Managed Money Client Retention SS4

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RF:Good afternoon, and welcome to this week's SS4's call, the topic again for this week's call is client retention. And last week we had Mr. Archer, Dave Archer on the line with Helen Rothlein, and Chris Piros talking on ideas on how we could have ... how we can help with client retention. This week, I am here to discuss how we could use Jennison's multi strategy portfolios to help with client retention. This is Rocco Fiordelisi, I am the IMS Coordinator for the Mid-America region, and my role today is to moderate this call. On the line with me is John Daly. John, you're on the line, correct?

JD:Yes, I am.

RF:Hi, John. John is with Jennison Associates, and he will be responsible for marketing the managed accounts sales for Jennison down the road here. John, if you will, can you take a few minutes or so to explain what these MSPs are?

JD:Certainly, Rocco. Multi strategy portfolios were created really to provide a solution to a problem that exists for both FA's and clients, and that problem primarily has been the single style approach to the market place. Even if clients are already using managed money, many of them made a decision to go with large cap growth or large cap value, and unfortunately, as clients tend to do, they've always gotten on the bandwagon just before it crashed into the wall at the bottom of the hill, and consequently have had an unpleasant experience. So what the MSP does is to provide the diversification that everybody's reading and hearing about, I mean, I don't think there's anybody any more that doubts the need for diversification.

But it also provides it in a simplified form, so that rather than having to get diversification by opening multiple accounts, you can do it all with the one account. So from the client's point of view, you gain diversification with simplicity. And from the FA's point of view, you gain diversification with simplicity, so it really works best for both the client and the FA. Now, where do you go with this? As I mentioned, probably from a client retention standpoint, those clients who are presently with an investment manager with one style would probably be very willing to listen to a story that talks about diversification and since you can do it with this one portfolio, you can do it in the most simplified manner.

From a prospecting standpoint, if they're trying to get ... if the FA is trying to get the client involved in managed money for the first time, then I think you have a perfect opportunity to talk here about approaching it in a diversified manner, with the investment policy statement and the asset allocation that precedes getting the diversified investment portfolio. And then of course, with the portfolio comes the normal follow up, which consists of confirmations and monthly statements, and most importantly, the quarterly performance monitors. And that's one of the keys to this, in ... the fact that it offers the diversification, but it does it in one account, so you get a combination, if it's our equity MSP, you get a combination of large cap value and large cap growth. If it's our balanced MSP, you get a combination of large cap value and large cap growth to the tune of 60 percent of the overall portfolio. And you get 40 percent invested in a fixed income portfolio of governments and agencies, so that you have the balanced approach.

But in either case, they're all wrapped up in one portfolio. So it's not a bunch of different reports, and it's not a bunch of different statements, and the performance monitor is very simple. And for ... from a prospecting standpoint, as well as client retention, simplicity I think is a good thing, because sometimes a new process can scare somebody away. So in our case, as I mentioned, our equity MSP is large cap growth and large cap value. It starts with a basic assumption of 50-50, and it can go as much as 60-40 in either direction.

There's going to be 20 or 30 stocks in each sleeve, sleeve is a word that people use when they talk about MSPs, so there can be up to 30 stocks in the value sleeve and up to 30 stocks in the growth sleeve at any one time. However, for example, right now, or as of Monday, anyway, we had 27 stocks in the growth sleeve, 25 stocks in the value sleeve. The growth sleeve was 50.08 percent of the portfolio, and value was 49.92. Now it has the ability, as I mentioned before, to go from ... all the way up to 60-40 in either direction, whether value or growth. The large cap growth portfolio is run by Michael DelBaso, who runs our large cap growth portfolio, and our large cap value portion of this portfolio is run by Tom Kolefas, who is the manager of our large cap value portfolio.

Tom Kolefas is the overseer of the process. He's the one that runs the imbalance from 60 to 40, or in one side or the other. And as I said before, with the balanced MSP, you have the same thing that you have in the equity MSP, but that portion is only for 60 percent of the portfolio, and the other 40 percent goes into fixed income, including cash, which will run typically something less than five percent at any one point in time.

So that's ... it's really simplistic, it's attractive to people in that it provide diversification, and it I think is a very effective tool, whether you're dealing with existing clients and trying to keep them on board, or whether you're trying to bring a prospect in.

RF:There are various names that the industry calls this from MMA, multi manager accounts, MDAs, multiple discipline accounts. We're calling ours MSP, multi strategy portfolios, and just as you were saying, John, it's one account with a variety of investment disciplines, you get one statement, consolidated ... with the consolidation of all the positions, one account number, one performance monitor and one portfolio manager contact, and that's great. Now you were mentioning, Tom Kolefas is like the overseer and from ... I understand that this is an advantage that our MSP has over that of some of our competition. We call that I guess overlay management. And can you briefly describe a little bit more, if you can, what this ... how this overlay management is a benefit to our clients?

JD:Absolutely. The difference between the way we approach this and the way many of the other MDA or MSP or MAA or whatever they call them, managers do it, is they put in what I'll call for lack of a better term, automatic rebalancing. So that any time through market movements that the portfolio gets out of whack from 50-50 or whatever the stated balance should be, then they just automatically bring it back. We don't do that because, as with all of our investment management processes, we don't believe in automatic. We do it through judgment. And Tom Kolefas is, as you said, Rocco, the overlay manager. We do our investment management, whether it's large cap growth or large cap value or opportunistic equity or any one of our approaches, they're all bottom up, stock ticking kinds of approaches to money management. And that's the way we approach this process.

So, if in a particular market, Michael DelBaso had 30 stocks that he really loved, and Tom, as the value manager, really only had 24, Tom would give the benefit of the doubt to Michael, and overweight the growth side to some degree, up to as much as 60-40. And it's purely judgmental, and it's based on stock by stock, where do you find the attractive investment candidates, and keeping a course within the confines of 60-40, which way do you tilt the direction of the portfolio, based not on a top down study of the economy or the market, but rather by where are the opportunities to invest successfully coming up in the market place? On the growth side or the value side? And that's Tom's role and I think it is an important value added to the process of having the two sleeves.

RF:That's great. Hey, John, thank you very much. What we did here is, at the first part of this call, to provide to the FA's, what we wanted to do is provide to you what the What of the MSPs, what the MSPs are. The second part of this call, I have an FA on the line with us. His name is Brian Schuman. Brian, you there?

BS:Yes, I am.

RF:Hi, Brian. Now, let me just give a little background on Brian. Brian is an FA in our Indianapolis branch, and he is a member of the Cooke Financial Group. Now the Cooke Financial Group has over 700 million dollars assets under management, and as a team produces over five million dollars. The recurring revenue is over 70 percent. But most importantly, why I have Brian on the line is they've been using the MSPs as a way to help retain their clients. And I was wondering, Brian, if you could give us the why you use the MSPs, and the how you use the MSPs, for retention purposes?

BS:Sure, Rocco, and first, before I start, I wanted to thank you on behalf of everybody here at the Cooke Group, and also all the members of Jennison and the members of our MACS department and research department, because you guys really have been a great help to us, to help ease the pain in what's been a difficult market, so we appreciate all your help. The Cooke Group really grabbed a hold of the idea of MSPs. We're predominantly managed money, as you said, Rocco, and there are really a lot of reasons why we use them. I'd say the first reason was a reason that John hit on pretty hard, and that's to keep it simple. Our clients today are so bogged down with mailings and paperwork, that when you can give them one statement that has, and encompasses all the styles and ... that they might be using, I think that goes a long way to keeping it simple.

Another reason why is you really avoid what I'd called the cold dot scenario, where you have a manager, maybe it's a growth manager in this most recent market, where your client is so frustrated, they may have two managers and they want to really fire the growth piece, because that's standing out as the one piece out there that's done poorly for them. So in an MSP, you kind of avoid a little bit of that cold dot scenario, you don't have a stand out manager that's been beaten up. So the MSPs really go a long way to try to avoid that cold dot. We also feel, and have for a number of years, feel that managed money is the way to go, and it's the way that ... to approach the high net worth client market. We have a lot of clients that are up and coming high net worth people, and MSPs are a good way to get them transitioned from mutual funds into managed money, and still not damage the asset allocation. And I think that's so important right now.

MSPs also give what I call a little bit of the institutional style of rebalancing. What we're dealing with right now is the client that really, really doesn't want to take dollars out of the hot dot, or in this case the fixed income market to put it back into equities. With the MSPs, they kind of take that out of your hands a little bit, and do that function for the client, at a period when the client probably wouldn't do it on their own. So, that's a little bit of the why.

As far as the how are we using them, I think anybody that's been doing managed money for a little while has that client that they started with two hundred thousand dollars. They put a hundred thousand into large cap growth, and a hundred thousand in large cap value. And through the market that we've been through, that two hundred thousand is not worth 125, and with the MSPs, what we can do is, we know in a lot of cases that we need to make a change for that client, or we're going to lose them. The client's demanding it. But yet, we don't want to damage their asset allocation. So an MSP allows us to pull that 125 thousand out, give them a balance between large growth and large value, or in the case of ... where fixed income is needed, incorporate the fixed income in there, and still keep them in a managed money approach.

Again, for those people, as to how we're doing it, we're getting some complaints from clients that they are getting bombarded with too much paperwork, and again, it's simple strategy, where the MSPs really help to eliminate a lot of the paperwork and a lot of the statement issues.

The third reason on the how side, we're moving some clients that have mutual funds, and are unhappy with them, but yet have the dollars to where they should be taking a look at managed money, and we're moving them into the MSP strategies. But there again, I think that the most important reason is, there's a lot of cases where we do need to make some changes, and we really don't want to shift back to mutual funds, and then have to resell a managed account later. So those are a little bit of the why's and the how's that we've been using them, Rocco.

RF:Okay. I want to pose a question to you, and I'm going to kind of put you on the spot here, Brian, if you don't mind. Because as the ... as we've been going around, talking about the MSPs, talking to the other FA's, an obstacle that I'm seeing that FA's need to hurdle is, especially for those FA's who are ... that they're trying to position themselves, and they have been, as a true consultant, and I know the Cooke Group really positions themselves and their practices as true consultants. But what they don't want to do is compromise their objectivity to present money managers that are proprietary.

BS:Um-hmm. True. (Overlap)

RF:How ... and I know the Cooke Group again is a strong supporter, and you had mentioned that earlier, of our products, Jennison and Prudential Investments, the money managers, how is it that you position that so that you don't compromise your objectivity?

BS:That's a great question. And I think in whatever area we're trying to tackle, whether it's 401K sales or whatever, we always go in with more of a consultant approach, and we show our clients several options. And flat out, why would we take alk at Jennison? The bottom line is, they're good. Jennison, if you use a Mobius data base or whatever data base you use as a search, they're going to pop up in the top 50 percentile, in a lot of cases the top quartile, of their management groups, and so from just a performance standpoint, they hold their own very, very well, and we use a tremendous amount of Jennison, and we wouldn't have been able to use them as much as we have if they weren't good. So I'd say first of all, they're good and they show that.

I'd say the second thing is we have really good access to the people pulling the trigger. Whether it's a dinner for clients or if we have a question about the portfolio, a trade made in the portfolio, and we want to call up, I mean we can touch base with Tom Kolefas, John Hobbs, Michael Delbosso and even Sig Segalas, on occasion. We really try not to abuse that at all, but if we do have an important question, you know, they may not be able to get back to us that day, but we always get an answer, and we have good accessibility to these managers. So I think that's another reason why, and really bottom line is, if there's a tie between a couple of different money managers out there, and one's our own Jennison team and one's an outside manager, why, we try to help out the Pru stock price. (Laughs)

RF:Okay. I'm going to have to take you on the road with me, Brian, thank you, that was a great answer, I appreciate that.

BS:Well ... but we'd never do it to jeopardize what's right for the client. I think ... but yeah, they do screen very, very well.

RF:So just to recap some of your answers. The why, you have ... the MSPs provide simplification, and it also provides, like you said, institutional style rebalancing, and you do this to consol ... and how you do this is to consolidate some of those managed money accounts that have depreciated in value, and you want to get it all consolidated under one statement, one account, the MSPs work there. And also for those clients that you have in mutual funds, that definitely qualify, they have more than hundred thousand dollars, and you could get the diversification and put them into that of managed money, this provides access for those clients as well. So I appreciate your help there, Brian. I'm just go ahead and ... just to close up here, that what we've seen with the MSPs from an advisor's perspective, especially for those FA's who are relatively new to the separate accounts business, and you want to ... you don't feel quite comfortable yet making the asset allocation or manager selection decisions, MSPs provide an avenue for you to take there. But for the experienced FA's, the FA's that have been doing this type of business, and you're not ready to relinquish control over the matters of asset allocation and manager selection, what you might find that these MSPs provide are ideal for clients with accounts in the area of a hundred to five hundred thousand dollar range, and you're still able to offer tax and customization benefits of separate accounts, in a more streamlined and efficient package. So, these are ways that we hope we've relayed to the field ways that you could help retain clients, talk to clients.