financial services, financial consultant, financial advisor, investments, investment management, management, consulting, investing, investments, assets, financial advice, advice, fee base, fee based, brokerage, commission, stock, stock broker, mutual funds, etf, folio, pmer, steve winks, srconsultant, srconsultant.com
 
     

Senior Consultant, 2003

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Senior Consultant, Vol. 6, No.12

       DTCC Fills Technology Leadership Vacuum: Plans to Offer a Standardized, Centralized Communications System for Separately Managed Accounts by Stephen C. Winks. At last, the systems and technology inefficiencies that have long plagued the separately managed accounts (SMA) industry are about to be resolved. There is a level of innovation that simply cannot be achieved by any single firm acting alone, that requires vision, leadership and an industrywide collaboration. The innovation provided by the DTCC will not just transform the SMA industry but will have profound implications for the larger financial services industry. Post-Modern Portfolio Theory demands dynamic means of transmitting and managing data than previously required. The connectivity fostered by the DTCC triggers an unprecedented level of innovation, using existing tools and technology to manage real-time data, that fulfills the promise of continuous, comprehensive counsel as required by regulatory mandate and expected by clients. The DTCC will democratize SMA product and ditribution access, stimlate exponential growth in the use of SMAs and give relevancy to innovative analytical tools and technology, accelerate the industry's evolution to fee-based counsel and elevate the role and counsel of the financial advisor. There is no choice for even our largest SMA distriubtion firms but to participate in this technological breakthrough. The option is to become a high-cost/low-value support organization without the necessary resources to gain parity. No man or firm is an island. The DTCC will have a most profound impact on the industry for many years to come. (Download this article in pdf format with graphics.)

       The Upside Potential Strategy: A Paradigm Shift in Performance Measurement by Frank A. Sortino and Bernardo Kuan. We all have heard the familiar investor retort, "Why should I engage the counsel of a financial advisor to tell me what to invest in? I'll just pick the one that performs the best." In a way, we are a victim of our own success. In our efforts to try and make things simpler for the client, it almost seems as if we are simply recommending the "hot dot" that is performing the best. Whether this is fact or fiction, the "hot dot" approach to manager selection is problematic. The problem is that popular performance measures like the Sharpe ratio and the Information ratio are one-dimensional, one-size-fits-all measurement tools which do not recognize our clients' personal variances (e.g., age, goals, level of wealth). Frank Sortino has developed a two-step procedure for performance measurement called the Upside Potential (U-P) Strategy, designed to help individual investors achieve their goals. The results are stunning and can greatly elevate your counsel. In the sell-off of 2000, the top three funds identified in the U-P Strategy were up 13% in a market that declined 32%, while the top three performing funds of the previous year were down more than the market. Not only does the "hot dot" not work, but it cheapens your counsel. The U-P Strategy is an important element of post-Modern Portfolio Theory that makes you look brilliant and elevates your counsel. This is a must-read. (Download this article in pdf format with graphics.)

       Identifying Investment Manager Skill by Ron Surz. The search for investment manager talent puts much emphasis on recent past performance. For years, investment management consultants have tried to discern skill from luck, using Modern Portfolio Theory (MPT) to no avail, because the focus of MPT is solely on broad market effects. About five years ago, in a significant development in post-MPT, researchers discovered the significance of investment management style in explaining and identifying skill. Skill can only be identified if we lift the thick clouds of style that distort our perspective. Ron Surz brings clarity to how we can sharpen and hone our counsel in evaluating skill in manager selection. This advancement in post-MPT is sure to elevate your good advice and counsel. (Download this article in pdf format with graphics.)

       The Virtual Office: How to Live the E-Life by Sharon A.C. Kayfetz. We all have seen the recent reports that U.S. productivity has increased by 8% this past year, which is largely attributed to efficiencies derived by automation. Perhaps no other industry is more ripe for automation and the electronic and management of information than the financial services industry. We lower our cost, improve client service and make far more productive use of our time. Sharon Kayfetz is a 20-year veteran of the financial services industry and is no stranger to the complexities and resource limitations that advisors face in running their business enterprises. Her pioneering work in creating paperless offices is an eye-opener that provides insight into how efficient and productive we can be, if we were simply to take advantage of the technology that is readily available. This is a very interesting, very instructive article indeed. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 11

       Enabling Technology and Infrastructure: The Key to Adding More Value, Advising More Assets, Winning More Clinets and Making More Money Than You Ever Dreamed Of by Stephen C. Winks. If you feel like you are the only person in your office who "gets it" - who is creating investment policy, addressing and managing a broad range of values and fulfilling fiduciary responsibility - you are not alone. Almost all of our industry's most accomplished advisors have been there. So, how can we elevate the role of the financial advisor and the counsel we provide? We can all learn from our industry's leading practitioners. You don't have to reinvent the wheel. I have outlined how our industry's most accomplished practitioners have created within their practices the processes, technology and infrastructure necessary to add value.Hopefully, this will accelerate the evolution of the counsel we provide based on the initiative of the individual practitioners and the vision of our supporting institutions. If you want to join the ranks of our industry's most accomplished advisors and add more value, advise more assets, win more clients and make more money than you ever dreamed of, it is going to require process, technology and infrastructure. This is how you do it. (Download this article in pdf format with graphics.)

       The Prudent Process: Client Profiling by Thomas M. Roginski. With the advent of real-time information, overlay management and advisors now being able to buy real-time buy/sell research rather than using managed accounts, there is a convergence in the investment management consulting and the PMer (advisors using individual securities in portfolio construction rather than third party money managers) business models. Not only are advisors more comfortable in using individual securities and ETFs (which are proxies for indexes, sectors and styles), but the PMer model is far less expensive than using research packaged as an investment product (i.e., mutual funds, managed accounts, etc.). You can do reporting and administration far more efficiently and effectively than a mutual fund because you are advising a client on all their assets. This is why the PMer business is the highest margin, highest value-added business within the industry. But, the question has always been: "How many advisors are really capable at portfolio construction and managing a large number of unique investment mandates?" Tom Roginski shows us that with institutionalized support, it does not have to be a daunting task to add value. Tom explains that through an easily executable, science-based "prudent process," any financial advisor can be trained to consistently add value within the unique constraints of each client's investment policy and has the documentation to prove it. This is where technology is taking us. It is truly extraordinary what an advisor can do with training, process, technology and institutionalized support. It remains a mystery why this type of support is not available to all advisors. The science is unassailable. The technology is real. The methodology is well documented. It is just a matter of vision and leadership. This is a must-read. (Download this article in pdf format with graphics.)

       A Virtual Reality Without Peers by Ron Surz, President, PPCA, Inc. With real-time information, can we afford to wait 14-18 weeks to apprise our clients on how well our managers are performing and/or provide counsel on what actions should be taken? If we wait 45-60 days after the end of a quarter for peer group performance rankings, we are talking about old news. Ron Surz welcomes us to a new world of virtual reality that allows us to make faster, better and less costly decisions than those that cling to outdated methodology. This is extraordinary insight affirmed by new AIMR criteria for investment performance benchmarks that will change how we do business. (Download this article in pdf format with graphics.)

       The Upside Potential Ratio by Frank A. Sortino, Robert van der Meer, Auke Plantinga, and Hal Forsey. Recent research in behavioral finance has found that investors do not seek the highest return for a given level of risk as described in Modern Portfolio Theory. Instead, investors seek upside potential with downside risk protection. Investors want a consistency of return and exercise judgment in a manner that achieves maximum future financial flexibility. So, rather than maximize return, investors want to maximize a "satisfiable" strategy. Most investors want wealth growth that is as stable as possible, where a trade-off between risk and return has been made. Thus, a measure of upside potential relative to downside risk is particularly meaningful. Frank Sortino, et al., have created a new means to evaluate performance called the upside potential ratio which provides a new perspective on risk/return trade-offs that is well suited for investors seeking the highest consistent performance beyond their Minimal Acceptable Return (MAR). Sortino answers the most important question that we could be asked in the engagement of our counsel: "What are we trying to measure?" In doing so, he and his colleagues have created a new and far more effective means of measuring performance in terms more appropriate for the investor than the investment manager. We are elevated by the pioneering work Sortino, et al in helping to formulate post-Modern Portfolio Theory. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 10

       Speaking the Unspeakable: The Marketing Opportunity of Our Lifetime by Stephen C. Winks. Is there a better way, other than trial and error, for you to build your practice? Why are advisors who want to fulfill their fiduciary responsibilities, who want to engage their counsel for an on-going advisory fee, who want to address and manage a broad range of investment and administrative values as required by regulatory mandate, not better supported by the financial services industry? Why must advisors be experts in technology, fiduciary responsibility, process management, staff management and development, and client acquisition and service? Why do they have to reinvent the wheel every step along the way? Shouldn’t the industry play a role in supporting the advisor in adding value and fulfilling their fiduciary responsibility? Why is the advisor put in the untenable position of not having the tools and resources necessary to fulfill their fiduciary responsibility and to help each investor achieve their goals and objectives? Why isn’t this level of support institutionalized? Well, there is, in fact, a better way emerging to build your practice, and it is the marketing opportunity of our lifetime. (Download this article in pdf format with graphics.)

       Building for the Future: Implementing Today's MSPs to Meet Tomorrow's Needs by Randy Bullard, President, Placemark Investments, Inc. Multi-style portfolios (MSPs) or MDAs as they are sometimes called, represent the most important innovation in the financial services industry of the past 10 years. (See Industry Trends: The Next Generation of Asset Management, Senior Consultant, August 1999, which was the seminal thought that served as a catalyst for the development of what we know today as MDAs.) MSPs/MDAs not only provide low cost access to top active managers (in the form of real-time buy/sell research), but they also solve the product pricing and administrative complexity problems associated with managed accounts. MSPs/MDAs also provide overlay technical expertise in managing tax efficiency and other values that may not otherwise be within the capability of the advisor to deliver. Randy Bullard, president of Placemark, is one of the industry’s leading authorities and advocates of MSPs and overlay management. Randy provides insight into where MSPs and overlay management will take us. This is not only a must-read, but it also offers an important reference point to gauge whether your firm understands where they must ultimately go to elevate your counsel. (Download this article in pdf format with graphics.)

       Advertising, Marketing and Sales: Are You Covering All the Bases? by Lisa Gray, President, graymatter STRATEGIES, LLC. We all know that the financial advisor is the value added, not financial products. Yet, because financial service support organizations do not have a unifying value proposition for all their advisors, their only recourse is to talk about financial products. Thus, the financial services industry is very adept at advertising and sales, but has yet to master marketing. The single most important determinant of your success is marketing &endash the base the industry leaves uncovered. Lisa Gray explains how advertising, marketing and sales are interconnected, and in the process we re-discover the loss art of marketing. This is the difference between doing well and being outrageously successful. (Download this article in pdf format with graphics.)

       The Spitzer Complaint: Ethical and Practical Considerations for Advisors and Their Clients by Nathan Behan and Patrick Flynn, Prima Capital Holding, Inc. Prima Capital provides excellent insight on the mutual fund after-hours trading scandal, what it means to us and our clients, and what we should do about it. The Spitzer complaint has paved the way for an SEC audit that will scour every mutual fund family to uncover such abuses, which will inevitably lead to class action law suits. At question is: Can we really rely on firms to do what they say in writing they are going to do in the prospectus? If you go back and check, we are finding to our surprise, that the assurance made to investors and advisors in the prospectus are not being honored. This is not a good news for the mutual fund industry which is already under fire for its loose investment discipline and lack of leadership in managing cost. (Download this article in pdf format with graphics.)

       How to Achieve Better Results with Less Effort by Stephen A. Saenz. Steve Saenz is the best in the business when it comes to helping you to create your value proposition, your business plan and the division of labor within your practice that will result in a high performance business team. Just as we optimize investment portfolios for our clients, Steve asks, “Why shouldn’t we optimize our business for better results without having to work so hard?” Business optimization is something we all would like to achieve, and Steve puts us on the right track. This article raises many questions which, if resolved, will optimize your business. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 9

       Unitrusts: The Liberation of Trust Assets from Their Traditional Fixed Income Focus by Stephen C. Winks. Trusts are integral to our offering high level counsel, yet we all have seen irrevocable trusts in which the grantor has been deceased for years, leaving no room for the trustees to impartially maneuver the trust assets for the benefit of both the income beneficiaries and the principal beneficiaries. This is the primary reason why bank trust units have such poor reputations in managing trust assets. Though trustees are required to act impartially, because of the nature of trusts, either the income beneficiary or the principal beneficiary will inevitably be favored over the other. The greater the income needs of the current beneficiaries, the less able the trustee to address the needs of the future principal beneficiaries. Virtually all existing trusts are of the traditional income and principal variety, but they offer no latitude to assure trust assets are more appropriately managed for the benefit of all. This is a wonderful opportunity for the investment management consultant, acting as an objective third party, to advance the use of unitrusts which provide much wider investment latitude, consistent with UPIA and the Uniform Principal and Income Act. Given the most important discipline in trust administration is investment management, perhaps the best solution for both the grantor and the beneficiaries of the trust is to engage the services of an investment management consultant to manage the on-going administrative responsibilities of the trust. Think of the trillions of dollars held in trust over the past 20 years during the strongest bull market ever, and the only thing the corporate trustee has to show for their work is the preservation of capital. The grantor and their beneficiaries deserve better, and you have an important role in helping them secure a better outcome. This is a must-read. (Download this article in pdf format with graphics.)

       Leveraging Through Technological Advances to Make Better and More Timely Decisions by Mamie Woo McNeal. We all have grown up using peer group group information in evaluating manager performance. In fact, it is the way to evaluate your options in manager selection. But, if the objective of our counsel in evaluating investment performance is to determine whether performance is good or bad, we might want to rethink where peer group rankings take us. Is it really true that if we are Money Manager A, that we don't care if our performance is poor as long as it is better than Manager B? What if both managers are performing badly? Peer groups cannot tell you relative to all possible outcomes how well a manager performs. PODs and PIPODs can. We, as advisors, are put in an awkward situation in using peer group rankings or sometimes firing good managers to look for better managers, while keeping a poor performer in another investment mandate. We resolve this by using PODs and PIPODs. Mamie Woo McNeal reviews modern portfolio theory, getting us to rethink performance evaluation and establishing why PODs and PIPODs are so important for us, citing leading academicians, institutions and practitioners who have become advocates. Performance evaluation is one of the most important things we do and can be a significant point of differentiation for you relative to your competitors. The use of PODs and PIPODs irrefutably constitutes best practices. (Download this article in pdf format with graphics.)

       Whose Message Is It? Yours or Your Firms? by Lisa Gray, President, graymatter STRATEGIES, LLC. Every firm has a widely used, glossy marketing brochure which provides in-depth information about the firm. There is no question the brochure is well done and very expensive, but how effective is it? How does the client use it? How does the person who reads this great-looking, sharply honed piece know whether a particular advisor is adept at utilizing all the resources cited? How does the reader understand a particular advisor's interests, expertise, experience and philosophy toward client service? The reality is, in your delivering your firm's products and services, you are a greater determinant of the value that will be added for a prospective client than your firm. As a consequence, the mark is being missed in marketing collateral, in that you, the advisor, are the value added, not your firm. The single most effective marketing piece you can use with your prospective clients is not your firm's marketing brochure which is all about the firm; it is your marketing brochure which is all about the client. There is a very specific process you go through to create an effective marketing brochure, which starts with your collaborating with marketing/management consulting professionals, who will align your value proposition with the targeted market segments with which you wish to work. If you become what your target clients want, they will seek out your services. This is what your marketing brochure will do. As you will see, there is an immense amount of work required, but the rewards far outweigh the time and effort expended. Learn what is involved and imagine its impact. (Download this article in pdf format with graphics.)

       Getting the Right Help at the Right Time by Steven R. Drozdeck, The Progress Center. We are rarely our own best counsel. In fact, that is why our clients engage our services. We all could use a helping hand from wise counsel in almost any of life's endeavors. In the financial services industry, there is an entire industry emerging just to coach or mentor financial advisors in elevating their counsel, advising more assets, winning more clients, finding more personal time and prioritizing their values. Steve Drozdeck, former Director of Professional Development for Merrill Lynch, offers keen insight into how to find and use coaches and mentors, and outlines how one might ideally develop, with professional assistance, their own custom professional development program with leading authorities in the industry. This is as good as it gets in reasoning through a coherent, personal development strategy that is open ended - dealing with literally any aspect of your business in which you seek best-in-class, authoritative assistance and counsel. It's worth the read. (Download this article in pdf format with graphics.)

       Prudent Process: Securities Selection by Thomas M. Roginski, Transition Management and Research. We all find ourselves at some point in time having to explain the complex tasks we perform to others who may not have a technical background. How do we explain to our mothers the prudent process of securities selection or risk management or CAPM theory? I have asked Tom Roginski to address in layman's terms the subject of the "Prudent Process." In this first part of a three-part series, Tom takes up the topic of how a "prudent man" might select securities for client accounts. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 8

       The Seven Secrets in Building a Billion Dollar Practice by Stephen C. Winks. There is a common mindset that all successful billion-dollar-plus consultants have which, in large part, has contributed to their success. When you put yourself in that mindset, it becomes clear why these senior consultants have been so successful. In order to sucessfully execute today's new advice business model, you must think and behave differently. This is what distinguishes you from brokers, planners, bankers, accountants, and insurance agents. We invite you to put yourself in a billion dollar mindset. Use the web-links to learn how to build and exponentially grow your advisory services practice. As you explore in-depth the seven secrets to building a billion advisory services practice, you cannot help but conclude there has never been a better time for the financial advisor to be in the financial services business. (Download this article in pdf format with graphics.)

       The Next Generation of Management: The Integration of Privately Managed Accounts into your Financial Advisory Practice by Gib Watson, Amanda Precourt and Geoff Selzer, Prima Capital Management. At $40 million in assets it becomes economically viable for an advisor to hire a Chief Administrative Officer and a Portfolio Manager/CIO, and develop within their practice the processes and technology necessary to add value and create a value proposition that is both less expensive and preemptive to their supporting firm's wrap fee programs and/or outside turnkey asset management programs (TAMPs). What makes this possible, in part, is the advisor can engage the same world-class outside technical assistance in manager evaluation, search and selection, and monitoring that the world's top accounting firms use, at a flat fee of $12-$25 thousand dollars in lieu of paying their firm 70 basis points on all assets under advisement in a wrap fee structure. Gib Watson and his colleagues have a lot to say. They have become the leading outsourced counsel advisors engaged for manager search and selection. This article makes a compelling case for one using managed accounts within their practice and concludes with impressive insight on how advisors are empowered in creating their own support infrastructure with in their practice. (Download this article in pdf format with graphics.)

       Creating Value by Sandra Champion, President, Champion Partners. Who do you turn to for assistance with foundation, Taft Hartley, ultra high net worth family, defined contribution, public fund, defined benefit or profit sharing plan clients? Each of these client constituencies have unique needs and technical requirements that transcend the support that mutual funds, managed accounts or any single product support area is capable of providing. The client and the advisor want value to be added, but the support available is only interested in distributing products and then only the products for which they are responsible. If the client and the advisor is to be well served, there must be technical support that cuts across all product areas that helps the advisor address and manage the investment and administrative values most important to each investor constituency/market segment. In a profoundly important innovation for the industry, Sandra Champion has brilliantly conceived outsourced support for advisors who wish to build a preemptive world-class value proposition in order to serve and/or win ultra high net worth family and foundation and endowment clients. This is the beginning of the industry moving from a product management organizational structure designed to distribute products to a process management organizational structure designed to add value. How do you go after and win substantial clients? Sandra has got some important answers. (Download this article in pdf format with graphics.)

       Leveraging your Gray Matter by Lisa Gray, President, graymatter STRATEGIES, LLC. There just are not enough hours in the day. As financial advisors, we know we should be continuously marketing, developing our web site, sharpening our value proposition, enhancing our client reporting, creating marketing materials, developing promotional opportunities, communicating with our clients, writing our newsletter, cultivating our focused client constituencies, branding ourselves in every market segment we cultivate in our trade areas. If you are a one-man shop or a 20-person firm, you never have enough time to do the most important thing - marketing yourself. Lisa Gray reminds us of the virtues of using consultants (sounds similar to what we do with our clients, doesn't it). By outsourcing these marketing initiatives to professionals who are far more capable than we would ever be, we leverage our time and focus on what we do best. A great idea whose time has come. (Download this article in pdf format with graphics.)

       Finding Value in the Mortgage Backed Sector During Times of Interest Rate Volitility by Jonathan D. Smith, Andres Capital Management. With all the hyperbole we have to weed through, it is refreshing to find guys who can add value by actually doing the hard work and research which we would assume is being done, but in practice isn't. How do you add value in a difficult environment, Jonathan Smith shows us how the real professionals roll up their sleeves and get to work. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 7

       There Is a Quiet Shift in Power to Fee-Based Advisors with Substantial Assets. Have You Fully Explored Your Options? by Stephen C. Winks. Financial advisors are always ahead of their firms when it comes to adding value. This is why it seems our firms are always struggling to catch up. We are entering an unusual period where the advisor's vision and understanding of the process and technology necessary to add value goes beyond the conventional trade execution technological mandate of the brokerage industry. Advisors who want to add value and fulfill their fiduciary responsibility are out of synch with the conventional commission brokerage business model, and if we are waiting for our firms to support us in adding value, we may be in for a long wait. Harvard's Clayton Christensen observes, "Under the traditional planning process, it is impossible to justify enormous investments to compete in emerging, yet-to-be profitable markets. Investing in disruptive technologies is not a rational financial decision for established companies. But by the time the new markets are large enough to justify the investment, it is already occupied by deeply entrenched competitors, thus creating the innovator's dilemma for our firms and our opportunity as advisors. Ultimately, the spoils of the new advice business model go to the innovators who are ahead of the power curve. By just availing yourself to the resources emerging, you will execute a far higher level of counsel, add far more value, advise more assets and make more money than you ever imagined. (Download this article in pdf format with graphics.)

       Funds of Hedge Funds: Portfolio Construction, Risk Budgeting and the Prudent Use of Leverage by Kenneth S. Phillips. In today's challenging investment environment, hedge funds have never had a greater application, yet for many advisors and firms not familiar with hedge funds, the opportunity is fraught with the risk of inexperience. Ken Phillips lets us get inside the head of a hedge fund manager and establishes an invaluable and highly instructive points of reference that would allow us to successfully maneuver in the world of hedge funds avoiding the land mines along the way. This is a must-read hedge fund overview from an authoritative resource that will change how you think about and use hedge funds. (Download this article in pdf format with graphics.)

       Stock Market Bubbling Towards a Major Decline by Charles Biderman. Charles Biderman's liquidity research remains aggressively bearish, contrary to the market's run up in recent months. Charles' insight into the supply and demand for stocks is a highly reliable indicator of the market's direction, typically months in advance of its move in either direction. It is from this unique vantage point of market liquidity that we can add considerable value in the engagement of our counsel. I hope you find Charles as helpful as we do. (Download this article in pdf format with graphics.)

       Your Real versus Perceived Value, Part V: Maintaining Motivation and Excellence in Yourself and Your Team by Steven R. Drozdeck. Rigorous, objective self-evaluation is imperative if you truly wish to professionally advance without self-delusion. What is surprising is the number of advisors who promote themselves as experts without having obtained the underlying required competencies. That is deception, whether purposeful or not. As advisors who care about the industry and our professional standing, we must demand a far higher level of professional development. Steve Drozdeck raises a series of questions that will elevate your practice your counsel, your team and the industry. (Download this article in pdf format with graphics.)

       Buying Quality at a Discount: Closed-End Funds by John Cole Scott. With the market trading at levels that many find uncomfortable, where do we turn to for investment opportunity? John Cole Scott reminds us why closed-end funds are attractive and warrant our attention, particularly today. It never hurts to refamiliarize ourselves with an old idea that again has come back into vogue. (Download this article in pdf format with graphics.)

       iShares MSCI EAFE Index Fund Performance and Secondary Trading Analysis by J. Lisa Chen. Sometimes when a great idea comes along, like an EAFE ETF, we hope it promises is fulfilled, but we just don't know for sure how well it works until after the fact. The iShares EAFE ETF has delivered. The concern that the EAFE ETF would trade at a discount or a premium proved to be unfounded as it has traded close to net asset value without a persistent premium or discount. This means an iShares EAFE investor has closely mimicked the benchmark, thus creating a massive institutional application. This article will change how you think about achieving international exposure in portfolio construction. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 6

       Defining Advice: The Asset/Liability Study by Stephen C. Winks. Are we really adding value and fulfilling our fiduciary obligations to our clients? Our clients has given us the charge to act in their best interests in providing continuous and comprehensive counsel, and by providing that counsel for their benefit, we have fiduciary responsibility. Fiduciary responsibility and its associated liability are not determined by investment performance but by a prudent process. This requires us to manage a prudent process as defined by statute, case law and regulatory opinion letters. So, in managing fiduciary responsibility, it is not whether you win or lose the game (i.e., make or lose money), it is how you play the game. The Center for Fiduciary Studies has identified 27 practice standards which are necessary for us to manage our fiduciary responsibilities which have been organized into a six financial service investment process (asset/liability study, investment policy, strategic asset allocation, manager search and selection, performance monitor and tactical asset allocation) through which we add value. So, what is required of each of us to add value? It is not as complicated as you think. This article is the first of a series of articles paralleling the work of the High Net Worth Standards Initiative that will define advice, starting with the asset/liability study. This article establishes the breadth of our counsel and its value proposition for you, your prospects and your clients. (Download this article in pdf format with graphics.)

       How to Win Prospect Trust Before You Even Meet by Larry Klein, President, NF Communications, Inc. It's simply human emotion to trust someone you know than someone you don't know. So how do you, as a financial advisor, get known? Larry Klein gives us fresh, practical, precisely-on-target counsel on how to market our finanical advisory practices with a proven, well-documented methodology. This article is a breath of fresh air as we all get so caught up in doing what we do that we often lose sight of, or don't make time for the wonderful opportunities we have to market ourselves, our practices and our value proposition. This is a must-read for all of us who find ourselves sometimes to busy to do the most important thing of all - market ourselves. This is the difference between a $50 million practice and a $500 million practice. (Download this article in pdf format with graphics.)

       Surz/Senior Consultant Style Analysis by Ron Surz, PPCA, Inc. May was up 6.37%, following an 8.3% return in April. Are there any clues in the May returns on what is performing well and why? Ron Surz'provides you insight into what styles, sectors and GIC sectors have outperformed. A most interest dissection of the markets and where the returns are being generated. (Download this article in pdf format with graphics.)

       Liquidity Analysis: Is the Market Rally Teetering? by Charles Biderman, TrimTabs.com With Charles Biderman's liquidity research anticipating a 25% market upturn in February, a month before its recent run, it again reconfirmed the importance of liquidity in predicting the direction of the market. Last year, Charles' model portfolio was up 74% using this research. So, when his research turned bearish (in fact, very bearish) in face of the recent run up, that gives us good reason to be hopefully positive. You must read what Charles sees as unfolding. A most interesting point of reference which deserves a much closer look. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 5

       Has The Value Proposition of the Financial Services Industry Changed? by Stephen C. Winks. Is commission trade execution the advisor's strongest value proposition? Few would argue that the new advice business model doesn't greatly elevate the counsel of the advisor nor would they argue that it's not an economic necessity for the advisor. The investor does not care how painful or disruptive it is for product-driven commission brokerage organizations to evolve to process-driven advisory services firms; they just want value to be added. Yet, because of the pain and disruption associated with the new culture, organizational structure and technology required to empower the advisor to add value, many firms will not find the will to compete. This translates into a once-in-a-lifetime marketng opportunity. Investors want value to be added, and the industry's existing infrastructure does not make it possible for one to add value or fulfill their fiduciary obligations. Who will fill this leadership vacuum? What worked in the past clearly will not work in the future. New firms are emerging with the promise of a new value proposition that elevates the advisor and the counsel they provide. (Download this article in pdf format with graphics.)

       A Comprehensive View of After-Tax Investing and Tax Efficiency by Ron Pruitt, Placemark Investments. Tax efficiency explains the fundamental difference between the institutional and individual investor market segments and the difference between the highest level of professional investment and administrative counsel for individuals. The promise of overlay management is that substantial value can be added by managing all the technical and administrative nuances in coordinating the buy-and-sell decisions of a large number of independent managers in a tax-efficient manner. Ron Pruitt explains how this is done, and how, through overlay management, you can articulate and deliver the benefits of tax efficiency without personally having to have the required technical credentials, know-how and attention to detail. (Download this article in pdf format with graphics.)

      April Was Up 8%! What Worked and What Didn't by Ron Surz, President, PPCA, Inc. Even though April was up a welcomed 8%, we have just as much to learn from what didn't work as we do from what did work. In a rising market, our interests and instincts always gravitate toward investments that worked or are working well because we have traditionally gone long in buying securities on the hope that prices would rise over time. Conversely, it follows in a declining market, we would go short (selling the promise to deliver a stock in the future we currently do not own) in selling securities on the hope that prices will decline. Thus, with our recent market down trend, we gain just as much value by going short as we would going long. Yet, we greatly underutilize the opportunity to short securities. The value of style and sector analysis in shaping our judgement and counsel in continously changing market conditions is that we would profit from both long and short positions. Though we are thankful for a great April, our success does not solely hinge on a rising market if we have access to timely, accurate and actionable information. Let's look at what worked an what didn't work in April. (Download this article in pdf format with graphics. See also Consultant's Toolbox Solution: PIPODs offer on our Consultant's Toolbox web page.)

      Liquidity Analysis: Has the Rally Gotten Ahead of Itself? by Charles Biderman, TrimTabs.com. After the S&P 500 jumped 19% between March 10 and May 10 (TrimTabs research was saying 20% to 25% in February), companies have become heavy net sellers of their own shares and insider selling has surged since earnings release season, while post-war investment sentiment (a contrarian indicator) is bullish. As of the week of May 10, this rally may have gotten ahead of itself. The market's liquidity can predictably tell us the direction of the market by determining whether companies are net buyers or sellers of their own shares (L1), whether money is flowing into or out of mutual funds (L2) and how much margin debt was used in the purchase of equity (L3). You can gain insight into how market forces are evolving weeks before the market moves by following Charles Biderman's liquidity research and market commentary. (Download this article in pdf format with graphics.)

      Can Distributions Be Made from Underwater Endowments? by Douglas K. Freeman, Mark Powell and Sandra J. Champion, IFF Advisors, LLC. The S&P 500 between its high in 1999 and 2002 declined 42% - the worst annual decline in the past 50 years. The Chronicle of Philanthropy has found the nation's top 10 foundations lost $8.3 billion in the first six months of 2002 alone, while contributions to public charities have declined dramatically. An American Affluence Research Center survey has found 13 of the 25 largest community foundations experienced a fundraising decline. Thus, new money is hard to come by to replace the lost value of an endowment. Given today's difficult operating environment, how will endowment distribution policies be affected? This article explores the full range of considerations in managing and administering distribution policy for endowments. (Download this article in pdf format with graphics.)

      Your Real versus Stated Value, Part IV: Professional Knowledge and Sophistication by Steven R. Drozdeck, The Progress Center. When dealing with complex financial issues, it is not humanly possible to add value on your own. You will need the supporting technology, infrastructure, know-how and access to authoritative professionals from other disciplines in order to add value. Yet, advisors nevertheless try to do it all alone - drawing upon their personal knowledge and the Cliff Notes supplied by their firms. While this may be adequate for the mass market, it is totally inadequate for discerning investors with more complex needs. In order to grow professionally, you must first know what you don't know, and benchmark yourself against the industry's top practitioners. This article takes an important first step in aligning your professional knowledge with our industry's best practices. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 4

       How Are Top Advisors Growing Their Business in Today's Difficult Market? by Stephen C. Winks. High level counsel is within the reach of every financial advisor, even in today's terribly difficult business climate. By simply redeploying the same resources you are now expending (note that you are now paying your firm 70 basis points to work within an unintegrated wrap fee program structure), you can create the staffing, process and technological infrastructure that is enabling our industry's top advisors to aggressively grow their practices. Learn how top advisors specifically articulate and execute a most compelling value proposition. Learn how to build a thriving practice because the market is, in fact, so difficult. You don't have to be a million-dollar producer, a technological guru or a rocket scientist. You just must want to be of value to your clients. (Download this article in pdf format with graphics.)

       The Pension Crisis Revealed by Ronald J. Ryan and Frank J. Fabozzi, Ryan Labs, Inc. America is facing a pension crisis that threatens the solvency of our corporations, cities, states and even the federal government. Though much of this crisis would appear to be the result of poor equity performance of defined benefit plans over the past three years, Ron Ryan and Frank Fabozzi argue that the root cause of this crisis lies within the actuarial practices and accounting rules that apply to defined benefit plans. This is a must-read. (Download this article in pdf format with graphics.)

       Liquidity Analysis: Higher Prices Over Second and Third Quarters by Charles Biderman, TrimTabs.com. Wouldn't it be great if we knew in advance whether the market was going up or going down? Market Liquidity Analysis tells us just that. Charles Biderman, who is the leading authority on liquidity research, tells us what lays ahead in the capital markets. Charles' work has a very high predictive value, telling us what is likely to occur three to four weeks before the market moves. I hope you find this as useful as we have. (Download this article in pdf format with graphics.)

       Leaving a Lasting Legacy by Sandra Champion, President, Champion Partners. Your counsel in creating family foundations transcends the investment considerations in funding the foundation and/or managing the liquidity necessary to fulfill its grants. There are mission critical administrative and operating considerations that should be resolved by the donor at the time of the donation and the establishment of the family foundation. In addressing these issues, you will greatly enhance the intended legacy of the donor and will greatly minimize any family dissension in the on-going administration of the donor's wishes. (Download this article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 3

       Does the Wachovia/Prudential Merger Promise New Industry Leadership? by Stephen C. Winks. Will Merrill Lynch, Salomon Smith Barney or Morgan Stanley be the leading firms in the financial services industry a decade from now? We have seen more change in the financial services industry in the past decade than we have in the previous 50 years. In periods of extraordinary change, such as what we are experiencing now, what has worked in the past not only has no bearing on what will work in the future but may actually inhibit future success. Wachovia Securities has become the third largest and the fastest growing firm in the industry because it is the most responsive firm in the industry to the needs of the financial advisor. In many respects, Wachovia has already emerged as an industry leader. The associated metrics of accounts, advisors and revenues will soon follow, if it achieves its objective of deriving 75% of its earnings from recurring revenues. Learn how Wachovia will become the leading financial services firm in the industry. (Download the article in pdf format with graphics.)

       Liquidity Theory: A Means to Achieve Positive Absolute Returns in Any Investment Environment? by Charles Biderman and Madeline Schnapp, TrimTabs.com. Does the equity market necessarily have to be fairly priced? Like a broken clock that is accurate twice a day, the equity markets will rarely be fairly priced. It will generally be either overpriced or underpriced. Thus, for those of us who are devotees of Warren Buffet, Graham and Dodd, who are hung up over the fact that the equity market is still overpriced, Charles Biderman would suggest the market's valuation should make no difference. Last year, Charles' model portfolio was up 74%; and based on his liquidity research, Charles called the end of the bull market in 1999. I have been following Charles at TrimTabs.com for three years, and his liquidity research answers many of our questions which seem irresolvable by modern portfolio theory. The predictive value of liquidity theory is stunningly powerful in anticipating movement in the capital markets. (Download this article in pdf format with graphics.)

       Putting It All Together with Web Services: A Unified Platform to Deliver Tomorrow's Managed Accounts Today by Russ Isaac and Clark Underwood, IAN, LLC. Though every financial advisor in the business would like to add value, the barrier to entry to adding value is prohibitively high for most financial advisors. The superior client acquisition/relationship management skill set of most advisors does not translate well when each financial advisor has to create their own processes and technology necessary to add value. Why are we requiring the financial advisor to be so technologically astute or requiring his/her understanding of all the technical nuances of fiduciary responsibility to be comparable to industry experts? It is difficult enough for the advisor to understand and diagnostically evaluate each client's needs, and to create the associated statement of investment policy or to exercise the investment acumen necessary to address and manage a broad range of investment and administrative values as required by regulatory mandate. It is like asking a doctor to invent an x­ray or heart/lung machine for each patient in order for them to practice medicine. Russ Isaac and Clark Underwood tell us it doesn't have to be this way. The industry just needs to embrace web services. Many of the processes and technology necessary to add value actually exist today and do not have to be reinvented by each advisor for each client. (Download this article in pdf format with graphics.)

       The Virtual Custodian: Changing the Financial Advisor's Value Proposition by Pat Gardner, ByAllAccounts, Inc. A recent Financial Research Corporation study found the average financial advisor has 245 relationships, with each client having nine accounts. This means that in order for the advisor to add value, they must continuously monitor 2,000 accounts. The virtual custodian platform using real-time, web-based information makes it possible for advisors to not only monitor all of a client's holdings (both assets and liabilities) but to address and manage a broad range of investment and administrative values, as required by regulatory mandate, necessary for each of the advisor's clients to achieve their goals and objectives. The virtual custodian describes the firm of the future and how it helps advisors translate data into information, information into knowledge, and knowledge into expert advice. (Download the article in pdf format with graphics.)

       PIPODs: Unifying Best Practices for More Timely, Relevant and Accurate Investment Performance Evaluations by Ron Surz, PPCA, Inc. How good do we aspire to be as financial advisors? Is there ever a point where we are good enough, where we have no aspirations to better serve our clients? Let's hope not. There are advances and innovations on the horizon that will greatly elevate our counsel and transform our industry. The primary means by which we articulate the on-going value of our counsel is the performance monitor. Ron Surz has created a wonderful new technology called PIPODs that allows us to better serve our clients by explaining performance in ways that peer groups and benchmarks can't. By using PIPODs, you will establish that you understand the limitations of peer groups and benchmarks, and that you have elevated your counsel in evaluating performance. This is a professional distinction to which we all aspire, as we all want only the best for our clients, and the PIPODs metric helps us to deliver it. (Download this article in pdf format with graphics. See also Consultant's Toolbox Solution: PIPODs offer on our Consultant's Toolbox web page.)


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Senior Consultant, Vol. 6, No. 2

       How Does the Industry Win Back Investor Confidence? by Stephen C. Winks. Though we cannot reverse the economic forces at work that have caused the market downturn, we can, through our own actions, manage to instill investor confidence and regain the public's trust. Our ability to address and manage the full range of investment and administrative values necessary to restore investor confidence is largely determined by the support our firms provide. Thus, the central issue in restoring investor confidence is finding a way for supporting financial services firms to manage fiduciary liability so they are comfortable in providing the financial advisor with the processes, technology and support infrastructure necessary to address and manage the full range of investment and administrative values required by regulatory mandate. The management of fiduciary liability is resolved by empowering the advisor to add value, essential to restoring public trust and investor confidence. We make compelling case for the industry elevating the financial advisor and their counsel through technological innovation fostered by advisors taking the initiative to create standards and establishing best practices. (Download the article in pdf format with graphics.)

       Remaking the Market: My Investors, My Responsibility by Charles R. Schwab. In Charles Schwab's four decades of serving investors, he has never seen such a "profound crisis of trust." Courageous leadership and accountability are notably absence in the financial services industry when it is most needed. It is rare a leading figure in our industry, like Charles Schwab, speaks with such passion in support of the industry acting in the investors' best interests. The transparency, disclosure and accountability measures called by Charles Schwab makes you wonder how the industry could successfully operate any other way. (Download the article in pdf format with graphics.)

       Speech by SEC Chairman: Remarks at the Annual SIA Meeting by Harvey Pitt. In Harvey Pitt's last speech as SEC chairman, he speaks to the issue of investor confidence and how we, as an industry, the private sector, must assume the difficult task of regaining the public's trust. It is clear to former SEC chairman Pitt that advisors are fiduciaries, an essential first step in the industry regaining the public's trust. The concluding Teddy Roosevelt quote is inspirational as he describes the challenge we face in elevating the financial advisor and the counsel they provide. (Download the article in pdf format with graphics.)

       High Net Worth Standards Initiative Established: Advisors to Develop Best Practices, Enabling Technology Fostered by Stephen C. Winks. How do we as financial advisors facilitate our industry's leading support organizations to manage fiduciary liability so we can, in turn, fulfill our fiduciary obligations to our clients? How do we as financial advisors foster the development of enabling technology that would effectively manage fiduciary liability and assure execution of best practices in the engagement of our professional investment and administrative counsel? How do we as advisors reduce the labor intensity of professional investment counsel so we can elevate the stature and counsel of all financial advisors? We welcome your support and that of your firm in the high net worth standards initiative, so we as financial advisors can be instrumental in elevating the financial advisor and their counsel, restoring investor confidence and public trust. (Download the article in pdf format with graphics.)

       Style Analysis: How and Why by Ron Surz, PPCA, Inc. If you would like to differentiate yourself from your competitors in evaluating investment performance, this is a must-read. Ron Surz explains how to isolate general market effects from investment management style from the skill of the manager and speaks to the relative value of returns-based style analysis and holdings-based style analysis. Ron never fails to show us how we can elevate our counsel and grow professionally. (Download the article in pdf format with graphics.)

       Your Real versus Stated Value, Part III: Is Your Business Really a Business? by Steven R. Drozdeck, The Progress Center. Are you engaged in commission sales or are you building a financial services business with substantial recurring fee revenue that has a transferable value? Steve Drozdeck helps us refocus on whether we are developing our business as a business by inviting you to explore a series of questions that will take you and your practice where you wish it to be. (Download the article in pdf format with graphics.)

       Capturing Hedge Fund Portfolio Diversification by Matthew Sola. Hedge funds have eclipsed managed accounts in assets under management, but the full range of funds offered within each of the nine principle hedge fund classifications requires a degree of sophistication and technical knowledge uncommon for most financial advisors. Matt Sola discusses how one can adroitly navigate the almost overwhelming number of hedge fund investment options without exposing ourselves and our clients to unacceptable risk. (Download the article in pdf format with graphics.)


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Senior Consultant, Vol. 6, No. 1

       Surz/Senior Consultant Style Analysis by Ron Surz, PPCA, Inc. This year-end review looks back to the beginning of the millenium and provides fascinating historical insight, going back 77 years to when records were first kept, which is the invaluable context that shapes your judgement. Technology stocks were up 18% in the fourth quarter 2002, which is hopefully the bottom as they are coming off a 73% loss in value this century. Small cap value was up 14% for the year. The fourth quarter was particularly interesting as the value/core/growth performance sequence fell out of synch. Normally core's performance falls between value and growth. In large cap companies, core performed the same as value and outperformed growth. In mid and small cap, growth was king, generating positive double-digit returns, reversing the recent trends that characterize this market segment. In the 77-year history of the capital markets, we have weathered the second most difficult period of real inflation-adjusted losses on record over this past 3-year period, second only to 1973-74. Though no one knows what the future holds, if we are in a pattern of reversion toward mean long-term performance to counterbalance the outperformance of the 1990s, then a period of underperformance should be expected. By extension, if underperformance persists, as it has, one has to reverse their pattern of behavior. In outperformance, one chases the hot dot; in underperformance, one chases the styles and sectors that have done the worst, looking for reversals in the pattern. This contrarian approach is the opposite of "chasing" hot dots, as advised by the mutual fund ratings services,, but requires you have judgement on performance reversals. The Surz analysis tells you which styles and sectors are ready to outperform; this is why the Surz style analysis is a must-read in each issue. (Download the article in pdf format with graphics.)

       Can Hedge Funds Perform for Your Client Portfolios? by Matthew Sola, Principal, Solworks Where do we invest when the promise of U.S. equity performance is no longer attractive? For a large number of investors at the higher end of the high net worth and institutional markets, hedge funds have increasingly been the answer. For Goldman Sachs, Northern Trust, Lehman Brothers and other firms that serve the $25+ million investor, hedge funds have become integral to their core investment strategy. Hedge funds have eclipsed the managed account industry in assets under management, and many investors are clamoring to learn more. Matthew Sola asks the question: "Can hedge funds perform for your client portfolios?" The answer partly depends on you. (Download the article in pdf format with graphics.)

       In Defense of Defined Contribution Plans by Brad Brewer, CPA, CFBSC, Innovest Portfolio Solutions. As the market takes a downturn, there has been much written on defined benefit plans making a comeback after decades of declining popularity, from representing 63% of all plan participants in 1978 to 31% in 1998. Does this spell the end of defined contribution popularity that has seen assets grow from $126 billion to $2 trillion over the same timeframe? Contrary to popular opinion, defined contribution plans are still a most attractive option for both plan participants and plan sponsors alike. Brad Brewer tells you why. (Download the article in pdf format with graphics.)

       Braking Ranks by Ron Surz, PPCA, Inc. We all are very familiar with the industry practice of managers touting their peer group rankings. Having a performance ranking in the top decile means something. But investment performance ranking is derived from peer groups that have biases, which must be managed in order for us to clearly weigh our investment options. A new ranking approach developed by Ron Surz called Portfolio Opportunity Distributions (PODs) eliminates these biases and provides much more clarity in manager selection. In this article, Ron shows you how you can differentiate yourself in the very important task of manager search and selection. Through advances in technology and computing power, which was not available 10 years ago, today's PODs provide us with clarity and insight that was not possible at even the largest of institutional firms. (Download the article in pdf format with graphics.)

       In Determining Whether a Manager is Skillful or Lucky, Why Isn't Everyone Using Style-Based Attribution Analysis? by Dan Thatcher, MBA, CFP, CIMA. In a conversation with Dan Thatcher several months ago on style attribution, I asked Dan why everyone wasn't using style attribution analysis in evaluating manager performance. Dan had given a lot of thought to this very question, and I was blown away by his response. Dan agreed to put pencil-to-paper and the resulting article is a must-read. It is a consultant talking to a consultant with uncommon clarity. This answers the question of what you do that differentiates you from other capable advisors. (Download the article in pdf format with graphics.)

       Small Cap Comparison: S&P 600 and Russell 2000 by Gordon Platt, Research Analyst, Index Research Group. In today's very difficult market environment, the need to differentiate yourself from other financial advisors has never been greater. Your success will largely be determined by how you separate yourself from the rest of the pack and being aware of the skill sets required in order to create separation. (Download the article in pdf format with graphics.)

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