The TV or the magazines

They show you photographs of how your life should be

But they’re just someone else’s fantasy

So if you think your life is complete confusion

Because you never win the game

Just remember that it’s a Grand illusion

And deep inside we’re all the same.

We’re all the same…

Styx – The Grand Illusion

The air was abuzz at the BISA Annual Conference after James Bowen’s presentation “An Optimistic Perspective”.  His positive outlook seemed to lift a heavy burden from shoulders tired of worrying about the future of America, her economy and the markets.

Several attendees commented on the encouraging prognosis, with smiles broadening as they recounted highlights from the First Trust CEO’s talk.

One such comment, however, really stuck with me.  An old colleague simply stated, “I don’t know about you, but my portfolio certainly isn’t up 100%”.  “Mine either”, I replied, adding “I guess I wasn’t smart enough to replace all my Citi with Apple and, even so everything I put into those Lehman bonds is gone forever.”

We both lamented a bit longer, while wondering if there were plenty more suckers walking around thinking the same thing.

The markets have rebounded nicely from their 2009 lows, and perhaps all of the gloom proffered forth by the soothsayers was really uncalled for pessimism creating unneeded turmoil and chaos.  Or was it?

Only time will tell if the negative sentiments of these self-acclaimed prophets will prove out, but closer to home, I am guessing what many investors experienced is more akin to my colleague and I  than a portfolio which doubled in a few short years.

John Bogle, the Founder of the Vanguard Group calls this “The Grand Illusion”.  In his treatise, “The Little Book of Common Sense Investing”, he points out the consistent gap between “investment performance” and “investor performance”, cautioning readers that returns reported by mutual fund companies aren’t actually earned by mutual fund investors.

Warren Buffet put it this way, “It won’t be the economy that will do in investors, it will be investors themselves.”

While the knowledge investors are their own worst enemy is not news, it is worthy of revisiting, as, it is central to almost everything you do for your clients.

Perhaps, we are to blame for setting the game up this way.  Ours is an industry obsessed with performance.  We compare returns against benchmarks and peers.  We use indices and past performance in our client presentations and reviews.  No matter how hard we try to wrap ourselves in a blanket of service and advice, the conversation inevitably springs-back to investment performance.

And, like it or not, this is what our industry has de facto trained our clients to focus on.  Am I the only one who had clients pulling their accounts in the late 90’s because of those paltry 25 percent returns?

Our performance reporting tools don’t even provide information on how well a client is performing compared to their goals!  And, while you may argue, I completed a plan for my client, how often do you update and adjust those plans based on the client’s progress toward their objective, versus how much time you spend talking about investment returns on a “risk-adjusted” basis?

Yet, in the quiet hours of the night, when left with the demons and worries, and harsh truth’s, investors’ fears revolve much more around whether they can afford Johnny’s tuition payment than whether they beat the indices, peers or their friends.

Even in the face of harsh statistics and admonitions from leading minds such as Messrs. Bogle and Buffet we soldier on, espousing Modern Portfolio Theory and a host of investment philosophies, which seldom reach the root of the problem.

Each year Dalbar publishes “Quantitative Analysis of Investor Behavior” (“QAIB”) where they analyze the difference between investor performance and investment performance.  And, every year since they began publishing the report in 1994, the results are the same – investors continue to be their own worst enemy.

The most recent 20-year Dalbar study compares the returns of an average equity fund investor to the returns of the market from 1991 to 2010.  As you can see, permitting their decisions to be driven by short-term volatility, the average equity fund investor earned returns of only 3.83%, while the S&P 500 returned 9.14%.

And while statistics such as these provide considerable fodder for the raging debate between active and passive management, as well as ammunition for those buy and hold purists, from our perspective it highlights something entirely more intrinsic; i.e., you have to get to know your clients better.

Protecting adults from themselves is a tough job.  It’s a complex game of chess, which requires coupling nerves of steel with high levels of tact and diplomacy.  It requires refereeing between spouses, parents and children and all sorts of messy interpersonal human affairs.  It requires becoming part priest, rabbi, psychotherapist, investment counselor, confidant and friend.

At its very core, it requires that you get much further invested in your clients.  Going beyond understanding their financial vital statistics such as net worth and income, by starting to learn about their relationship with money and the important people in their lives.

Accomplishing this requires a high-level of emotional intelligence, which, when applied might leave you and your clients rocking to an entirely different tune – We Won’t Get Fooled Again!

BISA 2012 Convention Smartphone App

As I thought about sharing the highlights of the conference with Wealth Biz Buzz readers, I immediately conjured up images of existing press stories trying to recount passionate keynote addresses and information-packed breakout sessions.  I felt so, been there, done that, I decided for us both to pass on summarizing (in eight hundred words or less) three days of intensive interchange.

Yet, as I stare down at my smartphone, that little blue BISA icon continues to occupy my attention.

While I couldn’t put my finger on it at first (figuratively, not literally), it dawned on me; this one seemingly innocuous application represented a sea change for our Association and, for our industry.

I developed the title for this post weeks before the conference.  Perhaps thirty-plus years in the business has heightened my cynicism to unhealthy levels, but I quite expected to report how nothing much had changed, as the topics, speakers (me included), exhibitors and conversations, were a rerun of earlier years.

To some extent, this was true.  One of my two presentations addressed “Integrating Trust and Brokerage” (click here for more on this topic).  How long have we been kicking that can down the road?  So long, it appears that quips about Groundhog Day were bandied about and, questions as to whether anyone will ever really do anything more about the topic than talk about it, dominated the Q&A.

Yet, my attention kept coming back to that little icon.

It wasn’t so much what it did, although I was highly impressed with its capabilities.  Of course I was happy not dragging reams of paper from room to room.  No more fiddling with accordion-like schedules.  I put my #2 pencil down and completed and submitted session evaluations electronically.  Granted, that was all nice, but what that little icon really represented to me was progress.  Progress, and maybe, just maybe, a more collective recognition of the compelling need for change.

There was plenty of discussion about looking forward, not backward, particularly over the past few years, when, let’s face it; banks went from revered to reviled.  There was also plenty of data underscoring what we intuitively know; there is new competition to be reckoned with; namely RIAs, Family Offices, Independent Trust Companies and Discount Brokerages.  Try as we might, we are losing ground to these ornery upstarts.

This last point further highlights the critical need for a rapid change in course (if we are to avoid the rocky shore on the other side of the fog bank).

So, I suppose this piece ends up being more of a plea; an SOS signaling the imperative need for change; a call to action, which squarely challenges the conventional wisdom of the past.  A communiqué to my compatriots, not espousing change for change’s sake, but urging you (not the other guy) to adopt a different approach to your business in the coming months and years.

The iPhone was released to the public on June 29, 2007, less than five years ago.  Think of how this one device has revolutionized the way people not only communicate, but live.  This invention, coupled with social media has literally changed world history; simply reflect on the Arab Spring or the 2008 Presidential Election.  Consider why your children don’t own wristwatches and, why Kodak is out of business, or, how I am using this tiny device to plot complicated navigational courses around the globe.  It’s hard to believe it’s been only five years.

Of course, when I started in the business, clients had to call me from a hardwired phone (remember “if calling from a rotary phone stay on the line?”) to ask for a stock quote or have a research report sent via first class mail.  Now, the technology available to me from my discount broker is as powerful as that of my financial advisor (who happens to be my wife).

Don’t get me wrong, it’s not all about technology; it’s about anticipating and adapting to change.  It’s about remaining relevant and competitive.  It’s about replacing the old conventional wisdom with the new.

Our industry is notoriously slow to move.  Legacy systems, cultural barriers, compensation differences, sacred cows and, yes, conventional wisdom conspire to bring progress to a mere crawl.

This lack of progress reminds me of my hometown – Washington DC.  A city where there is seemingly no lack of good ideas, but an abundant lack of courage and action resulting in frustrating and dangerous gridlock.

Thinking of being locked in a self-imposed quagmire takes me back to the cartographers of yore.  When they completed putting the known lands of the world on parchment they added vast oceans with a chilling admonition at the edge of the map – Here Be Dragons!

It was believed in those days that the world was flat and the oceans infested with sea monsters.  Yet, a few intrepid explorers didn’t accept the conventional wisdom and set out using the latest knowledge, technology and best practices to change that thinking forever.  Today, if someone told you the world was flat, you’d check the dosage of his meds!

We know what is on the other side of that fog bank, and that if we do not change course we are destined for rocky times.  As Einstein so poignantly noted, “We cannot solve our problems with the same thinking we used when we created them”.

So grab the courage to take a different approach, to set sail for uncharted territory to discover the new world that lies beyond the horizon.  And, when doing so, take comfort in the fact, that BISA is there with you, lighting the way.

Major General Smedley Darlington Butler

Yet, at the time of his death, General Butler was the most decorated Marine in the history of the United States.

During his 34-year career as a Marine, he participated in military actions in the Philippines, China, in Central America and the Caribbean during the Banana Wars, and France in World War I.  By the end of his career, he had received 16 medals, five for heroism. He is one of 19 men to twice receive the Medal of Honor, one of three to be awarded both the Marine Corps Brevet Medal and the Medal of Honor, and the only man to be awarded the Brevet Medal and two Medals of Honor, all for separate actions.

And, while these most deserved commendations are impressive, what captured my attention was his involvement in the seldom discussed and highly controversial plot to overthrow the U.S. government in the 1930’s.

In 1933, men representing multi-millionaire industrialists and bankers approached Butler.  They hated Franklin D. Roosevelt with a passion and saw his “New Deal” policies as the start of a communist take-over that threatened their interests.

Butler feigned interest in a proposed military coup, known as the “Business Plot”, which was purportedly backed by the American Liberty League, a group comprised of some of America’s wealthiest bankers, financiers and corporate executives.  Names such as Hearst, Heinz, Hutton (E.F.) and Hawkes were among, Duponts, Mellons and Pitcairns.

This group was said to have over $3 million and 500,000 ex-soldiers committed to a fascist march on Washington DC to overthrow Roosevelt and install a dictator in his place.

In November 1934, Butler blew the whistle on the group to a special committee of the House of Representatives called the McCormack-Dickstein committee, which was a precursor to the famed House Committee on Un-American Activities.

The powerful fascists plotters behind the coup were never questioned, let alone arrested or charged with sedition or treason.  While the committee redacted the names of the wealthy bankers and financiers whom Butler identified, the mainstream media either ignored or played down the story.  In fact, many of the journalists went to great lengths to ridicule General Butler.

Although Butler’s patriotic efforts did thwart this fascist coup plot, those who sponsored it continued to conspire behind the scenes to rid America of FDR and to smash the “New Deal”.  Evidence of the continued effort to regain control of the White House is illustrated in a 1936 statement by William Dodd, the U.S. Ambassador to Germany.  In a letter to Roosevelt, he stated:

“A clique of U.S. industrialists is hell-bent to bring a fascist state to supplant our democratic government and is working closely with the fascist regime in Germany and Italy. I have had plenty of opportunity in my post in Berlin to witness how close some of our American ruling families are to the Nazi regime…. A prominent executive of one of the largest corporations told me point blank that he would be ready to take definite action to bring fascism into America if President Roosevelt continued his progressive policies. Certain American industrialists had a great deal to do with bringing fascist regimes into being in both Germany and Italy. They extended aid to help Fascism occupy the seat of power, and they are helping to keep it there.”

 Many of the plotters exposed by Butler, had been boosting their fortunes by investing in the fascist experiments of Mussolini and Hitler. Some of them even amassed great profits by arming the Nazis, both before and during WWII.

So, to General Smedley Darlington Butler, we say thanks for exposing a plot to seize the White House and for protecting our nation against treason and subversion at the personal cost of ridicule, disbelief and controversy.

Happy Birthday Bank Brokerage

And, like most birthdays, it’s an apropos time to reflect upon the past and look toward the future.  For me, these have been extremely rewarding years, full of growth, challenge and promise.  During these three decades, bank-based brokerage provided me with countless opportunities to get to know and help others, while making a good living in the process.  

Yet, the timing of our industry’s birth impresses me as both an odd and opportunistic.

In 1982, unemployment was 10.8 percent, the country was running the largest deficit in history (projected $80 billion), inflation was over 14 percent and interest rates were in the high double digits.  Banks failures reached a post-depression record at 42 and the Dow Jones Industrial Average fell from over 1,000 points in the prior year to 776 (until the Reagan Bull took off on my birthday, in August 1982).

Yet, even in the face of such significant headwinds, Dan McConnell of INVEST, John Robison of UVEST and Alan Blank of PAMCO decided to capitalize on the loosening grip of Glass Stegall (through the passage of the Garn-St. Germain Depository Institutions Act) by doing the unthinkable -putting voracious deposit-gobbling brokers in bank lobbies.

It’s an understatement to say that in early days we were the subject of considerable ridicule.  Most bankers looked on with disdain, hoping we were but a flash in the pan, while traditional brokers guffawed when characterizing the new upstarts.  Endless chatter over disintermediation of deposits echoed around the C Suite, while Trust Officers looked condescendingly over their spectacles with few worries this nascent folly would put a dent into their long-established bastion.

While E.F. Hutton was talking, Smith Barney was making money the old fashioned way, and Merrill remained bullish on America (way before the E-Trade baby), the bank brokerage industry plodded along, navigating its way through a maze of regulatory ambiguities and infighting (think Interagency Statement on the Retail Sales of Nondeposit Investment Products), ignoring the ongoing skepticism and chiding of their banking counterparts and deflecting growing contempt from Trust.

Fast forward several years and the only one listening to Hutton was Shearson Lehman (oops, did I say Lehman), Smith Barney, was experiencing a bit of an identity crisis (I mean Citibank/Citigroup/Citi or is it Morgan Stanley), while our friends at Merrill were absorbed by one of those banks they so enjoyed chiding.

Yes, the landscape has changed significantly and will continue to do so as we mature.  But somehow, we made it through our infancy and our awkward adolescence (sans bicycle helmets, scheduled play dates and trophies for losers).

But, alas, it is time to grow up.  We have to stop relying so much on our parents and start to give more back.  Our industry is mature now and needs to act accordingly.  It’s time to make our own way.  No more whining about referral entitlements, unengaged lenders, unresponsive executives and a lack of resources.  We’ve come along way toward creating competitive parity from those early pioneering days.  Yet, we risk all we have achieved, the lessons of our youth, if we turn a blind eye toward the new competitors; toward those arriviste boutiques and independents, who have clearly passed the crawling and walking stages and are beginning to run at an ever quickening pace.

So it is with found memories and boundless hope that I turn the page eager to see what the next thirty years brings.

And, as I blow out the candles, I leave you with my wishes for a bright future:

Best Wishes for the Next Thirty Years

1. We put an end to our sibling rivalry with Trust (learn how here).
2. We repay our parents through improved corporate contributions and build businesses, which truly stand on their own two feet (learn more here).
3. We develop processes to provide our clients with a consistently positive and compelling experience (learn how here).
4. We bury concerns over disintermediation (once and forever).
5. We seek to understand our banking counterparts before seeking to be understood, referring as much business to them as they do to us.
6. We upgrade the quality of our advisors, moving from glorified annuity and mutual fund sales people to professional guides and luminaries capable of solving complex financial needs.
7. We remove artificial “lines in the sand” relative to market segmentation and client ownership and begin using affinity-based marketing techniques.
8. We come to grips with variable-based compensation plans, and unlimited earnings potential.
9. Bank executives take the time to truly learn how this business works and eschew the practice of thinking it is or has to be, akin to traditional banking.
10. Bank executives trust their wealth management programs to manage the bank’s investment portfolio and their personal portfolios versus outsourcing these to competitors.
11. The battle between the suitability and fiduciary standards ends, with an understanding there are many ways to do both the right and wrong things for/to clients.
12. Our government gets its act together and removes the onerous, complex and business strangling regulation it has besieged upon us.
13. We go beyond financial vital statistics and truly get to know our clients by understanding their relationship with money and others (learn how here).
14. We incorporate techniques and processes into our platforms to close the gap between “investment” performance and “investor” performance (learn more here).
15. We recognize social media and other new forms of communication will only increase at an exponentially quickening pace and, we must keep up, like it or not.
16. That our fees are always transparent and evolve from an asset under management structure to one that pays for value-added service and advice.
17. We not lose sight of new competitors, and their ways of doing business.
18. We reduce bureaucracy and become early adopters of new strategies and tactics to remain relevant and competitive.
19. We develop branding which distinguishes this channel as the preferred choice for clients.
20. That banks once again regain the prominence they held with the public, and their wealth management arms not only survive the next several years, but also succeed beyond the wildest beliefs of both our critics and advocates.

If I were to roll these twenty wishes into one – it would be we realize doing business as usual will put us out of business.

We’d love to hear your comments and wishes.  Share them with us below.

There’s been a lot of talk about Unified Managed Accounts (UMAs) lately.

For years these investment management platforms have been heralded as the second coming, yet when tasked with finding institutions soaring to success, we quickly conclude most are still grounded.  (Click here if you would like to learn UMA basics.)

From our perspective, there are a few reasons for this phenomenon.  Chief among them is that UMA is almost always viewed as a product, not a reengineering of the wealth management offering.

As many banks tiptoe into the use of UMA, they approach it as the big airlines might approach acquiring a new jet or adding a route, which results in roughly the same level of success those carriers experienced in the past few decades.

Adding a route or a jet doesn’t alter poor customer service, charging for bags, change fees or so many of the other nuisances infuriating today’s travelers.  I think most would agree there is not much contrast between United, US Airways, American or the other major carriers.  Yet, many travelers feel much differently when it comes to Southwest?  

LUV (you have to “love” Southwest’s ticker symbol) has truly created competitive differentiation in an established industry.  They accomplished this not by adding another “frill”, (while charging for a pillow), but by addressing the very core of who they are and whom they serve.

The challenge when adopting UMA is the same.  You must be willing; to change the fabric of your business at the very core.

Effectively taking on UMA means addressing changes within each of the following constituencies:

•  Internal Investment Staff
• Sales Management & Sales Staff
• Regulators, Internal and External Audit
• Investment Committee, Board and Executive Management
• Operations, Administration and Service Staff
• Marketing Support

The flight attendants, pilots, baggage handlers, gate agents; virtually everyone in the organization has to adopt this new way of doing business, if the model is to succeed.This is much easier said than done, particularly when you consider the challenge of unwinding a legacy business model. With the airlines, the unions often fret upon making innovative changes, even when the very existence of the jobs they support are in danger of extinction.   Look no further than the current state of AML, and the umpteen mergers and failures plaguing the industry.

One could argue the banking industry is equally fragile.  Yet when faced with reengineering the Trust and brokerage businesses with innovative strategies, such as UMA, the resistance to change is palpable.

The reasons for this are as complex as human nature itself.  Beside the impact on human capital, the organization must also consider how this new model affects almost every facet of how they do business including:

There are critical decisions which must be decisively made and adhered to if the implementation of UMA is to succeed.  Will you use open or hybrid architecture?  Will you engage a Turnkey Asset Management Provider (TAMP) or build the platform yourself using best in breed “point solutions”?  Will you use a models based platform? How will you adjust your pricing and compensation models?  Will you actively tax harvest?

Southwest made these tough decisions, which is one of the reasons their business model is flourishing (“in the kingdom of the blind, the one-eyed man rules”) amid such turmoil in the industry.  They choose to fly only one model of jet, the Boeing 737, they don’t advertise on Orbitz or Kayak, they have general admission seating versus assigned seats, no baggage or change fees and the list goes on.  

To be successful with implementing and adopting UMA, banks must be as bold as Southwest when reexamining industry paradigms and shifting client preferences.  Viewing UMA as another product on the shelf is akin to adding a new jet or route, it’s not really going to create a competitive distinction unless you change the inner workings of your organization.

The failure to view the move to UMA in the proper context is the largest cause of disappointment among those intrepid executives who have tried to get airborne.  This often unfairly cloaks UMA in a false light, blaming the platform versus the implementation.

So, when taxiing down the runway to UMA success, consider whether you are willing to make the hard decisions necessary to give your wealth management program the opportunity to soar above those clinging to an outdated business model.

In our last post, we outlined six key areas of focus for banks looking to gain competitive advantage by providing a consistently compelling, positive client experience through the integration of their wealth management business lines.

The first of those six areas is “Corporate Contribution”.

In our consulting work, we frequently interview individuals from multiple disciplines within financial institutions.  As you might expect, the wealth management business lines are key among these.

Without fail, someone within this group will sing the blues about being treated as a “red-headed stepchild “ – with verse after verse of how they don’t receive the resources and attention needed to thrive within the organization.

Ironically, we generally agree with that observation, however, typically not with the perspective from which it emanates.

Which comes first, the music or the lyrics?

We ask, because in truth, wealth management business lines (particularly in community and regional banks) seldom are core businesses when measured by their contribution to the bank’s overall bottom line.

From our experience, an enhanced understanding of how these businesses operate and their overall potential naturally leads to an increased level of interest and investment by those in the executive suite.

Yet, when key executives witness individuals in wealth management earning more income than their combined departmental contribution to the parent, it often results in disharmony within the organization.

This leaves us wondering if these solo performances are distracting from the overall composition or is this what actually draws the paying public?  While we will parse the impact of compensation in another post (as another of the key areas of focus), the cost of labor must be mentioned as a primary driver of corporate contribution since, wealth management, as a talent driven business, allocates the lion’s share of their operating expenses to compensation.

Putting compensation aside, the executives of the more traditional banking lines also question whether the diversion of resources and attention to these business lines would stand up to an objective cost/benefit analysis or is it purely whistling in the dark.

So, while the wealth management employees are singing their woes, so too are their banking counterparts, albeit from an entirely different hymnbook.  And, yes, while we all know the chorus of intangible benefits provided by being in the wealth management business; making meaningful money for the stakeholders remains a favorite request – an oldie, but goodie that never loses popularity.

So, lets take a look at this opus, note-by-note to determine where we stand today and, how we might orchestrate a more harmonious composition from a corporate contribution standpoint.

First, we need to ensure we are looking toward the future, not the past.  The music as we know it stopped, and many fine institutions either didn’t find a chair or had to have the government help them into one to stay in the game.  In three short years, banks went from revered to reviled as the public’s notion of banking and Wall Street transformed from a song of praise to dirge.

Non-performing and underperforming assets coupled with the inability to find qualified borrowers and overregulation changed the score, heightening the need to generate coveted income from other sources.  The once barely audible contribution of wealth management must now resonate on par with the other earning instruments replacing the subdued sounds of traditional banking lines muted by the turmoil of the past few years.

The good news is this is leading tone-deaf executives to hear the music, as the overall contribution from these business lines continues to grow.  As an example, before 2008, the average contribution to net profit from brokerage programs was a paltry two percent.  Since then, it has quadrupled; not due to increases in productivity or efficiency, but because the traditional businesses have taken such a hit in the wake of the aforementioned events.

Suffice it to say, if banks are looking to enhance their earnings (and when aren’t they), then the spotlight on wealth management just brightened.  This is why finding increased efficiencies and improving contribution is now more important than ever.  We strongly believe one way to accomplish this is to harness the existing power, resources and talent within your wealth management teams by reorganizing them as one group, not disparate business lines competing with each other and operating with inefficient redundancies.

We are currently working with a number of banks to accomplish this.  As an example, during our initial assessment of a $4 billion bank, we learned the combined contribution of the wealth management groups (brokerage and trust) was less than one percent of the bank’s total net income, meaning that on over $34 million dollars of net pre-tax profit, these groups added less than $300,000 to the bottom line.  While this sounds abysmal, we unfortunately see worse, with many institutions fighting to even reach profitability.

Not only was the contribution low, but the margins of each business was also two-thirds lower than their peers.

The point is not to embarrass or vilify this organization, but to recognize that to be heard above the din of the other more traditional business lines – to become a core business – to gain access to the resources and attention of the banking executives – wealth management needs to enhance their contribution to the bottom line or else relegate themselves to the role of a harmonica in the philharmonic.

It is clear something has to give – margins must improve, volume must increase or better yet, a combination of the two if the voice of these units is to be heard over the cacophony of other instruments.  And to do that, these groups must first be in harmony with each other and then, set out to seamlessly join into the melody of the organization as a whole.

We realize some may view this post short on solutions, however, you must recognize the problem before you can work on the answer.  In this case, it is clear, wealth management business lines must increase their overall contribution to the organization if they are to not only going to survive, but succeed.  The reason we led this series of posts with Corporate Contribution is that every aspect of the other five key areas of focus must each be evaluated on the merit of adding long-term profitability to the organization.

So, if you continue to hear the never-ending refrain of profit, profit, profit and want to effectively hit the high-notes, take a page from the songbooks to follow (our next posts on this topic), which clearly identify ways to do so.

Inspired by my surroundings, I opened the presentation with a bit of baseball trivia.  Since the event took place on September 23, I thought I would see if anything of import happened in baseball on that date.  I was pleased to see two significant events transpired in the early years of the sport.  It seems the first official baseball team, the New York Knickerbockers was formed in 1845,

"Did not get the memo about casual Fridays"

and, in 1908, one of the most renown, interesting and controversial games in the sport took place at the Polo Grounds, in NY. I won’t go into detail here, but strongly suggest you search for Fred “Bonehead” Merkle – it’s a great story.After my talk, I was able to walk through the hallowed halls of baseball’s best and was delighted to see both of my trivia tidbits actually recounted in exhibits along with due homage to a truly inspirational and exclusive group of men and women.

Even with the compressed time afforded such presentations (for such a vast topic), I am always sensitive of the need to provide the audience with at least one new concept, thought or actionable item.

I am equally sensitive to provide the same to the followers of this blog, if not more so, since the forum is more conducive to driving into the devilish details.  So, let me hit you with one I think will provide you with an excellent starting point when trying to “harness the power and talent of your existing resources to provide a more consistent positive and compelling client experience, in order to create competitive advantage and enhanced returns for your stakeholders”.  That’s a mouthful I know, but after all, that’s the point of all this – isn’t it?  Okay, if you take nothing else away from these posts, try to keep the following six key areas of focus in mind when attempting to solve the “Integration” puzzle:

Six Key Areas of Focus

• Corporate Contribution – This is how you keep score; it’s the hits, runs and errors of our game.  We have to gauge the decisions we make in the ensuing five categories by the long-term effect on the bottom line.  We need to be relevant contributors to the net profits of the bank.

• Client Targets – It is essential to understand who we are currently serving in each one of these business lines, who we want to serve, what the market demographics are and how we will go about effectively targeting these groups.  We often muse whether the real/perceived conflict between wealth management business lines is much ado about nothing.  It seems to us, that a paradigm adjustment from a scarcity mentality to a theory of abundance would help considerably.  That is, spending more time figuring out how to capture the opportunities inside and out of our organizations than worrying about how to direct the few clients we are acquiring today.  Instead, Let’s create a good problem (i.e. too much business for the combined wealth management units to handle).  We also want to keep in mind – not all rich people are alike and, when considering the business model of most wealth management professionals, there are simply not enough rich people to go around.

• Culture  – Culture is an ugly beast, which is particularly difficult to tame.  If men are from Mars and women from Venus, then Trust professionals are from Jupiter, brokers from Saturn, Investment Advisor Representatives from Neptune, private bankers from Pluto, commercial bankers from….  If we are to solve today’s challenges, it is incumbent upon us to drop the baggage of the past and begin to become even more creative with our solutions.  No longer can we adopt the attitude of trying to tame the commissioned sales beast or bypass the Trust dinosaur.  Each group has inherent skills and value, which can be leveraged to better serve our clients and enhance returns.  In reality, at the end of the day, each of the wealth management groups are interested in serving their clients with the best advice, solutions and service.

• Core Competencies – These are the skills we must possess, both individually and organizationally to provide Mr. Goldberg and his colleagues with a consistent, positive  and compelling client experience.  Wealth management is a talent-driven business, which requires specialized knowledge and the confluence of multiple disciplines.  To win the hearts, minds and cooperation of our internal banking counterparts (particularly the commercial lenders and private bankers), we must acquire the skills needed to change their paradigm of wealth management (particularly brokerage) from mutual fund and annuity salespeople, to problems solvers and relationship managers who work with people of means.

• Corporate Structure  – Getting the batting order right and making sure you have the best players in positions of strength are other component of enhancing your effectiveness.  Reporting structures and clear delineation between distribution and manufacturing are but two of many  areas requiring attention if you are to achieve peak performance

• Compensation – How we recognize and reward our human capital is obviously a piece of this puzzle.  The disparate methods used in compensating employees (and, how we charge clients for our services) often leads to inappropriate suppositions and/or conclusions by opposing factions.  Additionally, we must quell the urge to use compensation as a means for changing behavior versus a tool for attracting and retaining the right employees.  Let’s get and keep the right people on the bus in the first place.

In future posts, we will drill into each on of these areas in detail.  Suffice it say, each is critical and should be kept in mind as decisions are made relative to changes in your wealth management business units.

Write them on the white board in your next meeting or use them as guides when planning.  That’s what my team and I would likely do if you engaged us to help you with achieving this critical initiative.

I can’t recount the number of times I meet with bankers who point their fingers at the “other guys” as the folks who need help with this, thinking they have it solved.  Perhaps you do, however, I strongly encourage you to view your progress through the eyes of Mr. Goldberg, not through the myopia often plaguing those who  too close to a situation for too long.

In any event, please share your challenges and successes with our readers (your comments are welcomed and appreciated by all), as solving this puzzle is a work in progress.  We recognize there is not a single answer and one size does not fit all, but also acknowledge we will have to use new thinking if we are to position our organizations’ to achieve the imperatives of:

• Harnessing the power and talent of existing resources
• Creating a consistently positive and compelling client experience
• Realizing competitive distinction and advantage
• Enhancing returns/rewards to all of the stakeholders

So, let’s now begin the work necessary to truly help Mr. Goldberg and his colleagues, while simultaneously helping our own cause, by using the six key areas of focus as guideposts in our quest to be the best of the best.

This does not represent a lack of interest on our part, rather it emanates from an increased level of immediacy on the part of our clients.

In addition to our work helping a number of banks increase the efficiency and effectiveness of their wealth management businesses through integration, I was honored to recently address the Wisconsin Bankers Association on this very topic at a meeting held at Lambeau Field .  How cool is that – presenting at an utterly inspiring venue (literally the home of boyhood heroes, gridiron legends and past and current world champions).  

So, beside blogging about the importance of integrating these business lines, I have also had the privilege of travelling throughout the country researching, learning, educating, speaking and otherwise addressing the nuances, benefits and pitfalls of integration.

On one such trip to Florida, I struck up a conversation with the gentleman seated next to me on the plane.  He was headed to the sunshine state to meet his boyhood chums for their annual sojourn; playing stickball and then following their favorite major league baseball teams around the state during spring training.

When asked why I was headed south I shared with him I was giving a presentation on wealth management trends at the Bank Insurance Securities Association’s annual convention.

For some reason, he found the topic of interest, which surprised me, since his trip sounded a lot more fun than mine.  As the conversation progressed, he asked me to share the key points of my presentation.

Much of the material revolved around a study IBM conducted on wealthy investors.  This study, surveyed more than thirteen hundred affluent people (those with investable assets of $500,000 or more) asking 39 specific questions about their relationship with their wealth manager.  Using the data received from the survey, the authors placed the respondents into three distinct categories:  1) Advocates; 2) Apethetics; and 3) Antagonists.

They subsequently reported results by distribution channel, including banks.

Without getting too bogged down in the numbers, suffice it to say that the results for banks were alarming.  Twice as many investors viewed banks as Antagonists than they did the competition and only half, as few, were bank Advocates.

As I shared this information with Mr. Goldberg he began to open up.  I came to learn, Fred T. Goldberg was the former commissioner of the IRS under George Herbert Walker Bush and is now a prominent tax attorney with a large, esteemed law firm.

Mr. Goldberg went on to explain that he has five children at various stages of their lives and that his needs extended well beyond those of just he and his wife.  He explained how busy he was with balancing his very demanding career with his cherished family time.

At one point, he turned to me and said,  “Tom, I just want to turn the keys of my financial life over to someone I can trust.  Someone who will have my best interest in mind.”  He explained how he has a high level of personal proficiency in these areas, but would rather not be bothered with having to manage the minutia involved in effectively navigating his finances, now and into the future.

That certainly sounded like a reasonable request to me, so I asked him how he handled these matters currently.  He indicated he was working with a large “brand” bank (name withheld for confidentiality purposes).  I happen to know this bank very well and as coincident would have it, I actually know his private banker quite well.

I shared my opinion that his private banker was proficient, experienced, capable, and professional.  While he agreed with my assessment of her skill set, he also shared with me a cogent and serious observation.

He said, “I know she is capable, it’s just I get this uneasy feeling every time I have a meeting scheduled with my team.  For a while I had a hard time pinpointing what caused this discomfort, but I think it’s due to what goes on in these meetings.  It seems to me these ‘teammates’ don’t really like each other and each has their own agenda.  I really feel they are more concerned with meeting some goal or quota than putting my best interest first.”

Wow, you would have thought I was on a Southwest flight with the fuselage was ripping from the frame of the aircraft.  I could have used an oxygen mask, as I thought this dirty little secret remained behind closed doors.  Of course as insiders, we see the dysfunction of many institutions (always the competitors, never your bank), but figured this was pretty transparent to the client.

Yet, here was this wealthy, articulate man sharing his perspective of how his bank, in his opinion (which is absolutely what counts here) didn’t have his best interest in mind.

He shared that he and his partners make significant incomes, have substantial financial means and that they have one other common attribute – all are disappointed with their wealth managers. He said, he and his partners talk about this topic frequently and to their disbelief, none of the firms they deal with are truly making the grade.

As we began our descent, he said, “you know, if there is an organization that provides the kind of trusted advice I described to you, they could make a fortune working with my firm alone (we refer to this as affinity marketing).”

As we were deplaning, he asked me if I knew of any wealth managers he could contact fitting his profile.

Our mission, through our work with banks in wealth management is to have a long list of organizations, which could exceed the expectations of Mr. Goldberg and his partners.  It seems to us that Mr. Goldberg and his partners are exactly the type of clients most wealth managers are trying to attract.

While this serendipitous chat may seem highly anecdotal, it highlights for me that until banks present a unified, cohesive, objective, client-centric solution to Mr. Goldberg and his peers, they we will continue to receive suboptimal marks as highlighted by the IBM survey (and scores of others).  It is incumbent upon financial institutions to take an honest assessment of the client experience, which is much more difficult than it appears as most perceive themselves substantially different than do their clients.  Objectivity and tools for measurement of this are critical if you are to gauge where you are today and how much progress you are making toward delivering a consistently positive client experience .

So, if the reasons for turning your clients into Advocates is not clear yet, perhaps a quick understanding of some of the most basic benefits of advocacy might be helpful.

The IBM survey found that Advocates are four times as likely to consider their wealth manager as a trusted advisor, are 60 percent less sensitive to fees and are over two times as likely to bring you 80 percent or more share of wallet than their Antagonist counterparts.

The IBM study concluded, “We strongly believe that firms that create a compelling client experience can have an distinct and more sustainable competitive advantage.”  Who doesn’t want a distinct and sustainable competitive advantage?

And, now the rest of the story…

The study and my introduction to Mr. Goldberg happened before the financial meltdown.  Before Lehman, before Bear Stearns, before bailouts, before TARP, before banks went from being revered to reviled.  We argue today’s environment is substantially more challenging than that of early 2008 only increasing the importance of bank’s getting this right.

For those craving more statistics and solution driven information, please stayed tuned, as future posts will address these in detail.  We thought it critical, however, for you to meet Mr. Goldberg to ensure we stay focused on what is important; the client, and to acknowledge the gap between our perception and the clients’.

It turns out their daughter was very fidgety and couldn’t concentrate in class.  She was becoming disruptive and homework assignments were late and missing.  I guess they would have called it ADHD today, but that hadn’t been invented (it wasn’t an available condition, so people weren’t aware they could have it).

So the parents, concerned that their young daughter had a learning disorder took an extraordinary step for the time and sought the help of a “specialist”.

The girl, her mother and the doctor gathered in a large oak paneled office.  The girl, sitting on her hands, listened for twenty minutes as the eight-year old student’s mother told the specialist all of the girl’s problems and why they thought she had a learning disorder.

Upon the conclusion of this litany, the doctor went and sat down next to the girl and said, “I’ve listened to all of the things your mother has told me and I need to speak to her privately”.    He said, “wait here, we wont be very long”, and as he headed for the door, he stopped at his desk and turned on the radio.

When they got out of the room, the specialist turned to the mother and said,  “lets just stand here and watch her”.

The minute they left the room, the girl got to her feet and started moving to the music.

The doctor turned to the mom and said, “You know, Gillian isn’t sick – she’s a dancer.”  “Take her to a dance school.”  The mother followed his instructions to the delight of the young girl.  For once in her life, the room was full of people like her.  People who couldn’t sit still, people who had to move to think.  They did tap, ballet, Jazz, contemporary dance and the rest, as they say is history.

Gillian Barbara Lynne became a successful soloist dancer at the age of twenty appearing at the Royal Opera House in Sleeping Beauty.  She met Andrew Lloyd Webber and choreographed some of the most successful theatrical productions in history, including Cats and Phantom of the Opera.  She is a multi millionaire who has brought joy to millions.

Somebody else might have put her on medication and told her to calm down.

The impetus is simple; I am bored of hearing about Charlie Sheen, tuning-in to see what team Lebron picks, watching Lindsay Lohan parade into court or catching glimpses of Miley Cyrus and Michael Phelps taking bong hits.

I am simply in a phase were I choose not to waste any gray matter on such tripe; particularly, because I am utterly fascinated by the stories of people, with little renown or panache that have given so much to so many.

So it is within this context that we launch our series.  We urge you to share with us some of those people who you admire, who tirelessly helped others or triumphed in overcoming countless hurdles on their path to success.  There are some amazing stories out there and we want to hear them and to share them.  Drop a name, we’ll do the research and post it, or tell us the whole story.  Either way, let’s get the word out together, that we want to celebrate, respect, admire and support those who make meaningful contributions (and that’s not Lady GaGa channeling Madonna).

Dr. Norman E. Borlaug

With that prelude, it is befitting that we start our series with Dr. Norman Borlaug, a guy who literally saved hundreds of millions of lives.

The long and short of it is that Dr. Borlaug was a plant scientist who taught the world to feed itself.

His breeding of high-yielding crop varieties helped to avert mass famines that were widely predicted in the 1960’s, altering the course of history.

In 1970, at 56 years of age, Dr. Norman Ernest Borlaug was awarded the Nobel Peace Prize.

“More than any other single person of this age, he has helped provide bread for a hungry world”, the Nobel committee said in presenting him with the Peace Prize.  “We have made this choice in hope that providing bread will also give the world peace”.

His was an unlikely career path, one that began in earnest near the end of World War II when he walked away from a promising job at DuPont to take a position in Mexico trying to help farmers improve their crops.

Indeed, on first seeing the situation in Mexico, Dr. Borlaug reacted with near despair.  “These places, I’ve seen have clubbed my mind – they are so poor and depressing.  I don’t know what we can do to help these people, but we have got to do something”, he wrote his wife after his first extended sojourn in the country.

The next few years were ones of toil and privation as Dr. Borlaug and his colleagues, with scant funds or equipment, set to work improving yields in tropical crop varieties.

He spent countless hours hunched over in the blazing Mexican sun as he manipulated tiny wheat blossoms to cross different strains. To speed the work, he set up winter and summer operations in far-flung parts of Mexico, logging thousands of miles over poor roads. He battled illness, forded rivers in flood, dodged mudslides and slept in tents.

One of his most remarkable discoveries was the creation of a semi-dwarf wheat plant.  Through this breakthrough, he was able to develop a strain of wheat to favor shorter, stronger stalks that could better support larger seed heads without “lodging” (a trait taller wheat grasses have of collapsing under the weight of the extra grain induced by nitrogen fertilizer).

As word of his success in Mexico spread, he began receiving requests for help from across the globe.  On the Indian subcontinent in particular, a crisis developed. The population was growing so much faster than farm output that it was not clear how the masses could be fed. In the mid-1960s, huge grain imports were required to prevent starvation.

With the help of Dr. Borlaug and his team, this crisis was averted, as he taught these countries how to feed themselves and eliminate their dependency on foreign wheat.

Dr. Borlaug died of complications of cancer in September of 2009 at the age of 95.

So kiss the “goddesses” Charlie, bounce your ball Lebron and don another absurd costume GAGA; your fame and fortune are great diversions and have there place, but for now, I choose to celebrate the contributions of a man who averted famine and wars and fed billions of starving people by adhering to a simple kernel of advice from his grandfather  (an Iowan farmer) “ Your wiser to feed your head now , if you want to feed your belly later on.”

Who’s your unsung hero?