AssetMark makes a turnkey mutual fund WRAP product for investment advisors. Advisors can select between AssetMark’s stable of well-known WRAP strategy providers. If a strategist does poorly, the advisor can “fire” the strategist and replace them with another—all without leaving AssetMark. A simple but brilliant setup that is now in common use by many WRAP providers, like Schwab. It’s a great product and I’ve never met an advisor who didn’t love it.

AssetMark was just acquired for $230M - $330M, depending on whether they hit certain performance targets over the next five years.

I built AssetMark’s original technology platform ten years ago. They started by outsourcing their operations to a company called IAN, where I ran the development department and built the software. (This is the same development team who later built Techfi’s technology.) Outsourcing to IAN was the quickest way AssetMark could launch their product, and our involvement was short-lived. They moved it in-house after a few years.

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Bob Clark, editor of Investment Advisor Magazine, jumps up on his soapbox to tell us about some of the current problems with the CFP board.

Here’s how the article starts:

One the things I love most about covering financial planning is the CFP Board. They may be the worst thing to happen to the planning profession since limited partnerships, but I pray that planners continue to keep them around, for the entertainment value alone. I had begun to despair that with the appointment of Sarah Teslik as CEO, the Board had entered a new era of boring professionalism. Then, suddenly, my spirit was buoyed to new heights as those wacky folks in Denver unleashed a staggering one-two combination—Sarah Teslik going off the wall on Nightline and then the baffling proposed revisions to the Board’s code of ethics.

Read the article. It’s extremely informative about an important issue to advisors—credibility. Plus Bob has a fun writing style, making it easy to see the entertainment value in some otherwise sad circumstances.

I want to watch that Nightline video.

Your custodian competes with you for high net worth clients and it’s getting worse. These two articles should send a chill down your spine:

• Schwab to chuck advisors from referral program
• Fidelity says [new direct-to-investor guidance program] will not reduce advisers

Schwab and Fidelity—the two biggest providers of custodial services to independent investment advisors—are consolidating their direct-to-investor business at the expense of their independent financial advisors. Schwab is dramatically curtailing their investor referral program:

“Yes, there will be fewer advisers in the [referral] program to enable [Schwab branches] to forge deeper, more productive relationships at the local level,” [a Schwab spokesperson] said.

“Schwab Retail and Schwab Institutional had a battle, and Schwab Retail won,” [said an adviser privy to Schwab corporate political maneuvering]

On top of it all, TD Waterhouse was acquired earlier this year. While the TD Waterhouse/Ameritrade merger isn’t inherently bad, corporate mergers often don’t end well for our independent advisor community. At the very least, it throws a cloud of uncertainty over the #3 advisor custodian.

What’s an independent advisor/planner to do?

David Drucker at Morningstar Advisor Edition has a couple great posts with some insightful Practice Management Tips. He broke it into two articles, Tips 1-6 and Tips 7-12. It contains solid insight into where the industry is headed, both in advisor technology and future client demographics.

My favorite tip a generic one that can be applied to most businesses: “Use of Client Surveys”. I used surveys to monitor customer service levels at Techfi. It helped me be sure our young and fast-growing customer support department was moving in the right direction and constantally improving the client experience. I felt it gave me much better insight than the antecedotal illusion I sometimes got when talking to individual clients.

I keep seeing articles like this telling a sad story of people losing their homes. If you watch the senate oversight committee (if not you might want to; you can watch it here or buy it here), it’s obvious the problem is getting bigger. Primarily the blame is falls on exotic loan products being available to the masses combined with increasingly predatory lending practices.

While most financial advisors clients probably don’t have this problem, you might be surprised how many people have fallen into the interest only or zero down loan products. Many in the middle class get into these products to “buy more home” and simply get in over their head. The short-term impact on your business has clients selling off assets to get caught up on mortgage payments.

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The SEC is making it easier to look up information from public company filings. There are three projects contained in this press release.

1. Update EDGAR to support XBRL (3-6 year total contract)
2. Update the XBRL language to support GAAP accounting statements (< 1year)
3. Create tools for investors to use the new system (No time provided)

The time frame is one year for the current EDGAR data to be transformed into XBRL. While I applaud the SEC efforts I think the time frame might be a bit aggressive.

When completed, this effort should help a lot of people gather information quickly on different companies and be able to compare two companies much quicker. In the short term, it’s really going to help the do-it-your-selfers more than the professional since most of this data is already available through third parties.

One good side effect for the professional could be the creation of new tools for analytics based on this data. Companies who currently provide the data will probably have to create new value added solutions which will create a new set of features for the professionals to use.

Here’s an interesting article about Morningstar’s new Investor Return. They’ve correctly identified an interesting anomality in the way performance for mutual funds is measured. It’s essentially the difference between time-weighted and internal rate of returns, with which many advisors may already be familiar.

The way mutual funds measure Total Return, it makes no difference how much money they have under management. If the fund performs at 10% in the first month of the quarter with $1M in the fund, and 0% in the last two months of a quarter when there is $10M in the fund, the average return will be 3.3%.

With their new Investor Return method, the average return for the quarter would be close to 0%. Why? Because the fund doesn’t get much credit for the first month when the fund only had $1M, whereas it had $10M in the last two months (when the return was 0%).

Here’s the interesting part: Why does Morningstar care about measuring this? I mean, the fund companies don’t control when investors invest or withdraw money from their fund. Well apparently they can, according to Don Phillips:

Fund companies don’t have complete control over how investors use their funds, but that doesn’t mean they can’t exercise any control. Fund companies can influence investor behavior through fund design, the timing of launches and closings, marketing efforts, and shareholder communications.

In fact, Phillips indicated that Morningstar was planning on taking a fund’s dollar-weighted returns into account in calculating its stewardship grade. This grade… is based on several different dimensions of a fund’s governance and corporate culture. Phillips argues that a fund probably has serious governance and corporate culture problems if its dollar-weighted returns are a lot lower than its time-weighted returns.

Bam! That’s really putting it out there. I wonder what effect this will have on the industry. Will this bring a resurgence of short-term withdrawal fees?

The largest provider of financial planning software just acquired the second-largest. This does not bode well for Financial Profiles users. Here is a telling quote from the article:

…[NaviPlan] vows that both product lines will continue to be developed and supported, at least through the first quarter of 2007, when new upgrades for Profiles+ and NaviPlan are scheduled for release

So after 1Q, 2007 there’s a good chance that Financial Profiles will no longer be updated. This is a real shame—Profiles is one of the three big planning packages currently used by advisors. (The other two are NaviPlan and MoneyGuidePro.)

This is even worse for Profiles users when you consider that Profiles is the simplest of the three packages. Whereas Naviplan is the most complicated and the software is structured very differently. If the plan is to upgrade Profiles users to NaviPlan, it will not be an easy upgrade.

A couple days ago, I decided get caught up on recent happenings in financial services. I searched for an industry blog to give me the highlights with accompanying commentary. There wasn’t one.

So here’s the first blog for financial advisors, brokers and financial plannners. It’s a collaborative effort and we’ll try to keep you informed about everything happening in our industry. Thanks for reading and please let us know what you think.

-Matt Abar, 10/16/06