MarketCounsel 2015

Key Takeaways from MarketCounsel 2015 – Day 1

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 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.

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.

The independent channel will control 38% of all assets by the end of next year, according to Cerulli.

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.

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 …

2015 Buzzwords

The panelists were then asked which 2015 buzzword will fall off the radar in 2016?

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.

Enterprise Influencers

  • Sanjiv Mirchandani, President, Fidelity Clearing and Custody
  • Kevin Keller, CEO, CFP Board
  • Bill Crager, President, Envestnet

Bigger seems to be better in the minds of many RIAs when it comes to choosing a custodian.

This is a demographic opportunity for RIA firms that are flush with private equity funds and on the hunt for acquisitions.

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!)

There’s no reason to insult the audience, is there?  I thought the political pundits were sparing over lunch?

Once Kevin Keller made the comment comparing 162 different advisor designations to Twinkies, I couldn’t stop related everything I heard to Ghostbusters.

Ghostbusters references never get old…

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)

RIAs are caught between a rock and a hard place…

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)

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.

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.

I think the audience was expecting fireworks, but were disappointed by the civility and agreement by the two political heavyweights.

Joe, you would have a decent buzz going by the time the lunch session was over.

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!

The recession “officially” ended in march 2009, but seven years of anemic growth certainly will affect peoples’ impression of the economy.

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?

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.

Truer words were never spoken.

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.

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.

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.

True, but the SEC will never admit that.  They will only ask for more funding.

I don’t believe that anyone challenged him over his statement.  Of course, there are proponents on both sides.

According to an article from The Nation Institute:

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.

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

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

Good advice for anyone looking to grow a company from a sole proprietorship to a corporation.

This comment struck a chord with everyone on stage.

Great advice.

The most successful firms can afford to buy with confidence when everyone else is panic selling.

Employees that don’t embrace the company culture should not be promoted into management positions, Putterman added.

That’s $250mm in AUM per advisor.  Impressive.

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5 Serious Concerns About the Envestnet Acquisition of Yodlee

7 Responses

  1. Great summary for everyone who could not attend (even if you were there) … Points I really like… 1.The emphasis on culture creation by the host @HDelux 2. The interaction on Twitter during the Summit… 3. Twinkies…

  2. Thanks Craig for putting this together, excellent summary for those of us who weren’t able to attend this time.

    A couple of issues I found interesting. First, I think the 38% of assets in the independent channel is very exciting. However, would be great to understand how that breaks down by custodian. Perhaps in the future, the wirehouses are just another form of open platform custodian, joined for a first time by previously pure–play asset managers. Is there a big difference between Merrill Lynch, Schwab, and Vanguard in 2020?

    I strongly agree with your point of view on cyber security. Data protection and privacy are not trends, they are fundamental needs of software distributed by the Internet. Attacks, driven by artificial intelligence, will become more complex. And the defenses will become more expensive but necessary.

    On adviser designations, I think we are yet to see a mainstream adoption of the most important one. For me, that is a true fluency in behavioral finance and the psychology of financial relationships. And as for the block chain – let me just refer you to Overstock getting SEC permission to issue potentially $500MM of their own shares on a blockchain-powered trading platform. Lots of food for thought!

  3. Asset managers will only become brands if third-parties publicly and frequently write and speak favorably about them. Think Starbucks, Disney, Google. Nobody is going to write mass-market books about Blackrock or State Street, and that’s ok. They’ll do fine w/o a consumer-facing visible leader like Howard Schultz or John Bogle.
    And all this talk about the importance of culture is true…but very few firms get it right.



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at