liabilities force inappropriate investment choices. The Thought Factory eloquently explains this risk, and Ben Carlson further clarifies what can happen when aggressive assumptions take the place of hard choices.

Adding to the risks highlighted above, how can future return assumptions remain so high after an unprecedented period of fixed income returns? Wes Gray shows the historically high returns in the recent past, while Brian Portnoy highlights the risks of plugging into cheap fixed income ETFs after a multi-decade bull market.

Speaking of risk, what is it? Risk can explained in a number of ways, depending on which pundit or academic is speaking. David Merkel shares a few ideas about properly defining risk, relevant to most clients of advisors.

Josh Brown makes a compelling case for rejecting clients who want it their way. In other words, suggestions are not as valuable as advice, and neither party benefits from this type of “customized” solution. Might be a good way to get out in front of the too many clients problem.

Formal schooling is just the ante for a career in financial services. Real client-facing experience is a must in learning to deal with demanding and anxious customers on a frequent basis, as shared by Lawrence Hamtil.

Factor funds are all the rage but are not created equal. As shown by Jack Vogel, the number of holdings, weight of those holdings, and reconstitution of those holdings varies and can lead to dramatically different outcomes.

It’s always good to hear how industry peers think about running their business. A few observations in Financial Planning on enhancing the human aspects of fee-based, fiduciary advice.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Around the RIA Web with Adhesion, April 2016

A few great reads from the month of April, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Tim Harford on the compromise effect and the paradox of choice, relevant for how advisors choose investments and their clients choose an advisor.

Michael Kitces uses the context of diet and exercise to show how advisors can use small financial planning goals to help clients on a successful long-term journey. More excellence from Michael on the evolving skill set of the modern advisor.

Ben Carlson on building failure into your process, so important in developing robust investment plans. This pairs well with his post on the dual mandate of an investment advisor, that the best plan for a client is one that survives the real world.

Tom Brakke states well the obvious flaw in starting manager research with a performance screen, and Corey Hoffstein shares the additional problems with using 3 years as a lookback period. The team at GestaltU covers the perils of past performance quite well in this excerpt from its new book.

A great advisor views his/her role as one of deep relationships, personal advice, and ongoing coaching through the journey. Awesomeness from Josh Brown on The Job Security of a Great Advisor.

Our advisor clients tend to embrace the flexibility of an open-architecture platform, again demonstrated in our approach to “robo”.  Some providers have chosen a more bundled approach to advisor solutions, later requiring a messy divorce in trying to replace any specific component.

Are you marketing to a niche market, or truly serving one? Julie Littlechild neatly explains the difference.

When it comes to data, more is not always better. As Tadas Viskanta explains, comparing different eras is hard and in investing can be downright dangerous.

Josh Brown on how bad active management is being taking to task. Jake at EconomPic shows when good active management can be worth the cost. Patrick O’Shaughnessy rounds out this topic with a wonderful illustration of the difference between seeking alpha and seeking assets.

Speaking of expensive active management, ThinkAdvisor reports that the SEC is prepping a 2016 initiative on 12b-1 fees, a hidden cost of mutual funds that gets disclosed but rarely discussed.

One trend sure to continue with the new regulations is mergers and acquisitions of RIA firms. Investment News summarizes this trend, and shares good ideas on items to consider in any potential arrangements.

Speaking of new regulations, some solid advice from Russell Investments on creating, documenting, and reviewing best practices for healthy client relationships.

The consummate guide to the DOL ruling from Michael Kitces, incredibly thoughtful and no stone unturned.

JP Morgan puts out a wonderful Guide to the Markets every spring, with all kinds of fun and informative graphics.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Around the RIA Web with Adhesion, March Edition

A few great reads from the month of March, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

We had a host of DOL-related articles prepping for the forthcoming proposal, but now that it’s here it makes more sense to replace the March speculation with April reality. Summaries from Investment News and Wealth Management look to be the best so far, with revisions sure to spark both relief and disappointment on all sides. This nifty graphic from the DOL outlines the changes from the original proposal to the final edition.

Clear communication is a key part of attracting clients to any service business, but most of us fall short of the “clear” part. Farnam Street summarizes the latest from Steven Pinker into some key tips on better writing.

Newfound Research on ETF apples and oranges, cost matters but it’s equally important to understand what lies under the hood.

Cybersecurity is not only smart business for an RIA, but an issue now being monitored by the SEC. TDA4Advisors on keeping your firm safe from a security breach.

Most of our dealings are with growth-oriented firms, as a Unified Managed Account(UMA) platform provides a wonderful solution for integrating new business. As shown by Schwab Advisor Services, acquisitions are occurring at an unprecedented pace.

The value of a good advisor cannot be overstated. Sheryl Rowling shares how deeper relationships are at the heart of mutually beneficial holistic planning.

Speaking of holistic planning, investors are often caught using the wrong yardstick for performance. Ben Carlson shares some common sense ideas on more appropriate benchmarking.

Interesting look at the inadvertent launch, and near failure, of the ETF industry. From a possible remedy for market volatility, to a starring role in triggering volatility, this excerpt from Eric Balchunas reveals a fascinating tale of incentives and unintended consequences.

“When a measure becomes a target, it ceases to be a good measure.” Thought-provoking piece on the impact of index investing via Patrick O’Shaughnessy.

Tadas Viskanta even gives us an outlet when away. One of his questions to bloggers confirms that no one likes the term “smart beta”, but does anyone like the concept? Here are three good reads on the subject, from Michael Batnick to Benjamin Lavine to Wes Gray. And frankly, the whole Abnormal Returns series from that week will provoke thought amongst advisors.

A unique way to view asset allocation methodologies via Mark Rzepczynski, if your advice goes beyond Modern Portfolio Theory it makes sense to define and communicate how that advice differs from others.

40 of the Most Important Charts in the World via Business Insider, some more useful than others but certain to fit just about any Wall Street media narrative.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Around the Web with RIA Ideas

A few great reads from the month of February, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Before hunting for new clients in the name of “growth”, advisory firms would do well to consider who they want to serve and how they plan to serve them. A Vince Lombardi-inspired read from Julie Littlechild on remembering the basic fundamentals of winning.

We desperately want to do it all and be a hero to our clients, colleagues, and family. Greg Menefee reminds us that we CANNOT effectively be everything to everyone, and empowering others really empowers ourselves to leverage our strengths where it really matters.

Finding prospective clients can be hard, and finding the right clients who appreciate the uniqueness of your offering can be even harder. Why not build and feed a virtual platform that is uniquely you, and tells a compelling story differentiating you from your competitors? Michael Kitces applies lessons from a best-selling book for a master class in narrowcasting.

This narrowcasting platform can also serve as the beginning of earning trust and loyalty. As Josh Brown writes, this key piece of the relationship is not an event but an ongoing process of earning investor loyalty requiring consistent, clear communication.

Diversification is said to be the only free lunch in finance, but 2015 left just about every investor starved for returns. Great set of graphics here from Resolve Asset Management shows how even perfect foresight led to pretty lame outcomes.

The TDA National LINC Conference was great, and focused heavily on growth and the integration of open-architecture technology into an advisor’s practice. A few perspectives from Adhesion and beyond.

A good advisor should hire themselves for planning and investment management, right? Seems obvious, but Bob Veres points out a few reasons why engaging an outside professional may be a better solution.

The upcoming DOL legislation is the great unknown for the financial services space, with “suitability” and “commissions” being replaced by “fiduciary” and “fees”. Michael Kitces chronicles the history of the broker-dealer model, and how firms would be wise to adopt a business model built upon the delivery of objective advice.

Innovation is great until it isn’t. The proliferation of novel ETF ideas has created the illusion of improvement, but can lead to complex, illiquid, overlapping allocations where simple, liquid, clearly-defined solutions may serve investors better. 3D Asset Management writes here on the dangers of complex design.

Growth-oriented firms are constantly thinking about the right team for the future. Financial Advisor magazine reminds us that the process of hiring and managing people is not to be taken lightly.

At some point, all successful business owners wrestle with capacity issues that directly impact the client experience. As the business evolves, which areas are most ripe to be handed off? TD Ameritrade shares a very cool infographic on Maximizing Your Resources as an advisor.

We all know this, but it never hurts to be reminded that working with the right clients and right colleagues are common elements to building a successful investment firm. Ben Carlson shares some common sense wisdom from an old interview with Charlie Ellis.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

 

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Crafting Solutions at TDA National LINC

Growth was a big topic at the recent TDA National LINC conference, and Adhesion was central to the discussion on many fronts. First, our recent entrance into the TD Ameritrade Unified Managed Account Exchange (UMAX) generated much discussion about the value of leveraging a specialist to implement a firm’s investment approach. While some firms use Adhesion as a delivery vehicle for internally built strategies, others see additional value in outsourcing the design of the firm’s asset allocation blueprint.

Significant buzz also came from the announcement that Adhesion is partnering with Riskalyze and TDA to deliver the industry’s first open-architecture digital advice platform built solely for advisors. While much of the “robo” discussion has centered on adding an outside vendor with limited choice, the Adhesion/Riskalyze combo is designed to blend in seamlessly with an advisor’s existing practice. It is a true business solution, helping advisors meet the needs of web savvy prospects and preparing the firm to serve the next generation members of existing client families.

While there was significant focus on growth and robos, there was also time to sample some truly unique craft bourbon. The Adhesion booth was quite popular the first two evenings with tasters – ranging from bourbon novices through the very experienced. All enjoyed the selection offered.

Bourbon Tasting_Bartenders  Busy @TDA (002)

For a more complete roundup of LINC – inspired reactions, here are a few stories published since the conference:

RIABiz on the threats and opportunities for advisors

Investment News on TD Ameritrade’s open-architecture approach to technology

Wealth Management on the Adhesion/Riskalyze offering

Financial Advisor IQ on integrating a solution for small accounts

 

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TD Ameritrade Institutional UMAX powered by Adhesion

On the heels of an announcement to help advisors strengthen their investment offering, Adhesion is very pleased to have partnered with TD Ameritrade Institutional for their Unified Managed Account Exchange (UMAX) offering to advisors. UMAX powered by Adhesion makes Adhesion’s industry-leading, personalized UMA platform easily accessible to all advisors working with TD Ameritrade Institutional. We invite you to read more details about the offering in this summary.

 

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Adhesion UMA platform adds Mercer Research

Reflecting its core beliefs, Adhesion has become known in the advisor space for its commitment to open-architecture solutions and responsiveness to RIA needs. True to that vision, a significant new piece has been added, enabling firms to leverage world-class research in an affordable way, with customized implementation just one step away inside of Adhesion’s Managed Account desktop.

This strategic relationship with Mercer Investments gives advisory firms a single, fully integrated solution for building, implementing, and monitoring client portfolios across major RIA custodians. We invite you to read the details about this exciting new way to leverage specialists in building out a scalable practice.

 

 

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Embracing Flexibility

Today’s Unified Managed Account (UMA) offers the masses an affordable mechanism for achieving portfolio diversification with management expertise – formerly achievable only with mutual funds – with the flexibility, control, and tax efficiency traditionally associated with SMAs.

CNBC has a new article on its site, and it does a good job highlighting key benefits of managed accounts. These are the same benefits sought by the advisors we speak with every day, including:

  1. Personalization
  2. Transparency
  3. Tax-efficiency

With today’s UMA, managed accounts are available to the masses, no longer simply an elite product for wealthy individuals and institutions. Leveraging Adhesion’s UMA platform, advisors deliver sophisticated investment services across all segments of the client base with the following benefits:

  1. Hefty account minimums are no longer an obstacle
  2. Expensive and tax-inefficient mutual funds are no longer the only vehicle for employing professional managers
  3. Low-cost, passive products are easily blended with active and/or tactical management in a single account
  4. Client-specific customizations or restrictions can now be efficiently accomodated

By partnering with Adhesion, RIA firms can not only shed back-office functions but actually win new business through differentiated investment delivery. We invite you to learn more about how the right UMA provider can help you grow a more sustainable practice.  To read the CNBC article in its entirety, click here.

 

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RIA Succession Planning

“We are an industry of planners who have planned for everyone but ourselves and our own businesses” Ryan Zeeb

Succession-Simplified is a recently published piece that caught our eye. Written by the CEO of Camelot Portfolios, a strategist available via the Adhesion UMA platform, it provokes a number of thoughts that are relevant to advisors at any career phase.

The sad story that sparked this paper is a reminder of how much lies outside of our control, and how important it is to move in the direction of a more sustainable enterprise that can extend beyond its present identity. This movement benefits a) the clients and their heirs, b) the owners and their heirs, and c) the firm’s existing support team, by adding a level of stability in a world of uncertainty.

As a specialist serving the outsourcing needs of RIAs, we see often just how much of a firm’s identity can be tied directly to the “brand” of the founder.  In working with Adhesion to institutionalize firm operations, a critical step that is often included is a rebranding of the firm that can sustain after the founder decides to step away.  Together, these steps can help position the firm for smoother transition and greater enterprise value.

A few starting points to provoke action include the following:

  1. Start with simple – answer the essential questions before worrying about every detail
  2. Challenge your ego and identity- create repeatable processes to extend the firm’s reach beyond today
  3. Quit talking and start doing – think of the succession planning process as a video, not a snapshot

And of course, control. When to put a plan in place, how early to start the transition, who the successor(s) will be…these are among the rare outcomes that actually lie within the advisor’s control. To continue considering key ways to tackle the succession issue, enjoy the full discussion here…

Succession-Simplified

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On Trusted Partners

We most powerfully sustain focus when we’re engaging our greatest skills, interests, and capacitiesDr. Brett Steenbarger

In boom times, investors begin to wonder if they can just “do it themselves”, buying index funds and speculating on a stock or two that catches their attention. This rarely ends well, as an objective match between risk profile and portfolio construction has not been done and reality eventually sets in.

It’s during these market shifts that the true value of an advisor emerges. Has the advisor educated clients on his or her stated investment philosophy? Aligned client goals and financial situation with a thoughtful plan? Coached them through the dual needs of conservative planning and disciplined investing?

Clients of these advisors are a lucky bunch, having found a trusted partner committed to designing a prosperous future. But how does the well-intentioned advisor, likely in demand by prospective clients, continue to deliver this level of care as business expands? The paradox is that those most capable of delivering on their promises are the ones most likely to reach capacity.

This is where the thoughtful advisor finds his or her own trusted partner, to gain efficiencies without losing the formula for personalized service that brought success in the first place. Help with planning, help with relationships, help with investments are just the start; there are also concerns about compliance, operations, and marketing that need to be addressed for a firm to remain in control of their practice.

So, what happens when chaos enters the markets? You know, the actual markets that are responsible for delivering the outcomes needed for this whole process to work? When these outcomes are under threat, whether real or perceived, even the most proactive firms can be pushed into a reactive mode as clients voice opinions and ponder decisions to adjust portfolios.

As Barry Ritholtz says here, the best strategy is the one you’re most likely to stick with, and it’s the firms with the most systematized processes that are most likely to stick to the plan. Advisors are human beings with strengths and weaknesses, likes and dislikes, and in times of chaos the weakest link in the chain becomes the process least likely to be implemented…or at least implemented well.

On days like those in late August, when supposedly liquid ETFs traded 10-20% away from net asset value, is an advisor’s time best spent updating weightings in a spreadsheet? Trying to find the best way to execute trades in a fast market? Probably not, especially with incoming calls and client-specific advice to be addressed.

The most successful advisor-client relationships are built around trust, including a trust that the advisor will deliver as promised. Not some promised rate of return, but delivery of a) an investment plan in line with the client’s risk profile, b) ongoing monitoring and implementation of said plan, and c) coaching along the way to keep the plan intact. While the client may not realize just how much effort goes into each of those steps, the thoughtful advisor considers each aspect and creates processes to enforce the required discipline.

It’s easy to see how a strengths-based approach to building an organization can foster the healthiest of advisor-client relationships. As a partner to RIAs, we see the most growth among firms who have properly matched their personalities with their duties, and leveraged technology and other human specialists to round out their service model. For advisors using a specialist to deliver personalized investment models, wild market swings are simply an opportunity to speak with clients while leveraging the resources of a partner to run their playbook in the background.

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