From Pillars to Pixels

Since the turn of the 20th Century, brick and mortar has played an important role for financial service companies. From metropolis to small town, many of the most prominent and iconic buildings shaping U.S. skylines have been banks, trusts, insurance companies and brokerage firms. 

These buildings had use value. They housed staff, management and operations and provided suitable delivery platforms to serve clients. But utility did not explain their architectural presence and grandeur. Beyond the practical, they seemed designed in large part to concretize what were essentially abstract and ephemeral services. From Greek Revival, to Deco, to modern steel and glass, the size and solidity of these structures were expressions of strength, longevity, stability, commitment, sophistication and success. They were built to engender trust, respect, and even awe among those who experienced them and they served as tangible proof statements of companies’ substance and stature in the marketplace.  

Fast forward to today. The virus has accelerated a technology driven trend already afoot, to move away from the physical office. Many wealth managers, among other financial service providers, are realizing that operations can successfully be managed remotely. Perhaps, more importantly, recent experience is leading organizations to conclude that current client relations may also not be compromised by relying solely on electronic interactions. Virtual personal relationships with clients seem as strong as in-person ones. The result is that organizations are considering downsizing their office presence or even eliminating maintaining an office at all. Since leases tend to be the next highest expense for most RIAs behind comp, and travel and scheduling can be a drag on productivity, the decision to go fully remote may be a win-win.

But, before we give up on offices altogether, there are some intangibles that a physical “storefront” offers. It can play an important role in legitimating the firm to new prospects, giving it a concrete and undeniable reality. A well-architected office at a desirable address can convey prestige and trust to an otherwise wary prospect. And while Zoom, GoToMeeting, Teams and other technologies have undoubtedly made viable what would otherwise have been an untenable business situation, there is still much to be said for those in-person casual ad hoc conversations that take place and often are the source of some of the best ideas. It remains to be seen how many advisory firms and wealth managers, particularly the larger ones, will be willing to risk these apparent advantages to abandon brick and mortar entirely. 

Is Work from Home Here to Stay? ETFs say yes.

Overnight, working from home became the new normal for many around the world, particularly those working in large cities. It is not surprising that investment strategies recognize this trend.  

In June, Direxion, a firm specializing in leveraged ETFs, launched the first work from home ETF (ticker: WFH). The fund invests in companies designed to facilitate remote working, “ranging from software, cloud computing and cybersecurity to online videoconferencing and project management.” While names include the newer favorites of those working from home, such as Zoom, stalwarts like Amazon, Facebook, Microsoft, IBM and Alphabet are also part of its investments.  

On its website, Direxion identifies these Trends in Motion driving WFH investments:

Following Direxion’s introduction of WFH, BlackRock is planning to launch its iShares Virtual Work and Life Multisector ETF, which, per its SEC Filing, “will seek to track the investment results of an index composed of U.S. and non-U.S. companies that ‘provide products, services and technology that empower individuals to work remotely, and support an increasingly virtual way of life across entertainment, wellness and learning.’”  

While we have seen “fad” funds come and go, this does not appear to be the case with these recent developments. These new fund launches support what most asset managers, others with whom we have spoken to and Optima Group believe to be a fundamental shift in the way business, and, to some extent, life is conducted. It is likely that we will see more entrants to this space and other strategies related thematically to fundamental shifts resulting from the pandemic, like the ETFMG Treatments, Testing and Advancements ETF (ticker: GERM), which invests in biotech companies involved in the testing and treatment of infectious diseases. This ETF launched in mid-June and has over $70 million in AUM. These specialized ETFs provide cost-effective ways for wealth managers to provide client portfolios with exposure to specialized asset categories that align with their firms’ long-term capital markets and investment outlook.

How to Get a Handle on Twitter

Want a low cost way to grow your brand organically and generate leads? Open a Twitter account for your business. You just need a profile, header photo, account handle, and a brief company bio and you’re ready to go! 

Why tweet? Everyone is doing it! Even @RoyalFamily! There are 1.3 billion Twitter accounts, and chances are, most of your clients are on Twitter. You’ll position yourself as relevant and current! 

Tag others, like @optimagroupinc, to leverage your network for greater coverage and use a few relevant hashtags, such as #WealthAdvisor or #FinancialPlanning (or boost your posts) to expand your reach and join trending conversations. 

Make the most of each tweet by including a link to a specific page on your website or other CTA aligned with your goals.

No need to limit your tweets to your own content. You can also retweet helpful articles and ideas along with your comments. For example, see why now is the time to delight wealth clients digitally.

The State of Financial Services Marketing

A recent report by Deloitte, “The CMO Survey: Special Edition Report – COVID-19 and the State of Marketing,” has confirmed what leading firms already know: marketing is continuing to increase in importance in light of the challenges faced by the COVID-19 pandemic. 

Based on our experience and our observations, we couldn’t agree more. As the following statistic from the Deloitte survey shows, the role of communications during turbulent times is even more critical for engaging with your clients and prospects.

Source: Deloitte’s The CMO Survey: Special Edition Report COVID-19 and the State of Marketing

While the survey covered multiple topics and interviews with CMOs across a broad range of industries, we’ve highlighted two additional findings from the survey which we believe are particularly important for financial services marketers.

Source: Deloitte’s The CMO Survey: Special Edition Report COVID-19 and the State of Marketing

Source: Deloitte’s The CMO Survey: Special Edition Report COVID-19 and the State of Marketing

Based on these findings, we posit the following:

Brand relevancy rules – Leading firms are using these turbulent times to do the legwork that is going to position their firms for the long term. While traditional sales and lead generation activities face steep challenges for the foreseeable future, it is precisely the right time to engage in activities to refine and promote your brand in a way that aligns with the current period. Doing so will help to reassure clients that your firm is viable and continuing to thrive amid uncertain times, while also laying the groundwork for more aggressive sales & marketing programs down the road.

You need exceptional content – Content marketing is now table stakes for engaging both customers and prospects. And, clearly, not all content is created equal. Get too technical and you’ll lose your readers. Delivering content that is not informative is a non-starter. Leading financial firms distinguish themselves through superior quality. They employ content specialists with technical knowledge combined with a deep understanding of their target audiences to develop compelling, topical content that people actually want to read. While COVID-19 content is clearly still on everyone’s minds, now is the time to build-out a more robust content calendar that goes beyond pandemic-related communications.

Social media has become table stakes – Once eschewed by financial professionals due to compliance concerns, savvy financial marketers are now fully embracing social media, incorporating robust social media review and surveillance tools and protocols as part of their standard operating procedures. While funding for large-scale marketing initiatives may be in question at the moment, executing targeted social media programs continues to gain prominence as a cost-effective way to stay in front of your key audiences during uncertain times and beyond.

Five reasons to pay attention to Gen Z

There has been a lot of talk about millennials in the marketing world, with good reason. However, it’s time some of that spotlight is turned to the generation after them—Gen Z.

Gen Z is made up of people born after 1997 (or thereabouts, depending on your source) and comprises 30% to 40% of the world population. Gen Z has traits that have not been seen in other generations before them — knowing what they are will help when marketing to them.

1. They are a generation who have had the internet available throughout their entire lives. They are a highly digital generation and often have multiple devices going at the same time. This generation spends a lot of time researching products and brands; however, they value one-on-one advice and personal reviews, both from family and friends. For financial services, Gen Z may end up being the ultimate word-of-mouth campaigners.
2. Because Gen Z is so tech savvy they have more influence on their parents’ spending habits than previous generations. They can help their parents discover new things and places, as well as research on pricing and reviews and like to be involved in the decision-making process, particularly when it’s a purchase that’s relevant to them.
3. Gen Z is a financially conservative generation. “This generation grew up during a recession, and that has made them risk-averse and cautious when it comes to their finances. Providers will need to offer a helping hand as these consumers start to navigate the financial world.”1 They have watched millennials take on significant college debt making Gen Z-ers think more about debt and saving than generations before them.
4. As a whole, they are an entrepreneurial generation. Their online upbringing has shown them that businesses can be started with an idea and a little bit of money. They are optimistic and see opportunities that others don’t. “Gen Z may just turn out to be the most competent, productive and high achieving generation we’ve seen in a while.”2
5. Gen Z is passionate about environmental, social and political issues. Gen Z-ers have been known to research a bank’s carbon footprint before opening a checking account. They are the most diverse generation, and subsequently, they advocate strongly for social and political justice, and with their social media reach, they have the means to do it.

For financial services companies that wish to serve the up and coming Gen Z-ers, now is the time to get on board with the right advice and services. This could be impact investment options that resonate with their causes or online tools specifically created for Gen Z. It’s been said that it may very well be the generation that changes things for the better — Gen Z-ers are going to need all the support they can get.

Persistence is a Rare Commodity

For investors that remain committed to active management, finding consistently top performing managers can be challenging. One problem is, to paraphrase the common disclaimer clause, past performance does not seem to be a reliable indicator of future results.

Recently released data from S&P appears to bear out this statement. The S&P Persistence Scorecard tracks the degree to which mutual funds persist in their relative performance over time. It shows by asset class what percentage of funds performing in the first quartile or top half for a designated period remained in that position in subsequent periods. For those considering relative returns as an indicator of future success, the data tells a story:

For example:
• For all domestic equity funds in the top quartile for 2015: just 35% remained in the top quartile in 2016 and less than 2% of these funds made it to the top quartile in 2017, 2018 or 2019.

• For all domestic equity funds in the top half for 2015, 58% remained in the top half in 2016, but this percentage dropped to just 16% a year later and just 10% by 2019. 

• Over the longer term, for domestic equity funds that were in the top quartile for the five years ending in 3/2014, just 16% remained at the top for the next five year period while 32% dropped to the last quartile for that period.

• For domestic equities in the top half for the five years ending in 3/2014, 38% remained in the top half for the subsequent period while 48% fell to the bottom half. 

These dramatic shifts apply across large-, mid- and small-cap asset classes. 

Finding managers that can consistently produce alpha is an important element in the value provided by wealth managers that use active management or select active managers for specific asset classes. This data is a reminder that quality search and selection processes need to look at factors well beyond relative historical performance rankings.

Affluent Investors’ Apparent Calm in the Storm

Phoenix Marketing International (PMI) just released its Wealth & Affluent Monitor’s Investment Outlook findings for June. It shows the percentages of investors in the mass affluent and HNW market segments that say they plan either to increase their investments, decrease them or stand pat in the following three months. 

Given the dramatic spike in market volatility and ongoing economic uncertainty, one might expect there to be some significant recent moves into and out of the market by investors. Generally, however, the PMI data for mass affluent and HNW investors does not reflect this assumption. Rather, mass affluent investors largely stayed their longer-term course while HNW investors showed a stronger propensity to buy low and sell high. 

Mass Affluent Investors Stay Steady

Mass Affluent

The chart above tracks investment move expectations for the Mass Affluent segment (IPA $250K to $999K) each month for the trailing 12 months ending in June 2020. After a slight uptick in buying expectations in February, as the market dropped, and in selling expectations in April, as the market began to recover, expectations have tended to stay within recent historic ranges throughout the Pandemic. 

HNW Investors Take Advantage of Buying and Selling Opportunities 
The reaction to pandemic-driven market volatility by the HNW segment (IPA > $1MM) was more pronounced as the chart below shows. This group seemed to take the initial market decline in February and March as a buying opportunity as expectations to increase investments spiked while intent to decrease investments dropped to yearly lows. By June, the buying opportunity was perceived to have passed and expectations returned to more normal levels.

In hindsight, both sets of investors, given their respective wealth levels and presumed tolerances for risk, seem to have responded rationally to this recent Black Swan event. This may be a testament to investors growing market awareness or, more likely, to the guidance of their advisors in avoiding irrational investment decisions. 

High Net Worth

Happy #SocialMediaDay

Yes, there’s a day for almost everything. Today, June 30th, is Social Media Day, so Happy Social Media Day everyone. While to most of us, particularly those who are younger, it seems like social media has been around forever, it’s fun to note that the first site to reach over 1 million users (seems like small potatoes now) was MySpace, which began in 2003. Then along came Facebook in 2004, and the rest, as they say, is history. As you can see from the chart below from Pew Research, the majority of U.S. adults now use at least one social media site.

The younger the age group, not surprisingly, the higher the usage:

Facebook continues to be the most used social media platform, even among younger age groups, but Instagram has been making steady upward progress. Of course, since Facebook owns Instagram (and WhatsApp), it’s difficult to truly disaggregate the numbers. According to the data from Pew Research, other platform usage has remained relatively consistent. One platform which Pew Research does not include is TikTok, which has grown exponentially since its merger with in 2018 and expansion beyond its original China market. It has gone from 300 million users to over 1 billion by February 2019, outpacing Facebook and Instagram in downloads. The platform skews much younger than other platforms, with almost 80% of its audience age 34 or younger, according to Marketing Charts.

Social media is integral to business growth
While all of this is interesting and points to the importance of social media in our lives today, why is this important? Social media is increasingly critical to sales and retention, particularly for younger audiences. According to Adobe, “social media is the most relevant advertising channel” for 50% of Gen Z and 42% of millennials. And a study of consumer behavior by PWC finds that social networks are the biggest source of inspiration for consumer purchases. Even more telling is an article/infographic published by Smart Insights, which states that 71% of consumers who have had a positive social media experience with a brand are likely to recommend it to others. However, it also says that 80% of companies believe that they deliver great social media customer service, but only 8% of their customers agree. Social media has pervaded all aspects of individuals’ and companies’ existences, even for wealth and asset managers, where it is becoming an integral part of thought content output, client service, lead generation and client communication. Companies that are more active and successful in utilizing social media are realizing strong benefits in terms of business growth and retention, and the potential impact is growing.

A Story of Two Brands

Those watching cable news recently may have noticed a spate of new TV ads from Edelman Financial Engines. This is an extension of a national campaign started last February and features clips from the radio show of the company’s namesake Ric Edelman. Edelman co-founded Edelman Financial 30 years ago with his wife and has been the very public face of the firm ever since. 

Back in 2018, however, there were questions about whether the Edelman brand would survive. That year, private equity firm Hellman & Friedman, a majority owner of Edelman Financial, acquired retirement plan specialist, Financial Engines, and proceeded to combine it with Edelman. The branding of the new entity was up in the air. Financial Engines was substantially larger in AUM, but retail awareness of the Edelman brand was stronger as a result of Edelman’s popular radio show and publications. It took about four months for Hellman to decide on a co-branding approach with Edelman as the lead brand. An increase in lead and cash inflows identified by the firm from this year’s TV campaign featuring Edelman suggest the decision may be the right one.

In May of last year, Goldman Sachs acquired RIA rollup firm United Capital. In January of this year, Goldman Sachs completely dropped the United Capital brand. Going forward, United Capital is Goldman Sachs Personal Financial Management. This decision also makes sense. While widely known among a certain segment of financial advisors, United Capital had low brand awareness among retail investors. Even Joe Duran, United Capital’s founder, was not convinced that keeping the brand made business sense. Goldman Sachs also has a clear strategy to use United Capital to expand its offering to the HNW and Mass Affluent markets.

One lesson to be learned from these two very different post acquisition brand decisions is that several factors must be considered when making post-transaction brand decisions. These include the relative brand awareness in specific markets of each company, their relative size and market penetration, and most importantly, the business strategy of the combined entity going forward.

Is all Rebalancing Created Equal…and Does it Matter?

Periods of market volatility often represent an optimal time for advisors to work with their clients to rebalance their portfolios. Rebalancing serves multiple purposes. Rebalancing puts investors’ asset allocation strategies back in line with their risk profile and the goals that they are trying to achieve.

If equity markets are down, then allocations to fixed income will go up proportionately. This is particularly true currently when Treasury bond yields are so low, and there may be limited upside price potential. Rebalancing not only brings a portfolio back into alignment, but also accomplishes the proverbial “buy low and sell relatively high.” Rebalancing can provide an opportunity to invest in high-quality securities that were previously considered overvalued and/or sell securities that an advisor feels do not have the same performance potential. But when should you rebalance? A recent article in ThinkAdvisor discusses the main approaches to rebalancing:

While a hybrid approach is structured to benefit from rebalancing while avoiding the negatives, such as transaction costs and short-term gains, research finds that some form of disciplined rebalancing can still deliver better risk-adjusted returns than a portfolio that operates under a “set it and forget it” strategy. In addition, rebalancing gives advisors an opportunity to interact positively with their clients during challenging times, demonstrate a proactive value-added approach and help their clients avoid emotional investing and maintain a disciplined plan.