AUM across the industry has cratered, freezing huge budgets and strategic growth plans. In the silence, disruptive upstarts and true leaders are running the board.
For us it just wasn't as devastating.
“Nobody is advertising right now,” agency after agency says. “The fund companies just don’t want to associate their brands with this market turmoil so they’ve put the campaigns on hold.”
It’s a human response to the deepest market crash in a generation and the worst health crisis in a century. You’ve probably seen something similar play out among your clients endless times.
Even your fellow advisors found it hard to resist the urge to bury their heads and hope it would all go away.
“It was very hard to even get prospective advisors and RAs on the phone for a period of time because they were just, you know, strictly trying to field phone calls,” says Jeremy Rettich, President of Virtue Capital Management. “For us it just wasn't as devastating.”
When the future gets cloudy, most people hit the brakes. They don’t want to drive over a cliff. But when you know where you’re going, this is the opportunity of a lifetime.
“This pandemic was literally impossible to plan for,” notes David M. Haviland, Managing Partner and Portfolio Manager at Beaumont Capital Management. “It's hard to come up with a plan in the middle of a maelstrom, so you really need one going in.”
Beaumont is unusual. The firm has not retreated from the market. They have confidence in their strategies and at this stage in their corporate evolution, they have a lot to gain from spreading the word when bigger and better-known rivals are silent.
“Our quantitative tactical strategies are specifically designed to navigate situations like we just went through,” Haviland explains. “We believe that there are consistent trends in investment behaviors that are exacerbated in a crisis like this. But a well calibrated model can navigate such markets without having to make big market calls.”
HOW LEADERS RESPOND
The ability to create clear messaging in a crisis reflects true leadership. And it isn’t only relative upstarts like Beaumont shaping the narrative.
SEI is a publicly traded giant supporting 8,000 advisors. Most are planners whose clientele have already been trained to stay the course, but Kevin Crowe, who heads up the firm’s independent advisor product development team, says even those well-educated investors need support.
“We have been very active supporting that messaging to give advisors the tools they need to understand what we’ve done and help their own clients understand what their advisors have done,” he says. “They have choices. That alone is a huge comfort.”
Culture plays a role here. Unlike other wealth management complexes of comparable size, SEI considers itself a technology company first, bypassing all the institutional inertia that can slow more conventional financial organizations.
“We started our active response in early March,” Crowe says. “We made a conscious decision to redeploy people and other resources to the service experience. We know people depend on us. We wanted them to know that they had a reason to trust our systems.”
Other industry leaders were similarly prepared and are now free to capture assets from less confident competitors.
“The most effective part of our portfolio construction was done last year, not last week,” says John Sabre, Chairman & CEO of Mount Yale, which overweights loss scenarios in order to better avoid volatility when the market lurches.
Likewise, 3D Asset Management was ready to reach out even though the outbreak shut down the home office. “We've been pushing stuff out to the cloud and working on the ability to work remotely since we opened the doors in 2006,” says President John O’Connor.
One thing that has been working for 3D is a “centralized chat,” which allows affiliates to jump in and provide helpful information when a client’s particular advisor is temporarily out of the loop. That flexibility is worth bragging about now.
Communication is key. Like many of the firms quoted here, First Ascent Asset Management is gaining ground through expanding its normal outreach and education programs. It’s already paid off.
“Revenue has actually gone up,” CEO Scott MacKillop says. “We've brought new business in this period.”
THE FUTURE OF WEALTH
Winners are not passively waiting for the world to get back to “normal.” Instead, they see a new status quo forming beyond this season of disruption.
“Investors will abandon the DIY approach” to investment strategy, predicts John O’Connor at 3D Asset Management. “Outsource it. Manage client relationships and bring in new clients.”
After all, the market will recover. AUM will bounce back. But assets that migrate now will remain in place for the next market cycle. And those accounts are still in motion.
“Most bear markets like this take place over time,” explains Denis Rezendes, Assistant Portfolio Manager at Beaumont. “So even if we've seen the bottom in the market, we think volatility will be elevated.”
Everyone hopes we’ve seen the bottom, but winners don’t count on a V-shaped recovery. They’re gaining market share by expanding at weaker rivals’ expense. Cookie-cutter index funds are especially vulnerable.
“I hope we're at levels where we're at today, a year from now,” says Jeremy Rettich at Virtue Capital Management. “We don't know how far this virus is going to actually reach. So it's scary. I'm not a big proponent of indexing right now. Probably, I think, indexing is going to fall flat in many, many regards.”
Brendan Ryan, Assistant Portfolio Manager at Beaumont, has some honest and sobering advice for the future: “Nobody knows where the market's going to be a year from now,”. However, he does believe that “the market will definitely recover quicker than the economy has.”
John Sabre at Mount Yale, however, takes comfort in the longer view. “I think there's more reason to believe that it's not going to be as long of a recovery as ‘08 was.”
For SEI’s Kevin Crowe, it’s all about culture.
“This has permanently changed the way we operate in a positive way,” he says. “This is the future. We can talk more about that but that’s really the subject of our renewed messaging to the advisory community: look past the crisis and stop dwelling on the day-to-day noise.”
Whatever happens, these wealth warriors have managed to act prudently and it has set them up for success in the coming years and decades. This is where the big brands of a new generation are being born while yesterday’s winners retreat in the rear view.
