Saturday, April 30, 2011

The Role of Lead Advisor


To lead people, walk behind them. (Lao Tzu)


In the aftermath of the 2008/9 market whacks, we have all felt the erosion of trust. However, in many cases, this lack of trust may be putting investors at risk; specifically when a client decides to subdivide their portfolio among 2 or more advisors in hopes that they will reduce their exposure to poor performance.


In a recent report (for investment professionals only) published by SPDRÒ University and [email protected], a healthy discussion was presented regarding the need to identify an advisor to play a leading role in oversight of the entire portfolio in the pursuit of client objectives. Specifically, the conclusions were drawn from a survey of more than 800 investors and 2,000 advisors. Select points from the survey were as follows:



  • 48% of investors moved money away from an advisor (during the recent market turmoil).

  • At all wealth levels, the primary and secondary reasons given for the move were to diversify risk, and to take advantage of an advisors specific area of expertise, respectively.

  • Surprisingly, even for those investors who have a primary advisor, 55% indicated their primary advisors were unaware of the decisions and performance of the other advisors.

  • For advisors, this represents and interesting dilemma since we cannot address issues that emerge in rooms whose doors are closed to us by the clients we are trying to help.

At least some of the specific potential problems are that:



  • Separate advisors have overlapping strategies, thus not achieving overall diversification.

  • Multiple advisory relationships could be more expensive (lack of aggregate pricing breaks).

  • Excess diversification could result in an investor paying active management fees for index like performance.

  • Lack of specific recognition (and collaborative engagement) of specialty investment expertise in identifying and engaging unique opportunities or special value added ideas.

  • There is added complexity (and difficulty) in assembling performance reporting and data aggregation.

The survey also indicated that the most important attribute for a primary advisor (60% of the respondents agreed) was to "help guide a client's financial life from investment management to spending, tax planning, education planning, estate planning and generational wealth transfer".


So what should we do? It is clear that clients expect advisors (who are important to them) to pursue an in depth and holistic understanding of their lives. Further, this knowledge should drive the process we use in aligning our service with their objectives in developing our recommendations, communicating, teaching/educating, and helping to improve the quality and efficiency of their decision making process. It is also important to periodically evaluate our success (or lack thereof) from the client's point of view and perhaps take active steps to improve the collaboration among the client's advisory team.


Trust may be fragile, but it can definitely be renewed through the actions we take in support of our clients.


{Note: the MarketPsych tools and process initiatives are resources that have been designed to help advisors engage precisely those attributes described by the survey as important for primary advisors.}


Mark, the Advisor

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