While I sat inside the famous Fountainebleau Hotel last week attending MarketCounsel 2015, the rain was coming down in sheets on Miami Beach. Fortunately, I was surrounded by power players from the independent advisor channel and there was a steady stream of decision makers and industry influencers parading across the stage in front of me.
This year’s summit lived up to its reputation as one of the best conferences in both content and networking opportunities. It was also one of the smoothest-running events I have attended. They even had power strips for the press in the first row! (Thanks, Brian!)
Here are some of the key takeaways from Day 1 as posted live on Twitter during the summit.
@MarketCounsel Summit 98% of attendees owners/principals and 750 mil under advisement #MSUM15
MarketCounsel has consistently attracted the RIA decision makers that vendors crave. Consider that the average advisor has just $97 million in AUM, according to PriceMetrix.
Around the Horn
- Sharron Ash, Chief Litigation Counsel, MarketCounsel
- Andrew Wels, Chief Regulatory Counsel, MarketCounsel
- David Mrazik, Managing Director, MarketCounsel
- Kristen Niebuhr, Director, Practical Compliance, MarketCounsel
The MarketCounsel staff started off this session with a healthy dose of FINRA-bashing.
30 years of dealing with FINRA like 30 years of going to dental office – Wels #MSUM15
Ouch! No pulling punches on this panel.
If the RIA industry could set up a self-regulating organization (SRO) that had enough funding to effectively review more than 10% of firms every year (the current SEC limitation) they would have a case.
Trend: Assets and clients are moving to the independent channel -David Mrazik #MSUM15
The independent channel will control 38% of all assets by the end of next year, according to Cerulli.
RT @TeamJFlores: Case being made that if you’re a CCO = target on your back #MSUM15
A new anti-money laundering law recently passed by the state of New York could put compliance officers at risk of criminal prosecution if their firms fail to abide by their written AML guidelines.
Breakaway advisors are more sophisticated. We’re seeing teams with AUM in the billions, not millions. More eyes on this trend #MSUM15
A billion dollars in AUM isn’t what it used to be. In a recent InvestmentNews survey, 20% of RIAs respondents has AUM of at least $1 billion in 2014. That number was 2.5% a decade ago.
The survey found that RIAs with at least $1 billion in AUM:
… have increased revenue by 23% annually since the financial crisis, compared with 15% for all other firms in the study. Their clients have $2.74 million invested with them on average — nearly three times the average for smaller firms. Their overhead accounts for 33% of revenue, compared with 39% for other firms. And their owners earn $841,580 a year, while owners at other firms earn $414,816 …
The panelists were then asked which 2015 buzzword will fall off the radar in 2016?
Cybersecurity” will fall off regulatory radar in 2016 -Andrew Wels #MSUM15
I strongly disagree with this prediction. As long as RIAs and their vendors have all key systems connected to the Internet, it will be critical to stay vigilant and maintain cybersecurity.
Jimmy Moock and I are on the same page. $HACK is the symbol for PureFunds ISE Cyber Security ETF. It’s top holdings include Trend Micro, Qualys, SAIC and Juniper Networks. It’s currently trading 25% off its 52-week high.
- Sanjiv Mirchandani, President, Fidelity Clearing and Custody
- Kevin Keller, CEO, CFP Board
- Bill Crager, President, Envestnet
1 in clearing & custody: @FidelityAdvisor with 24% market share #MSUM15
Bigger seems to be better in the minds of many RIAs when it comes to choosing a custodian.
3.2T in assets managed by advisors over 60; 10k advisor gap by 2020 looming – Fidelity’s Sanjiv M. @Fidelity4RIA @MarketCounsel #MSUM15
This is a demographic opportunity for RIA firms that are flush with private equity funds and on the hunt for acquisitions.
All your customers are going to demand a digital inteface from you @Fidelity4RIAs #MSUM15
I’ve written about this looming trend a number of times. An online, low-touch interface will soon be table stakes for RIAs. (See #Advisorbots; Beware the Swarm!)
CFP Board’s Keller says #MSUM15 attendance looks like a ‘Trump rally with better-dressed people’ Ouch. Don’t piss off The Donald
There’s no reason to insult the audience, is there? I thought the political pundits were sparing over lunch?
Most #advisor designations are ‘twinkies’ – easy to buy, but no real value -Kevin Keller @CFPBoard #MSUM15
Once Kevin Keller made the comment comparing 162 different advisor designations to Twinkies, I couldn’t stop related everything I heard to Ghostbusters.
RT @copaflyer: “It would be a Twinkie … thirty-five feet long, weighing approximately six hundred pounds.” #MSUM15
Ghostbusters references never get old…
@ENVintel Crager-serve >45k #advisors, 3.2 mil investor accts and >1400 employees #MSUM15
Bill Crager wasn’t interested in Twinkies and stuck to his prepared script. He was happy to explain that this slide was already out of date since Envestnet now serves 45,000 advisors. That’s quite a lot. But do they really need 1,400 employees to do it? (See 5 Serious Concerns About the Envestnet Acquisition of Yodlee)
@ENVCrager Robos are driving down fees, DoL is pushing up the cost of practicing #MSUM15
RIAs are caught between a rock and a hard place…
Trend: Asset managers will soon become brands that consumers recognize @ENVCrager #MSUM15
Based on the feedback this tweet received, there are some people who disagree with Crager’s assertion. Of the top 10 US asset managers, only BlackRock, State Street, Capital Group and Pramerica aren’t already well-known by investors. Vanguard, Fidelity, BNY and JP Morgan are already in that category. (See 4 Strategies for Boosting Distribution Market Share)
The first bitcoin and block chain disruptor question comes to #MSUM15 courtesy of @MarkTibergien
I believe that Mark’s question was about industry adoption of the technology used to validate the transfer of the digital currency Bitcoin from one owner to another. This technology is called blockchain and has the potential to disrupt the financial industry, which is built on ledgers.
As explained by The Economist:
Most financial transactions are concerned with guaranteeing and tracking assets as they move from one ledger to another.
Bitcoin’s public ledger is distributed across millions of computers, recording every Bitcoin transaction – with little or no cost. There is growing interest in treating Bitcoin not as a currency but as a digital equivalent to a notary’s stamp: using the blockchain as a way to authenticate digital transactions, offering irrevocable proof of ownership with a traceable history.
Custodians, order management systems, and trade execution systems all generate revenue because they can reliably transfer data from one client ledger to another. What happens to them when these services can be offered for little to no cost?
Mirchandani responded by agreeing that blockchain could be disruptive, but didn’t reveal any plans by Fidelity to use it.
@Jeff_Benjamin The #Roboadvisor hype is like a giant Twinkie… #MSUM15
Twinkies have become the ultimate social media analogy tool.
Political Disruption: Rove vs Plouffe
This session wasn’t so much about political disruption as it was political theater. Karl Rove and David Plouffe are operatives who understand that they’re playing a game. They seemed to agree on more issues than you would expect from former campaign managers from opposing sides of the political spectrum.
What a lunch session @davidplouffe vs @KarlRove #MSUM15
I think the audience was expecting fireworks, but were disappointed by the civility and agreement by the two political heavyweights.
@jlahita_ficomm @jimmymoock this is 1 session I’m bummed to be missing #MSUM15 – can make drinking game out of # times Trump is mentioned.
Joe, you would have a decent buzz going by the time the lunch session was over.
@KarlRove – “@realDonaldTrump not going to win” – predicts @JebBush @marcorubio @tedcruz come out of “Ides of March” #Election2016 #MSUM15
Rove wasn’t exactly going out on a limb with this prediction. Now if he proposed a Trump/Fiorina GOP ticket, that would be radical crystal ball gazing!
@KarlRove in weak recovery but 40% of Americans think we r in recession, median wealth dropped, health costs up = populist movement #MSUM15
The recession “officially” ended in march 2009, but seven years of anemic growth certainly will affect peoples’ impression of the economy.
1/2 of @Uber drivers drive less than 10 hours per week – it is a supplement and not a full time job” – @davidplouffe speaking at #MSUM15
It’s quite ironic that the man most responsible for electing a Progressive president, is now shilling for Uber, a company that is reviled by Progressives for bringing competition and innovation to the over-regulated, century-old taxi industry.
They are probably not looking for a financial advisor, either. His point was that working part-time for Uber can help people to generate extra income in case of an emergency. Or will they just spend the extra dough on a new smartphone or game controller?
Who would’ve thunk – @davidplouffe and @KarlRove agree again – ‘Demography is not destiny’ #MSUM15 @MarketCounsel
They were answering a question about certain demographics being stacked against one party or the other. They both agreed that voters’ attitudes often change over time. Voters in a particular demographic that voted one way in one or more prior elections could shift enough to swing an election unexpectedly. Rove point to George W. Bush’s surprising success with Latino and African-American voters in 2004.
@davidplouffe #Trump is polluting #republican brand #MSUM15
Truer words were never spoken.
@davidplouffe end of the day this will be a close #race only 8-10% of people up for grabs #MSUM15
In the 2012 election cycle, $6 billion was spent across both parties and political action committees. The 57.5% turnout was down from 2008, but still totaled 84 million out of the total 146 million registered voters. If only 10% can be influenced, that around $70 spent for each undecided voter.
Trump is coarse, thoughtless and a danger to national security. And by the way, his Muslim proposal is unconstitutional: Rove. #MSUM15
Well, that about sums things up.
Emerging Regulatory Oversight
- David Kotz, Managing Director, Berkeley Research Group
- Spencer Bachus, former U.S. Representative for the state of Alabama, serving from 1993 to 2015. He served as chairman of the House Financial Services Committee.
The Dept. of Labor has no jurisdiction” to regulate securities industry via fiduciary rule, says @BachusAL06. #MSUM15
Based on the actions this administration has taken over the past seven years to expand their jurisdiction into new areas and inventing new loopholes in existing laws, my bet is on the DOL being able to regulate anything they want.
SEC did not miss Madoff b/c of lack of resources, but lack of competence, says former SEC Insp. Gen. Kotz #MSUM15
True, but the SEC will never admit that. They will only ask for more funding.
@PaulMeloan Is someone challenging @BachusAL06 on stage at #MSUM15 for repeating this absurdity? :/
I don’t believe that anyone challenged him over his statement. Of course, there are proponents on both sides.
A report from the White House Council of Economic Advisers (CEA) states that advisor conflicts of interest cost middle-class families, on average:
- 1% point lower annual returns on retirement savings
- $17 billion of losses every year for working and middle class families
A strong set of independent research shows that these losses result from brokers getting backdoor payments or hidden fees for:
- Steering clients’ savings into funds with higher fees—and lower returns even before fees.
- Inappropriate rollovers out of lower-cost retirement plans into higher-cost vehicles.
The Wall Street Journal reported that:
Sen. Jon Tester (D., Mont.) said he was worried the proposal would have the effect of reducing options for small savers and could conflict with a similar effort now under way at the Securities and Exchange Commission, creating administrative headaches.
“If this takes away options and the rules are not harmonized [with SEC] it will be a disaster,” Mr. Tester said. Given the huge savings gap America faces, “we ought to be increasing options, not limiting them,” he said.
There are so many problems with this law it’s hard to know where to begin. Kotz pointed out that the law authorized an office of a financial consumer ombudsman, even though one already existed in the SEC with the exact same mandate.
The law also created the Office of Financial Research (OFR), which has two key components – a data-collection arm that has broad power to request any kind of information from financial firms it deems necessary, and a research and analysis arm that to be focused on monitoring the financial system for risk and producing research to improve regulation.
Nassim Taleb, author of The Black Swan, a book that I happen to be reading right now, testified before Congress that creating of the OFR was as an attempt to create “an omniscient Soviet-style central risk manager.” He also said that:
“[f]inancial risks, particularly those known as Black Swan events cannot be measured in any possible quantitative and predictive manner; they can only be dealt with [in] non-predictive ways.” He argued that trying to do what the OFR is designed to do could actually increase risks, in part by increasing “overconfidence” in the information’s ability to predict the next crisis.
Due to gerrymandering, there are only 25-50 competitive House districts @BachusAL06 #MSUM15
And we wonder why Congress can’t get anything done. There’s no penalty for failure!
Trending in Regulatory Enforcement
- Troy Paredes, Founder, Paredes Strategies
- Andrew Wels, Chief Regulatory Counsel, MarketCounsel
- Norman Champ, Harvard Law School
In the past, minor violations might have been handled as a deficiency; now it will be an enforcement action #MSUM15
Another reason for RIAs to outsource compliance or join a larger firm that has a robust compliance team.
This is either the opposite of what was said in an earlier session about the SEC problems being due to competence, not lack of resources. Apparently, they have both problems.
My Best Advice
- Martin Bicknell, CEO, Mariner Wealth Advisors
- Shirl Penney, Founder & CEO, Dynasty Financial Partners
- Andy Putterman, Founder & CEO, 1812 Park
- Brian Hamburger, CEO, MarketCounsel
@MarinerWealth’s Bicknell had to learn to go from running a practice 2 running a biz. #delegating is tough but a must #MSUM15
Good advice for anyone looking to grow a company from a sole proprietorship to a corporation.
Entrepreneurs are delusional. We believe our own BS – and then go build it” Brain Hamburger @HDelux @MarketCounsel #MSUM15
This comment struck a chord with everyone on stage.
When growing a business, be warm on people but cold on numbers – know exactly what your goals are, @DynastyFP shares at #MSUM15
If it wasn’t for the 08-09 debacle, we wouldn’t have opportunity for a breakout moment.” @MarinerWealth #MSUM15
The most successful firms can afford to buy with confidence when everyone else is panic selling.
Penney: @DynastyFP evaluates all employees on how well they maintain the company culture. #MSUM15
Employees that don’t embrace the company culture should not be promoted into management positions, Putterman added.
Incredible. Kudos. RT @DynastyFP This year we onboarded $10 billion of assets and close to 40 advisors #MSUM15 #independence #dfp
That’s $250mm in AUM per advisor. Impressive.