Advisor Optimism Tempered By Debt Ceiling Pessimism At IMCA Conference In New York

Charles Paikert

5 February 2013

Advisor optimism was tempered by Washington pessimism at the Investment Management Consultants Association’s annual New York conference in midtown Manhattan yesterday.

Nearly 900 investment advisors and wealth managers attended the sold out conference, and, according to a survey of IMCA members last month, 79 per cent believe the economy will grow, and 82 per cent said the stock market will rise in 2013.

“Advisors are very positive right now,” said IMCA chief executive Sean Walters. “It appears that they’re even more optimistic than their clients.”

But general session speaker Robert Pozen, the former chairman of MFS Investment Management who also held government posts under President George W Bush and Massachusetts Governor Mitt Romney, dampened the mood by predicting that the US government would fall off the fiscal cliff on March.

Congress would be unable to come to an agreement on the debt ceiling by its own self-imposed deadline, thereby triggering “sequestration,” or automatic across-the-board spending cuts totaling $1.2 trillion, resulting in a 0.5 per cent to 0.7 per cent decrease in gross domestic product, according to Pozen.

“Congress doing nothing: that is a sure bet,” Pozen told the financial advisors.

More hope for the long term

On the long term, however, Pozen, an author who is currently a senior lecturer at Harvard Business School and a senior research fellow at the Brookings Institution, was considerably more sanguine. Prospects for the US economy were in fact positive over the next three to five years, Pozen said in an interview with Family Wealth Report.

Europe and Japan face more substantial problems, he said, and the increasing energy independence of the US would cut manufacturing costs and boost domestic growth.

What’s more, Pozen said that even if the US did go over the fiscal cliff this year, “it may not be so bad,” because at least necessary spending cuts would be made.

Wealth managers see benefits

Wealth managers at the conference were also optimistic about their own business, and can expect increased client satisfaction, wallet share, return on assets and stickier assets, according to Alexander Williams, managing director at UBS Private Wealth Management in New York, whose team works with 33 families with combined assets of $1.75 billion.

While most of his clients do have assets outside UBS, those assets are usually managed by family advisors and “rarely” by a rival firm, Williams said during his presentation “The Evolution of Wealth Management.”

Rebalancing and diversification remain key investment concepts, particularly after the financial crisis, Williams stressed. “Rebalancing never goes out of style and valuation always matters,” Williams said.

“Age of the unthinkable”

Since the crisis UBS is also spending more time on “scenario analysis,” Williams reported, imagining how potential events such as hyper inflation, a nuclear attack or a natural disaster could affect portfolio construction. He urged other wealth managers to add this kind of analysis to their modeling because “we now live in the age of the unthinkable.”

Communication and fees

Not surprisingly, Williams also strongly recommended increased communication with clients. “One of the keys to the business is that there should be no surprises,” he said.

Meaningful and regular contact is critical and should include at least one “educational touch” per month, Williams declared.

Asked about fees, Williams said “the institutional market for consultants is low, and the market for individuals is less low.” UBS recently charged a wealthy family selling a business worth over $100 million who became UBS clients 35 basis points “all in” as a percentage of assets under management for UBS’s private wealth services, Williams said.

Time for teams

A typical UBS team has two advisors, three client associates and one analyst, Williams said. Indeed, wealth managers working in a team structure were becoming increasingly “essential,” said IMCA’s Walters. “They’re able to work more efficiently and effectively, using complementary strengths.”

Walters said he also expected to see more emphasis on “behavior and human dynamics” among wealth managers this year, as well as more product innovation in areas like ETFs and alternatives.