Markets and management issues were the foremost concerns among leading registered investment advisers meeting at TD Ameritrade Institutional's annual Elite Summit in Laguna Beach. Calif., last week.
The following, an edited transcript of a round-table conversation discussing these issues, was held at the conference with five top advisers and a senior TD Ameritrade Institutional executive.
Q. How are you coping with this difficult market and low-yield environment?
A.
Mr. Raimondi: There's plenty of yield. We have an equity portfolio strategy with a 4.5% yield. The companies are ones everyone would know. The market has shifted to getting yield from equity, not fixed income.
Mr. Brock: Peter's right. We used to do more growth. Now everyone wants income. It's probably the time to buy growth, but you can't sell growth right now. We've developed options portfolios, with puts against bonds, dividend strategies and preferred strategies.
Mr. Sleeper: We use mutual funds for our portfolios. One is a high-yield-corporate-bond program that hasn't had a losing year since 1995. We also use equity funds when appropriate. But right now, we just think the risk/return trade-off is favoring other assets. The key is having the flexibility to change the portfolio in response to the market.
Mr. Cooper: We believe we can find the very best managers for the macro environment we're in. We tend to use smaller, less discovered managers who are benchmark-agnostic. They give alternative-type returns.
Q. What is on the minds of clients and prospects?
A. Mr. Brock: Managing client expectations is always a challenge for growth. People are more nervous than they've ever been. They're reliving 2008.
Mr. Raimondi: Clients are coming in, ready to give up control [of their money]. But four or five months later they're gone, primarily because of the volatility in the market. Once they put it in our hands, they were no longer in control, and the volatility scared them. So it requires us to be much more diligent about setting expectations. We're having more warning discussions than we've had in my 28 years of experience.
Mr. Sleeper: I use quarter-by-quarter performance numbers, and I'll sit down and say to a prospect, “Look, we had two down quarters in a row. Would that have upset you? This year, we underperformed the equity market. Would that have upset you?”
Q. What advice do you have for smaller advisory firms that want to grow?
A. Mr. Cooper: This is self-serving, but they should consider joining [a larger firm]. They can offload all the stuff like [technology and compliance] and really focus on the stuff that will get them to a higher level.
Mr. Sleeper: You have to understand your key competencies. Are you an investment manager? Do you think you're better at financial planning? Once you make those types of decisions, then you can decide what you need to do: whom to team up with, what software to get, what to do yourself versus outsource. Those are all key decisions you need to make early.
Mr. Raimondi: The key thing is capital. If you don't have capital, you won't get there. What happened in 2008 was that advisers had to lay off people or go without an income for a few years. It was a rude awakening that we don't control the revenue in our business. Capital must come from the owners and it needs to be on reserve or on call.
Ms. Eusey: When we set up the business, we said we would have operating partners who would run the company, and the other people are going to do what they do best. Those [operating partners] were the first six hires.
Mr. Tamer: It really comes down to treating it as a business — making a market salary and putting the rest of the profits into the business. And it's about focusing on the right clients and being a business owner and not just running a practice. That's the one thing I see with the folks at this table versus other firms that aren't as successful: The common denominator is that you're all business owners.
Q. How is the growing tide of regulation affecting your business?
A.
Mr. Cooper: It will probably drive more mergers. It's one more thing that says to the breakaway broker: Join an existing firm instead of setting up your own RIA.
Mr. Raimondi: It inhibits small business. If I'm a billion-dollar broker, what am I going to do? Step into a firm like [Beacon] or start my own RIA? Invariably, it's going to be regulation that keeps them from starting their own business. I never thought I would believe that, but it's actually true in our business.
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