At Merrill Lynch, as Rick Homuth noted, there is a good deal of emphasis placed on diversifying the work force. In fact, some 30 percent or 35 percent of a manager’s compensation is based on diversity, how successful he or she is in recruiting a diverse sales force.
In attracting the kind of people that his firm was willing to meet with its own clients, Bob Rippy stressed the need for a good corporate culture with a diversity of challenges and educational opportunities. “It really starts from the mail-room person working all the way up,” said Rippy.
Among the more positive developments was the fact, as Steve Toomey noted, that young people coming out of school see an industry on a growth curve. “They want to be in an industry that is growing and that they can be excited about,” said Toomey. “I think we have a great opportunity to educate those people, to work closely with the universities in helping to develop the programs.”
Mike Gerken agreed. “I am amazed at their awareness of our industry,” he said of the students at the University of Missouri where he serves on an advisory board.
Scott Boswell wondered whether the industry in all its manifestations had come to expect too much of recent graduates and put too much emphasis on on-the-job training. He asked whether the expectation that new recruits “immediately have to become productive” was having an effect on the talent pool.
“We think that adults learn best when they are in the real world,” affirmed Gerken.
“The training is much better now than it was previously,” added Bob Rippy.
“I think the biggest model we try to practice,” said Matt Wagner, “is finding the athlete and training them to the sport.”
At UMB, Clyde Wendel noted, there is as much emphasis placed on retaining good talent as in hiring new. One of the keys to that strategy has been to drive more ownership down further into the organization and to try to make people feel they have a vested interest in staying on board.
“That is critical to business,” said Wendel. “We have seen over and over again how that trusted advisor on your team becomes a key component of that family relationship. When they leave, should they leave, you are at risk to the competition.”
Globalization
One variable that has changed the whole field of wealth management is the continuing growth of global investment opportunities. Jack Ovel asked his colleagues whether this growth had affected the way they interact with their clients.
“It’s more accepted by our customers,” said Joe Williams. “Now we have few people that object to it.” Clients are now routinely willing to put 25 percent of their portfolio into overseas investments.
“If you can understand what’s going on in China, India, Indonesia,” said Don Hubbs, “you can add some value to your client’s portfolio that other advisors or portfolio managers couldn’t add.”
Steve Toomey noted that one of the areas that BKD Wealth Advisors has gotten into in the last year is global real estate. Although the firm evaluates the typical emerging market for stocks and for bonds, there is, he noted, “a case to be made for other asset classes as well.”
There was a good deal of talk about Exchange Traded Funds, or ETFs, securities certificates that declare individual ownership over a portion of a so-called basket of stocks. As Scott Boswell noted, ETFs do make it easier to invest globally, but he wondered what the future held for them as an investment tool.
“The determining factor is their acceptability in 401K plans,” said Mike Searcy. “That makes a big difference.” He also speculated that there might be liquidity issues in case of a crisis.
“We use ETFs at Commerce,” said Joe Williams, “because, in a lot of areas, we don’t think active managers add value.” He questioned the need to pay someone extra money when you can use an ETF and get the performance that you want at that asset class and add diversification to the portfolio.
Don Hubbs agreed that there was little value of active management inside an ETF, but he did see the value in active management of a portfolio of ETFs.
Regulatory and Other Issues
As Jack Ovel noted, regulations affect wealth managers and “impact our ability to serve our clients.” He asked where his colleagues thought regulatory reform would be most beneficial.
One possible area of reform concerned the regulations as to who is allowed the designation “financial advisor.” Mike Searcy came down on the side of the regulators on this one. “We believe that anybody who is going to be a financial advisor and manage somebody’s wealth needs to accept their share of responsibility and do it in writing,” he argued.
“I think that is probably going to increase the regulatory environment to a certain extent,” offered Matt Wagner.
“It will complicate it,” agreed Searcy.
“Regulation comes out of crisis,” said Don Hubbs. One area where he saw regulations blossoming is in the realm of hedge funds, especially if liquidity dries up.
Scott Boswell asked his colleagues what they were doing as an industry to assure that their clients’ 401K plans fit holistically into a total portfolio approach.
Steve Toomey saw the need to review a client’s entire holdings whether he was managing all of them or not. He then could craft an entire portfolio strategy around the limitations of the 401K.
Matt Wagner suggested that, in the not too distant future, all wealth managers would become “custodian agnostic.” In other words, they would not care where people hold their funds. They would just want to know “what is allocated, what is being done with it, and how the relative performance is.”
“That really touches on the change in direction in selling our services in the wealth management arena,” said Jack Ovel, “becoming true advisors, and not being so caught up on the custody, the product, having everything under our own umbrella. I think it’s refreshing for the clients.”
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