Happy 4th of July

As we head into the long weekend to kick off the summer I thought I would reflect back over the last three years since Process for Growth Consulting was launched in June of 2014. PFGC has always been predicated on the fact that fee pressure would force us to manage a lot more assets efficiently and effectively if we wanted to maintain our lifestyles.  

The last three years has not only reinforced this view but if fact the landscape is demanding far more from us than just managing more assets. Clients have told us through studies that they want us to address all their needs and goals and not just investments. 

So clients now are questioning our basic value proposition (how much they pay us in fees) in how we manage their assets and they also want us to be wealth managers in the truest sense of the phrase. The problem is very few of us have a CFP designation and even fewer of us employ a business model that incorporates basic principles of wealth management. 

If we want to be compensated as a value-added partner our basic business model must change on how we function on a daily basis. There are two basic functions we must address in building our new business model.

First to become a valued partner the way we articulate our investment philosophy and then execute it should entail us having an open, honest, transparent and professional discussion on why and how we build a portfolio based upon our client's risk profile by actively managing low cost investment vehicles in a dynamic market to attain after tax risk-adjusted returns based on metrics to assist our clients in meeting their needs and goals.

Second we need to standardized our processes so we can affiliate with multiple centers of expertise so we can deliver all wealth management services our client's desire.

And while you are working to change your business model we must pay attention to improving ourselves through designations. The future is cloudy but one thing is clear. If we want people to pay us for our expertise then we must have the requisite designations to prove our worth. CFP for wealth management and CPM to manage money.

No small thing.

This first link is to PGFC's Retention/Attrition Strategies on how to become a valued partner in managing our client's assets.

https://attendee.gotowebinar.com/recording/1773846889891524866

This next link discusses in detail the way FAs are adopting to the new world. It is very rare where I agree so much with someone's point of view of investing but this article some of my client's think was plagiarized from me. It's not and it's a great article.

Kitces on the disintermediation of mutual funds and the rise of the Financial Advisor portfolio manager

https://www.kitces.com/blog/passive-investing-mirage-financial-advisor-etfs-disintermediate-mutual-fund-managers/

Investment News on fees and account demographics

http://www.investmentnews.com/article/20170628/FREE/170629927/wealth-management-firms-struggle-with-lower-fees-fewer-new-clients

Finally PFGC will be raising it's prices as of August 1st 2017. PFGC has come a long way since June of 2014 and now with highly competent standardized groups running successful affiliation models PFGC has proven to be a valued-added partner. 

So pricing as of August 1st will be:

Teams will go to a one time fee of $5,000.00 from $3,500.00

Individuals FAs will go to a one time fee of $3,500.00 from $2,500.00

Babies (less than 6 months in the business) remain at $500.00

A new product will be available to Branch Managers soon:

Structuring a Complex in an Organic Growth Environment which has a one time fee of $10,000.00

The life blood of my business is referrals and if there is someone you believe that will benefit from PFGC's coaching I will treat them with the same professionalism and courtesy I treat you.

Speaking of partners PFGC welcomes a new partner in SS&C Inc. We are all very excited about this partnership and look to bring to PFGC clients new meaningful learning opportunities to drive our new business models. Look for PFGC to sign several new partnerships in the near future so we can continue to bring unique solutions to our clients.

So it has been a crazy three years but like the changes in our industry the changes at PFGC are accelerating to keep pace with all the challenges we face. PFGC believes we can control our future, that we are not at the mercy of the vagaries of the business and that we and we alone are responsible for our own success.

"Between the small things we will not do and the great things we can not do, the danger is that we do nothing". Adolph Monod

Take one left-footed step today!  

Danny

"One left-footed step per day"

Friday Comedy Moment: Do I really need a designation?

Good morning

The most important thing to everyone is our health and the second most important thing is the health of our money. Clients entrusting their assets to us so we can assist them in meeting their needs and goals brings a level of responsibility to us to be competently trained and certified in several areas.

First, wealth management. The CFP, Certified Financial Planning, designation does not ensure that we can deliver all the relevant wealth planning advice to our clients but it certainly gives us a level of competency in many areas such as trusts, estate planning, succession planning, retirement planning and insurance planning. Everyone's skill set will vary but at least we can say we know the basics.

Second, asset management. The CPM, Certified Portfolio Manager, designation does not ensure that we can outperform the markets or that we will never lose money but that we trained ourselves to understand basic modeling concepts, portfolio construction and metrics that allow us to design risk-adjusted tax-efficient portfolios to assist our clients in meeting their needs and goals. We have for too long "customized" our solutions for clients instead of conceiving, designing and implementing an Investment Philosophy that allows us to build a standard solution that is customized for each client.

We are all busy people. Some of us have had great success in our chosen field without attaining any designations. Designations are time consuming and not easy to get and some actually take several years to accomplish and most importantly they cost money. Yet we are in a period of transition, a time of disruptive innovation of unprecedented scale, and if we are to maintain our lifestyles we are going to have to up our game.

There are many ways to approach designations. It is not practical that everyone gets every designation or even one. If you are a team decide which person gets a designation and which one. That also may not be a possibility so consider recruiting relevant designations and integrating into your business model. Your offering has two main drivers; wealth management and asset management. What can you tell/show clients that you are trained to deliver these two expertises?

The link below is by John Oliver who succinctly and somewhat profanely explains his team's experience in setting up their own 401K. We have been YouTubed. 

https://www.youtube.com/watch?v=gvZSpET11ZY

Have a couple of laughs at our expense and definitely have a great weekend?

Danny

"One left-footed step per day"

Disruptive Innovation

Hoping you are having a great Sunday! Love the weather here in Northeast!

A couple of articles caught my attention and I thought I would share. First, Price Waterhouse Cooper (PwC) had an article on their Disruptor Profiler (see link). The Profiler, 15 questions available at the bottom of the article, says that there are five aspects that can disrupt your business. You need only one but here are the five.

- Regulation

- Customer Behavior

- Competitors

- Production Technology and Models

- Distribution

Seems to me that we don't have one, we have ALL five! The retail financial industry is being disruptive on a massive scale and no one can predict how this is going to end with any certainty. But we do have some clarity about what we actions need to take so we can maintain our lifestyles.

Now this leads to the second article (link) by in Strategy and Business on disruptive innovation. Professor Howard Hu says we need to refresh our thinking on disruptive innovation because the speed of change has accelerated to "an unprecedented speed". 

"If we’re looking at the S&P 500, a company’s average life span on that index dropped from 67 years in the 1920s to 15 years today, and the average tenure of a CEO in corporate America has also shrunk over the last 20 or 30 years." Wow! Amazing.

We are the CEOs of our own businesses and we do not want to disrupted or that our company dies prematurely. What insights and/or solutions do the two articles talk about?

First PwC shows that customers are the number one disruptive force that we face. The third link below is the PFGC Retention/Attrition Strategies which discusses how our customers are choosing new investment vehicles that are disrupting our business and the Asset Management Business. Bottom line you ignore the actions of your customers at your own peril. What we did before doesn't mean we can continue to do in the future. We need to watch our clients to understand how we fit into the new world. What is the old saying? The customer is always right.

Second, Professor Hu points out that the incumbent "usually" loses out for a variety of legacy issues around costs and organizational inertia. Organizational inertia to us is our inability to change, adapt to a new business model. Professor Hu says that the incumbents should employ a hybrid model of business continuity while developing a growth component. 

What kind of growth should we focus on? Revenues, velocity of trading or assets? Which one helps us build a sustainable business model that protects us against disruptive innovation?

PFGC believes that we need to change how we function everyday so we can grow our assets dramatically. Yes the word is dramatically. Look at the asset managers. Ten years ago you were a big global player with $500 billion in assets. Today our new competitors are raising twice as much new assets in a year. We need to think about that $100 million in assets is now the ante to stay in our business where ten years ago it guaranteed our success. 

Managing more assets mean standardized investment portfolios based on metrics and risk adjusted returns so we can manage them in an efficient and effective manner.  Training ourselves as portfolio managers based on a process that is definable, repeatable and scalable so we can concentrate on adding wealth solutions to our business model. 

With great clarity I believe we need to fail forward, fail fast and then fix fast as we build a flexible, adaptable, standardized wealth management business that we can sustain our lifestyles.

Have a great Sunday night! Go Cavs!!!

https://www.pwc.com/gx/en/ceo-agenda/pulse/the-disruptors.html

https://www.strategy-business.com/article/Howard-Yu-Disrupts-Disruptive-Innovation

https://attendee.gotowebinar.com/recording/1773846889891524866

Danny

"One left-footed step per day"

The Fiduciary Standard and your business

Good morning

This article on Bloomberg (see link) is pretty powerful and covers a lot of different issues. Ths issues on "bad" brokers do not apply to the people on this mailing list but we all are painted with the same brush when it comes to advice.

Once an issue comes to the forefront the discussion takes on a life of it's own and we lose control of the narrative. This is evident by the many articles in the press and by the advertisements of our new competitors. Many firm's have stated that they "in principle" agree with a fiduciary standard but unless forced to adopt by law will continue with the Best Interest Contract (BIC). But we are not powerless to set our own standards as we have tools at our disposal.

First if you are a CFP you have already adopted the Fiduciary Standard and you can tell clients/prospects this fact. But if the investment platform you have chosen for your clients falls under the BIC standard then a lot of the Fiduciary Standard can be rendered a moot point. You can further align your business as a fiduciary by using the discretionary platforms that are at all the firms which by definition are fiduciary platforms. Now your advice and investment platform are aligned with our client's desire to work with us as a fiduciary. There are many other "corporate" issues but those issues are out of our control. I believe we do what we can and learn how to inform our clients of our decisions when it comes to advice, platform and the fiduciary standard.

As PFGC clients know I have been of the opinion that the fiduciary issue was not going away but in fact would intensify on many levels. The SEC is now going to take up the fiduciary issue for all accounts. Will it look like the DOL or the BIC? I don't know but I suspect t will be a lot closer to the DOL than the BIC.

The Cerulli Report I sent out last week showed that 82% of investors want to have a Fiduciary relationship and 6% want a Best Interests Contract (See attached Page 7). As our clients/prospects become more educated to the nuances of the different standards it will be necessary for us to be able to articulate and show our clients that we are aligned with them.

PFGC clients have already told me that clients/prospects are asking them to answer Tony Robbin's 7 Questions to ask a Financial Advisor (see link).  It doesn't matter what your opinion is of Mr. Robbins what we do know is that Unshakable is the #1 best seller on Amazon. People follow him.

http://www.businessinsider.com/questions-for-financial-adviser-tony-robbins-2017-3

https://www.bloomberg.com/news/features/2017-06-07/fiduciary-rule-fight-brews-while-bad-financial-advisers-multiply

It is your business and it is in our best interests to run it as a fiduciary.

Danny

"One left-footed step per day"

The Long Tail...........................

The Long Tail by Chris Anderson printed in 2006 by Hyperion was a revelation in the ways that business had and was going to change to a new model. The implications went far beyond the music and book industry that were highlighted in the book. A quick synopsis is that music and book stores stock very few  choices because of the constraint of space. Ever wonder why when you walk into a book store and piled everywhere is the most recent best seller. Where it is true that people are buying the best seller it is also true that it limits the number of titles available for purchase. The best sellers overwhelm the store. Same with music stores as they carry around 60,000 different tracks which translate into a much smaller number of CDs available for purchase. There are piles of the hot new CD but selection is limited to what the store believes will be sold quickly. Yet music online, in 2006, were offering well over 900,000 different tracks for purchase and you could/can buy individual tracks and not the whole album or CD.  Book stores typically handle around 25,000 different titles and yet in 2006 Amazon "stocked" over 5,000,000 books and around 2,000,000 CDs.

If electronic delivery was not possible but only physical (books and CDs) delivery existed the online stores would still dominate given the breath of their offerings.

But for us that is not what caught my eye and changed my thinking on the retail financial model and how we need to adjust the way we think about customers and the offering we need to move to.  The important point was that 30% to 40% of online sales were of one item per quarter.  Think about that. One title of a book or CD per quarter is over 30% of total sales. This is the fact that should drive the retail financial firms to change their thought processes which are firmly rooted in the distant past.

Major financial firms are racing as fast as then can to exclude "small-sized" accounts from their platforms. BACML now has a cut off of $500,000 for an account that advisors can be paid on with Morgan Stanley at $250,000 and UBS at $100,000. The firms are concentrating on best sellers and stocking their shelves accordingly. These numbers could be higher as we speak as compensation packages are being re-written again. Firms have spent and lost tens of millions trying to impose "high net worth clientele" on a supposed "high net worth salesforce" that actually doesn't exist. But that is another story for another day. Today is about technology and building a business model that takes advantage of the new world.

Financial firms should look to expand their market not contract it. The major firms had virtually 100% market share in the 1970s and now are controlling around 38% and it is rapidly eroding. There is no need to discuss but it should be mentioned that the average age of a financial advisor and the average age of a wire house customer is not demographically favorable. In fact those two facts are  scary bad. The firm's technology is notoriously bad and certainly doesn't fit into the new world of easy interconnectivity.

Thirty years ago business was driven by transactions and the firms have consciously priced themselves so far out of the business that a customer is either lazy or stupid to execute a transaction with a wire house. The firms in the name of maintaining "pricing power" have totally forsaken large segments of the market. Somewhere along the line the firms decided that transactional business was not part of our business model. Adaptability is not one of our strong suits.

Now even if you have a managed account the firms are vigorously working to to move you out if you fall below an arbitrary asset size. So is there a different way?

The technological revolution has changed the way advisors do their business in several ways. First, there are standardized reports now available on every client. This is a huge time saver. No longer do advisors have to create their own reports. Second, and most importantly the firms have developed discretionary platforms that use investment models. Third, the have developed a firm discretionary account that is administered by the firm's Investment Committee.

These three things taken together offer the firms the beginning of changing their offerings to attract new assets and change behavior with their advisors. First small accounts, defined by the firm, would all be required to be in the firm's discretionary account. The firm's can even put in their own grid for these accounts. Quarterly performance reporting would be automatically generated and emailed to the client. All clients on the platform would be required to go completely paperless.  Advisors would receive full payout on all accounts.

Second, firms should raise grid payouts on all accounts on the discretionary platform for advisors. The firm wants to drive clients to the discretionary platform to free up the advisor's time to capture life events.

Third, advisors need to be retrained to recognize and bring to bear centers of expertise for client life events.
* see my blog on all assets are good assets

There are very viable low cost solutions that will allow firms to grow in a wealth management environment. All it takes is a little change.

Retail Financial Firms can become client-centric by restructuring existing assets

There is no question that financial firms are not structured to be client centric but that does not mean that the firms don't have the client's best interests at heart. We are speaking about how financial firms are structured to support their brokers and not their wealth managers.  Basically financial firms employ brokers not wealth managers and the firms continue to structure themselves internally to support their brokers.

What do I mean by brokers versus wealth managers? A broker is one who derives that vast amount of their revenues through managing investments and a wealth manager is one who not only manages investments but also employs wealth strategies for solutions to client needs. These strategies usually employ the use of trusts and insurance products. Obviously financial advisors can offer many other financial products like mortgages and non-purpose loans. One only as to look at the revenue mix of a financial advisor to know that they are brokers as the revenue from investments is usually between 95% and 98% of generated revenues. Some people get confused on the revenues because they look at the firm's revenue mix which is totally different from a financial advisor's revenue mix. Firm's have capital markets groups that make the vig off of every trade made by a client both in equities and fixed income, they sell shelf space to outside products companies and they make money off of all cash balances and money market funds. Firms also decrease their own internal funding costs by selling structured products to their clientele and trading the underlying for their own profit. The financial firm's have successfully fought off any attempts to make their brokers advisors. Where this may seem like a small thing it would fundamentally alter the way financial firms could earn money through capital markets and product pay-to-play. But that is another story. To understand a broker's revenue we must study the individual broker's revenue mix. 

First we can not get sidetracked by the different investment products. The rule of thumb we will follow is that if the investment vehicle ends up buying stocks and bonds it doesn't matter how the they are wrapped, mutual funds, ETFs, hedge funds, private equity, outside money managers, unit trusts or a straight purchase of a bond or stock it is an investment. Discretion or non-discretionary are platforms not products. 

Financial Firms today are structured to support products. Internal and external wholesalers are assigned by product. Whether it is a mutual fund, ETF or a manager the product has its own P&L and internal structure in the firm. The product pays a fee to be on the platform in the form of an access fee. Firms have streamlined internal support by having one person represent all the investment products but that was done for cost cutting not for any altruistic reasons.

Clients are rated by assets kept at the firm and accounts with low assets, $100,000 to $500,000 and below, are considered unprofitable. This again is driven by the fact that the firm only recognizes investable assets and not the potential relationship.  Brokers are only about investments and wealth managers are all about the relationship. The Firms correctly surmise that their brokers have not solved the Gordian Knot on how to capture and offer solutions for life events so they base the business model on a simplistic and ultimately wrong assumption; that assets are determinate of revenues. Assets are a function of revenue but not the ultimate determinant.

Financial firm's can restructure themselves in three (3) ways to start the process to become more client centric and to help wealth managers to capture life events.

1) Firms need to revisit how and why insurance is sold to it's clientele. Without access to any firm's sales numbers I would guess that the vast amount of insurance revenue generated is through the sales of variable annuities. This leads us back to the earlier premise that all investments that end up buying a stock or a bond is an investment. Variable annuities are an investment with an insurance wrapper design to minimize current taxes and in some cases minimizing any losses through stop-loss features.
Very rarely is insurance sold as a strategic solution for an estate planning issue. So how do we start changing how brokers use insurance.

First having annuity days is counter-productive. It is so product centric, so yesterday. Most firms have employ highly trained internal wealth managers to work with the brokers. These people meet clients with the broker to offer estate planning strategies. They are very good at their job and they will tell you the hardest part of their job is getting the brokers to let them in front of their clients.

Firms should use their in-house resources, insurance department and internal strategists, and outside strategists, most firms use Capitas, to develop a program to teach brokers estate planning strategies involving trusts and insurance. These strategies should be high level complex solution sets that are employed everyday in the world to solve a client life event. They should not be dumbed down in any way. By teaching your brokers through examples of complex strategies the brokers learn to spot opportunities when they present themselves. I know that is why we developed a financial planning tool. The tool will capture these opportunities. The problem is the tool creates a static solution set and misses opportunities when they arise. It is like you just finish a financial plan for a client and the next day he calls and says he has been told he has cancer. Things change.

By learning strategies the broker can have the confidence to actually broach the subject that they don't historically talk to their clients about. I have developed a theory about brokers and why we are so firmly entrenched in the investment world. It is called the "don't look stupid theory".

 No human being will sit in front of another human being and look stupid on purpose. We look stupid everyday but we just don't do it on purpose. 

By teaching our brokers complex strategies we are not asking them to execute the strategies we are asking them to recognize opportunities and bring the correct Center of Expertise to bear.
Lets consider a couple of examples. I have asked hundreds of brokers what would they say to a client,  prospect and friend if they were told that they were expecting a baby. All but two said they would tell them to open up a 529 Plan. A plan that has dubious benefits and generates little to no income and a recent study shows that 97% of investors do not use the 529 Plan. Yet it is a fact that 86% of people expecting a baby actually increase their life insurance. Where do we want to position ourselves? Do we want to be brokers or wealth managers?
Another example. A thirty-five (35) year old hedge fund trader who has three young children who is in exceptional health asks a broker what mutual fund would he recommend as he gives $14,000 per year (tax-free) to each of his three children. Instead of recommending a mutual fund right away the broker could suggest that the trader could consider giving the money to a trust in his children's names and buying $10 million in life insurance on himself. Whether the strategy is accepted or even makes sense the broker has set themselves up to be a wealth manager and not just a broker.

Going back to the usefulness of the financial tool to capture life events with the last two examples. How could it have possible helped in a dynamic world of constantly changing scenarios? The broker must have enough knowledge to be confident to bring in Centers of Expertise when an opportunity arises.

Knowledge equals confidence, confidence equals sales.

2) Corporate Services. Firms have spent an enormous amount of time and resources and political capital to develop a fairly seamless backend delivery of institutional quality services to the retail client when appropriate. The political capital was spent developing the splits for payouts to the brokers and for what length of time they were paid for introductions. But again the entire system is product centric not client centric. Access to Corporate Services by retail brokers is by institutional desks not by a client need. Re-design the front-end.

It is important to note that one of the most significant advantages in working at a full service firm are rarely used by senior financial advisors and not consistently used in training of the new brokers. Training FAs to all the services at their finger tips is a competitive advantage that the firms treat as a throw away. In today's world of RIAs, robo-advisors and alternative platforms this is a mistake.

The access template that a broker uses should be based upon a life event.  A client in a passing conversation mentions that he buys and renovates strip malls in Florida. What is the advice, service and product that can be brought to bear because of this conversation? Corporate Services should be designed to be queried by an life event and then present a quick presentation with a yes or no to whether we are in the business. If yes what are the 3, 5 or 8 qualifying questions to ask the prospect and finally a few examples of previous business done.

A concerted effort in recognizing opportunities and how to analyze their exiting clientele should be presented to the brokers consistently.  A true example. A large broker was trying to close a very large prospect for a couple of years to no avail. The broker kept representing to the client investment ideas but this prospect was so large he had access to the firms at the highest levels and nothing made sense. The prospect loved the broker but couldn't wouldn't pull the trigger. It was suggested to the broker to offer the prospect a way to protect himself against interest rates increasing when everyone was predicting run away interest rates. The broker presented the trade to the prospect by email and was promptly responded to with the fact that the prospect had just instituted three trades with Goldman Sachs and gave the particulars. We reversed engineered the trades and figured out the broker would have received a $1.2 million commission. All the information about the institutional services was on the machine but in language that no one understood because it was written by the institutional desk. Communication written using institutional language and acronyms is not a highly effective way to increase understanding and driving business. Knowledge equals confidence, confidence equals sales.


3) Opening Accounts. When client opens an account at any firm they are asked a series of questions before the account can be opened. These questions are based upon two themes; what information the firm needs to know to legally open the account and what information the firm needs to understand about risk tolerances. Think about those two type of questions. What the firm needs to legally open the account is pretty much basic information, like name, rank and serial number. The second set of questions continues the business model that we are all about investments. We do not even try to understand the needs/goals of the client for possible applicable solutions we focus on just what can we invest in. I know we do financial plans. But basic questions can be asked to enhance the relationship with the client right from the start. Examples.  Do you anticipate your children living at home after 21?  Are you a sole business owner and do you have key man insurance? If you are ill for an extended period of time how will you pay for it? If your spouse is ill for an extended period of time and you have to work how will you handle it? There are a myriad of questions to ask that enhance the FA from a broker to a wealth manager and it is the firm's job to help with the questions.

Changing culture is a process. Nobody likes change. It is said that 97% of change comes through fear, 2% because you have to and 1% because you think it is a good idea. Change is hard but we should be fearful as robo-advisors and fee transparency is challenging our investment only business model. We need to rethink how we do business and how are firms are structured to support the new business model. If a multi-millionaire hedge fund trader invests all his money in his hedge fund because he gets better terms but then tries to open a $100,000 account a major firm we tell him no. We don't want your mortgage, insurance or lending opportunities because you will not invest enough money with us. Huh?

All assets are good assets...

 All assets are good assets! Seems like a logical statement but in today's financial world there are firms and financial advisors that believe that this statement is false. How did we get to this point? What were the drivers that have firms purging their systems of small accounts and some firms defining small accounts as accounts with less than $500,000 in assets?

I believe that it all started with the book, The Supernova Advisor: Crossing the Invisible Bridge to Exceptional Client Service and Consistent Growth by Robert D. Knapp.  Printed by John Wiley & Sons, Inc. in 1995.

The Supernova Advisor looked at the way an Advisor functioned everyday and what were the roadblocks that held back advisors from greater productivity. It was a ground breaking book I believe because it focused on the way advisors functioned.  It did not focus on investments which in of itself was revolutionary. Robert Knapp was a former advisor, manager and regional manager for Merrill Lynch. Coaching was Robert's forte.

I cite this book for several reasons. First, Robert Knapp worked for Merrill Lynch and this is an important point because the retail financial industry has been dominated by ex-Merrill Lynch executives for the past 15 years. At one point every major retail sales force was led by someone from Merrill Lynch. Even today UBS, Merrill Lynch and Morgan Stanley are led by Merrill people. This is no surprise as the "Merrill way" in the 1980s, 1990s and through to the new millennium was the envy of Wall Street.  This was/is a very influential book among Wall Street executives. Second, as mentioned before this was one of the few books that focused on the way Advisors functioned on a daily basis and third the book was written in 1995. The second and third points are connected as 1995 was the beginning of the great technological revolution which is still in full force today. We are in an age where the rate of technology change is parabolic, straight up, and will remain that way for the foreseeable future.
The Supernova Advisor can be broken down into the thesis that an advisor because of all the paperwork could no longer manage/service a great number of accounts. If you cannot manage a great number of accounts then the accounts you want to cultivate are large accounts and the accounts you want to cull are the small accounts. Totally logical. In 1995.
Next around the year 2000 McKinsey worked with all the financial firms both institutionally and retail to execute the first profitability studies of their clientele. Typically any group of clients breakdown as 70% unprofitable, 20% break-even and 10% as driving all the profit. Which was almost exactly the percentages of the studies conclusions for the financial industry.  These studies led the firms to create or beef up their private banking/PWM offerings so they could reach the most profitable segment more effectively. I will discuss this strategy in another blog but will only point out here that the firms did a client segmentation study and then segmented their Advisors.
So these two unrelated events have driven the strategy of the full service firms for close to 15 years. The Supernova Advisor introduced the concept of "swimming upstream" and the profitability studies "confirmed" that the firms do not want small accounts (unprofitable).  Now the full service have bracketed their clientele on the top end and on the bottom end based on the size of the account. Services are divided up according to the size of an account and where the account is located in the firm not necessarily on the actually needs of the client. Accounts not in the Private Banking/PWM broker segments are not allowed access to certain products and services. UBS(to it's credit) is the exception. UBS bases it's services on the needs of the client no matter where the account sits in the firm. Merrill Lynch has strict requirements on where an account can be actually sit in the firm. If you are a $10 million account you must be in the Private Bank.
The Supernova Advisor circa 1995 was correct in it's assessment on how to deal with a major issue everyone dealt with in 1995, an overload of paperwork. It was overwhelming for every aspect of the industry, advisors, CSAs, branch office operations and operations on a national level. No one was immune to the paperwork problem. But that has changed as technology has changed every aspect of retail firms from opening accounts, performance reporting and how we manage the assets. The changes have allowed advisors to manage a lot more assets with a lot less effort.
So, are all assets good assets or not? If we are going to judge assets as good or bad is the best methodology based on the amount of assets? What about the mix of the assets? Or what is the potential of the assets? Unfortunately because of the limitations the industry's technology the method used is the amount of assets.  But it makes sense given the current business model. The amount of assets multiplied by the average fee that the firm earns minus the average cost of the firm for the account maintenance.  Profitable or not? In or out? But this methodology re-enforces the current business model which is firmly entrenched in the "we only do investments" business model.
In my career I started as a Customer Man, then an Account Executive for years, then to a Financial Advisor before moving on the a Wealth Advisor or Wealth Manager. The name changes parallel the hopes and dreams of the industry's senior management teams to cross-sell their existing clientele more financial products. But as much as we try the industry remains mostly, above 95% of revenues from Advisors, in the investment world.  There have been definitive inroads into lending in the last 6 years as the banks have pulled out of mortgages above the Fannie/Freddie limits and the wirehouses have responded to the demands of their clientele.
So the decision to look at an account size as a correlation for revenues is correct, in the investment business model.  But in reality revenues are in fact are driven by life events. I am buying a house, we are having a baby, do I have enough to retire, I own my own business are life events. Mortgages, life insurance, long term care, loans and disability insurance all are revenue opportunities driven by the needs of a client not by the amount of their assets at the firm. It is the inability of the Financial Advisors to capture life events and deliver a solution that make small accounts seemingly not profitable to a firm. That is a training issue not a business model issue per se.  This does not mean that firms can/should change their business model to support a change in culture to move a wealth management model to increase cross-selling.
The advisors business model today is driven by investment events. Changes in interest rates, equity markets, emerging markets or small cap versus large cap. But wealth management is driven by the needs of the clients and their life events. This entails retraining our advisors to capture life events and to bring centers of expertise to bear so we can employ more wealth strategies than we do today.


 Corporate client segmentation is only useful for a corporation to decide what services and/or products to give for fee or free.

Wealth Managers should be trained to recognize and bring to bear centers of expertise for life events because...

Today the advisor's business model is driven by investment events and revenue is almost solely derived from investments.

A Wealth Advisor's business model is driven by the needs of the client which calls for wealth strategies that encompass all advice, services and products.

To answer the question, are all assets good assets, it is not true as long as the current business model of advisors is solely based upon investments.  

The retail financial industry it at a cross-roads on multiple mega-trends that threaten the long-term viability of the full service model. The average age of the full service relationship, the average age of a full service advisor, the percent of advisors under the age of 30 years old (5%), the growth of net new assets, fee transparency, recruiting expense, advisor versus broker legal model, inability to train a replacement salesforce and an unappealing offering to the younger generations to maintain longterm revenue streams.  One just has to look at Schwab's net new assets growth year after year without advisors to realize that a serious review of the strategic initiatives is in order.

Facing these daunting challenges it seems that embracing an offering that limits entry level relationships based upon assets instead of retraining advisors to capture a bigger slice of the financial services spend rate is counterproductive. 

All assets are good assets, it is all about how the assets are managed. My next blog will discuss how assets can be profitably managed no matter what the size of the assets.