Race to the Bottom

Last month, Interactive Brokers Group, Inc., announced the October launch of IBKR Lite, a new offering that would provide commission-free trades on U.S. exchange-listed stocks and exchange traded funds (ETFs). Not to be outdone, three days later, Charles Schwab, the largest publicly traded online broker, followed suit similarly eliminating all commissions on online stock trades. Later the same day TD Ameritrade did the same. E*Trade and Fidelity quickly followed.  

These dramatic events are the latest in an accelerating race to the bottom for fees. The investing public has apparently reached the conclusion that the cost efficiencies of electronic asset management and trading are real, significant and should be passed on to the consumer. Indeed, the perception that many of these services are largely automated and virtually without cost has become widespread, fueling the demand that they should be an accommodation rather than a paid for service.

While these latest events do not impact wealth managers directly, they do help to underscore what the consumer views as value-added versus commodity services. In this regard, wealth managers may be well-advised to take the following steps:
○ Draw a clear line between the product/operational side of their offering and the custom designed, personal advisory side.

○ Ensure through clear and regular communications that clients understand the work involved in, and the value derived from, the advisory side.

○ Be transparent about pricing with reference to the two sides and how efforts are being made to minimize the cost of operational services and product production.

Reach Out and Write Someone

Client experience. Relationship building. Client-centric service—all standard in wealth management. You work hard every day, and sometimes into the night, to give your clients what they want and need. No doubt you communicate through email and possibly texting. These are great methods for client communication, but when was the last time you sent a handwritten note?

Our mailboxes (the real ones that stick out of the ground or are built into a wall) have become sad empty places, where we get coupons we will never use and direct mail we will likely not open. With so much electronic communication and lonely mailboxes (even bills come electronically for most of us) wouldn’t it be memorable to receive a beautiful envelope with a nice card that feels great to touch and a personal handwritten message? Your clients get the same boring mail as you do, so why not surprise them with a heartfelt note? 

Send one on special occasions or everyday occasions
Have a few clients who are business owners? Learn when they started their business and send them a note congratulating them on their longevity and success. Birthdays seem like a given, but what about a note saying, “Hi Judy, I know Evan started school this past month, I hope he is doing well, and you are slowly getting used to the quiet house!” After all, you may have been the one who helped Judy get Evan an education. End with “Let me know if I can help with anything.”

Keep it short and sweet
No need for an extensive missive using all four sides of a card. Get to the point quickly whether you are congratulating or thanking them.

Make it special
Nothing says how appreciated someone is like a handwritten note on really high-quality heavy paper with a matching envelope. Get something that fits your personality, classic or modern, plain or with artwork, as long as you feel special sending it, your client will feel special getting it. Handwriting the address on the envelope and putting a real stamp on it will elevate the experience. To really take it to the next level, you could even get high-end cards made with your company’s brand as well as personalized stamps.

Cybersecurity Tips

October is National Cybersecurity Awareness Month (NCSAM), an initiative spearheaded by the U.S. Department of Homeland Security and the National Cyber Security Alliance. The effort includes extensive media coverage and industry collaboration, which means your clients may be hearing a lot about this in the next few weeks. This year’s theme, Own IT. Secure IT. Protect IT. encourages individuals to be proactive about taking control of their digital security, which may lead to an increase in client inquiries about protecting their data.

Here are three tips to help reassure clients and keep their information safe:

Tip 1. Review your internal cybersecurity policies and procedures
25% of state registered investment advisors demonstrate deficiencies in cybersecurity1. And, according to FINRA, while broker-dealers have been strengthening their cybersecurity programs, there are still issues that need to be addressed. Both FINRA and the SEC offer resources for protecting financial organizations and their clients against data breaches. Preventative measures include:

1. Assessing potential risks, including a firm-wide inventory of assets and sensitive client data exposures

2. Developing written policies and protocols to protect data and detect dangers

3. Creating procedures to respond to threats and recover information

Tip #2. Educate your clients
70% of hacking attacks start with a phishing email2, many of which are from sophisticated cyber criminals purporting to be financial institutions. In a phishing attack, a scammer delivers a fake email directing individuals to update or confirm financial information in order to gain access to financial accounts, passwords and pins. FINRA reports that phishing attacks remain a top cybersecurity challenge and pose a serious threat to investors. To protect clients, make sure they know about your information sharing protocols. You can also provide tips for identifying phishing scams, for example, warn them not to click on links to financial accounts or respond to emails asking for confidential information. And remind them to request their credit report each year, to check for fraudulent transactions and accounts they did not open.

Tip 3. Provide reassurance 41% of investors say they are concerned about cybersecurity as a threat to company growth prospects3, which means that, in addition to privacy concerns, many investors worry about how the risk of a cyberattack might affect their investments. If this is an issue on your clients’ minds, you can discuss the steps you are taking to keep their data safe.


1 2019 Investment Adviser Coordinated Examinations Report, North American Securities Administrators Association, Information pulled September 30, 2019,

Internet Security Threat Report, Symantec, 2014 and February 2019,

3 Anxious optimism in a complex world, 2018 Global Investor Survey, pwc,

Afterpay: The Modern Installment Loan

Another trend toward the digitalization of financial services can be found by what is known as “buy-now, pay-later” firms, the most well-known of which is Australian fintech company Afterpay. This model competing with traditional bank and credit card “lending” allows consumers to pay over time, without revolving debt, interest payments or other fees. Average outstanding balances on Afterpay is typically much smaller than on a credit card, about $218 versus $3,260 for credit cards.

Rapid Growth

Founded in 2014, the company went public just two years later. It now has 4.6 million active customers, with an on-boarding rate of 12,500 new customers daily. The company entered the U.S. market in the first half of 2018, and its annual report said growth in the U.S. (and the UK) was “exceeding expectations and major new merchants continue to onboard.” Annual U.S. sales were close to $1 billion in its first year of operations, with an expected run rate exceeding $1.7 billion, representing an already substantial percentage of overall sales

According to Afterpay, its primary target markets are millennials and Gen Z, which are “driving change in global spending habits which is meaningful today and will be even more meaningful in 10 years.” And that “Afterpay is uniquely positioned to benefit from this shift.” 

More and more retailers have partnered with Afterpay, particularly fashion and beauty companies, including Amazon, Lululemon, Sephora, Forever 21, Free People, just to name a few, all with strong brand appeal for the millennial and Gen Z consumer. Major card companies are entering the buy-now, pay-later arena, and Afterpay has partnered with VISA to provide its services to VISA card holders (up to a set dollar cap).  

Buyer Beware?

While companies such as Afterpay are revolutionizing the consumer debt space, there are some caveats. Although there are no fees as long as you pay on time, if you are late or miss a payment there are late fees, according to an algorithm which ensures that late fees are “never more” than 25% of your purchase or $68, whichever is less. There is no credit check necessary to apply for Afterpay, leading to questions whether the company is facilitating debt for individuals who may not “qualify.” In addition, missing payments can affect your credit score if Afterpay chooses to report your missed payments to credit scoring agencies, which it reserves the right to do, if you read the fine print. 

Despite these concerns, it appears that Afterpay, and other firms offering these services, are permanently disrupting the consumer lending horizon as we know it.

Passive Finally on Top

As expected, passive U.S. equity funds this past month officially surpassed active U.S. equity funds in assets under management. By the end of August, passive U.S. funds had total net assets of $4.27 trillion, compared with $4.25 trillion in active U.S. equity funds, according to data provided by Morningstar.

At the end of the day, performance has driven investors to choose passive funds over active. The performance deficit of active managers, which has been exacerbated by the prolonged bull market, is outlined in Morningstar’s latest release of its Active/Passive Barometer. This measures the percentage of actively managed mutual funds by asset class that outperform available passively managed index products in the same asset class over various periods of time. 

As the table above clearly shows, the odds that an active manager will beat the indexers is pretty low particularly in more efficient market categories. Only in mid- and small-cap growth funds, and only in the last five years, do the odds start to favor active. Costs are an important factor. Selecting a higher cost fund, even in small growth, significantly lowers the chance of outperformance.

These figures contain data from all funds that are classified as actively managed and does not consider active share. However, it is unlikely percentages above will shift in the near term to the degree necessary to convince investors to reconsider active.

Orange is the New Brand

If you ask someone in your office or on the street what some of the strongest brands are, you will probably hear names like Apple, Starbucks, McDonald’s and Nike. While these brands are well-recognized and respected, there are many others that provide a brand experience worth mentioning. One such company is Public Storage. From a branding perspective, Public Storage is doing an excellent job and here’s why: 

Consistency. The company uses its brand assets consistently and extensively. The logo and primary brand color are orange, it’s used on buildings, products and the doors to all the storage units. This visual cue allows consumers to quickly recognize the brand.

Customer experience. When you walk into a Public Storage facility everything is clean and orange and all products are displayed neatly. The person behind the counter is wearing something orange. The experience is somewhat hi-tech for a storage facility, with electronic forms, and systems that tell the staff exactly what they need to know in order to answer your questions.

Online experience. The website is completely on brand and user friendly. You can find a unit in the size and location you want. The website shares customer ratings on all locations and provides a picture of the facilities. Orange calls to action throughout the website allow the visitor to easily understand what to do next. There is also plenty of information on what fits into the different size units, how to pack and well-done fun videos that provide tips regarding your storage unit. You can also reserve and pay for your unit online.

There are many other factors that go into an easily recognizable brand (other than orange); everything has to work together whether you’re selling storage units or wealth management. A consistent look and feel along with an on-brand customer experience will deliver the brand awareness your company needs.

Getting the Word Out to Millennials

The most effective “advertising” is word of mouth. It comes from a reliable, often trusted, source, and it’s free. Millennials are no exception to this rule. Like preceding generations, they’re most likely to heed a trusted source. However, word of mouth has evolved to the words, pictures, videos, etc. of social platforms. 

Here are some ways advisors can reach millennials in the digital age. 

Be seen. Videos have never been easier to make, and millennials can’t get enough of them. YouTube has become a near-limitless repository of instructions and how-to. Come up with a list of discrete topics, set up a YouTube channel (easier than you might think), and speak to each for about a minute or two in your own voice.

Get on the platforms. When people Google search your name, you can elevate your presence by being on social media platforms such as LinkedIn, Twitter and Instagram. But make sure your headline and summary – call it your value proposition – is as captivating as it is informative. Then use social media regularly to spread your word. Post your thoughts and the videos you’ve been producing, share other content, and even publish articles.

Communicate regularly. During market volatility, one of the most valuable services an advisor can render is to acknowledge what’s going on and demonstrate that you are responding to the situation. Depending on your organization’s compliance procedures, reach out by email or text. The smart phone is an appendage of any millennial, so you can be sure they’ll receive it almost in real time. 

Do I Know You?

There are many reasons to conduct client research. You may want strategic insights before rebranding, a targeting strategy for the launch of a new product or an assessment of the client experience. Even for business as usual, a periodic check in with clients can reveal important action items and reassure them that you listen. It’s always helpful to know what you can be doing better. 

However, as an expense without a measurable ROI, client research can slip to the bottom of the priority list. And many business managers are reluctant to intrude on clients’ time or fear calling their attention to a potential problem, so on the list it remains.

But if you want to truly meet your clients’ needs, you need to know what they are. And the best way to get that information is to ask. Here are some tips for conducting quick and effective client research that will help make your clients feel valued.

Lead with your appreciation. Let clients know you’re always working on serving them better and you care about their opinion. Demonstrate thankfulness for their time.

Be brief. No one wants to spend lots of time filling out surveys. Ask only the questions you need to ask. If you’re not going to do something with the answer, don’t ask the question. Have co-workers take your survey or rehearse your questionnaire in advance to time how long it takes.

Be quantitative and qualitative. You need a mix of questions to get both measurable responses and the rationale for what clients are telling you.

Show your thanks. Your high-net-worth or business clients may not need a Starbucks gift card, but you need to acknowledge their efforts. A charitable donation in the client’s name is always a nice idea.

Leverage the results. Whether you learned something new or confirmed what you believed, after conducting client research you’re more informed. Use your findings to re-evaluate your website content, marketing communications, and product and service offerings to deliver what your clients really want. And be sure to let them know that you listened.

Every Opportunity is Not a Target

It’s a big world out there, filled with all kinds of prospective customers. That doesn’t mean that every prospect is right for a firm. All too often, organizations fall prey to extrapolating a target market from one-off opportunities or letting anecdotal information drive strategy. As a result, resources are dispersed and used ineffectively. The end result can be lack of success even in segments that do represent the highest potential. How do you decide where to focus your efforts? Three key factors that provide a starting point are:

Be strategic. The ability to analyze the opportunity in terms of product demand and micro-segmentation of prospects has never been greater. Take advantage of the internal and market analytics to identify the highest potential opportunities and create targeted sales and marketing to maximize awareness, lead generation and point of sale metrics. 

Maintain brand clarity. Chances are there is already a perception in the marketplace regarding your brand and target market(s). This doesn’t mean that you shouldn’t enter new markets; many a firm has prospered because of their willingness to evolve and adapt to changing market conditions. Unless you are abandoning your existing targets, however, you need to make sure you’re not causing confusion and hurting efforts in your core market.

Filter out the noise. Opportunistic sales are great, but just because you won one huge institutional client doesn’t mean that is your natural segment. If your core competency is midsize retirement plans, then directing your sales and marketing resources there, while taking advantage of sales that come your way outside of this segment, gives you a greater chance of success.

The Grass is Always Greener

Over the past several months a family has been reporting their exploits on social media from various countries in the Far East. In their early forties, they have embarked with their young son on an ambitious year-long round the world adventure. 

The typical reaction to their posts echos findings from Schwab’s 2019 Modern Wealth Survey under the title, FOMO (Fear of Missing Out) fuels American spending. The survey of 1,000 Americans found that nearly two-thirds of respondents “wondered how friends can afford expensive experiences posted on social media.” Just over one-third admitted they “spent more money than they could afford to participate in experiences with friends.”

It appears that this modern form of “keeping up with the Joneses,” particularly in highly visible (and post-worthy) experiences, is widespread and may be having a significant impact on spending and, perhaps more important, savings habits. Wealth managers, particularly those whose business includes serving the mass affluent, should be conscious of the new social dynamics that influence their clients’ financial behaviors and should align their financial planning offer and process to reflect this awareness.  

Schwab 2019 Modern Wealth Survey