LESSONS FROM ABROAD: HOW CAN U.S. FAS INFORM ETF IMPLEMENTATION IN JAPAN?

Michael Jones, Chairman and CIO, RiverFront Investment Group

Transcript

1. Michael Jones, CFA Chairman & Chief Executive Officer April 2, 2019 Lessons from the US: An Investment Industry Transformation
2. Michael Jones, CFA 2 • Founder and CEO of Caravel Concepts, LLC. Caravel helps global investment companies transition from brokerage to advisory client relationships. • Prior to Caravel, Michael served as Chairman and founding partner of RiverFront Investment Group, an $8 billion global advisory firm. • Before the launch of RiverFront, Michael served as the Chief Investment Officer for Wachovia Securities, the third largest brokerage and investment advisory firm in the US. • Michael is a featured guest on many financial news networks including CNBC, Fox Business, and Bloomberg and has been inducted into Research Magazine’s ETF Hall of Fame. • Michael graduated from the College of William & Mary and earned an MBA from the Wharton School at the University of Pennsylvania.
3. Topics to cover: 3 • Brokers & Advisors • Advisory client relationships and ETFs • Motivations for transitioning to advice • The big obstacle to making the change • Keys to a profitable transition
4. Brokers: 4 • Brokers sell investment products. • They charge commissions. • Brokers are held to a suitability standard. • Brokers cannot legally give advice. • A broker’s value is access to investment products.
5. Advisors: 5 • Advisors offer investment advice, they do not sell investment products. • Advisors charge a portfolio management fee. • Advisors are held to a fiduciary standard. • An advisor’s value depends upon the quality of the advisory process.
6. The Bottom Line for ETF Issuers 6 Advisors use tons of ETFs and Brokers don’t .
7. The Caravel Three P (C3P) Advisory Process: 7 • Plan - document a client’s financial goals and objectives, and then design a financial plan calculated to achieve those goals. • Portfolio - building an investment portfolio designed to meet the return objectives and adhere to the risk constraints documented in the financial plan. • Progress - tracking progress toward meeting financial goals and making appropriate adjustments to the plan and the portfolio based upon actual experience.
8. Motivations for Converting to Advice 8 • Advice can be better for the client. • Declining commissions & escalating regulatory pressure • Advisory firms make more money and trade at a higher valuations than brokerage firms • Advisors make a lot more money than brokers. • Advice is just a better business.
9. Advice is more predictable 9 • Commissions start each month at zero. • Advisory fees start at last month’s level plus or minus market moves. • Commissions can drop precipitously in a bear market. • Advice fees decline only to the extent the market drops. • Commissions can stay depressed until confidence returns. • Advisory fees recover with the market.
10. Advice is more scalable 10 • Commissions require time and effort to generate - there is only so much time in a day. • Clients won’t act on every recommendation, so time must be devoted to analyzing disparate portfolio strategies. • Advisory fees accrue automatically and discretionary advice provides for “mass customized” portfolio solutions. • Advisors can add clients and assets without adding costs.
11. Why hasn’t everyone transitioned to advice? 11 The dreaded “J-curve”!
12. Keys to a quicker, more profitable transition to advice 12 • Management commitment. • Easy to use advisory process software. • Fully built out advisory portfolio solutions, including ETFs based portfolios. • Appropriate compensation and incentive plans • Education and training.
13. Transitioning to Advice is Worth the Effort 13 • Better for the client. • Solves regulatory concerns • The firm makes more money • Sales professionals make more money • The firms who lead the way reap most of the profits.