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Advisers Seek to Rebuild Client Relationships: Greater Transparency, Lower Costs Key Issues


WASHINGTON Texas financial adviser Carl Stuart has a message for mutual fund wholesalers, Yall stop by, yahear.

Despite the reams of information now available electronically, Stuart still considers the industrys road warriors among the best resources when it comes to determining between a good fund and a marginal one.

Wholesalers are a terrific source for information, said Stuart, who has been voted among the nations top 10 outstanding advisers and manages $250 million in assets through his Austin-based firm, Carl Stuart Advisors.

They have things like Zephyr Analytics and theyre happy to take their offerings and the other offerings Im looking at and do analytic work for me and then send it to me. So I have a policy of seeing any wholesaler for an hour, Stuart said fund during a panel discussion on mutual fund distribution at the Investment Company Institutes annual meeting here.

The greatest challenge for a wholesaler in Texas, added Stuart, a 26-year veteran financial adviser and host of a weekly talk show on smart investing, isnt those pesky armadillos that dot the highways. Rather, its the fact that the sales force is becoming increasingly younger.

Most of them are the age of my children, he said with a laugh. No wonder. Its really a rotten life to be traveling 98% of the time, but I would say, 10% to 15% of the wholesalers that call on me are really, really educational.

David G. Speck, a managing director of investments at Wachovia Securities, who joined the financial services industry in 1982, said he most often leverages information from the Chicago-based securities tracker Morningstar.

A noted lecturer and author based in Alexandria, Vir., Speck said his clients respond favorably to the Morningstar reports because they offer objective, third-party fund comparisons through easy-to-read charts and graphs.

Morningstar is a wonderful resource, in terms of my ability to take that information, share it with my clients and compare fund to fund, Speck said, adding that the emergence of 24-hour financial news in recent years has done little but complicate that job of investment advisers and actually jeopardizes the fundamental relationship between the advisor and the client.

I really suspect that a majority of clients dont know the difference between a value and growth fund, said Speck, whose practice consists of 75% mutual funds. Theyll read about it, theyll ask, and youll respond, but I think what clients are really looking for is the classic rule of investing: Rule No. 1 is dont lose money, and rule No. 2 is dont forget rule No. 1.

Diversification-Driven

Beyond trying to convey to clients the difference between growth and value, or worse yet, the differences between share classes, Speck and his colleagues said most clients still struggle with the concept of diversification.

Mary A. Malgoire, a certified financial planner and president of the Bethesda, Md.-based, fee-only advisory firm The Family Firm, said her companys investment process is driven by diversification. And despite all the current industry hoopla surrounding the elimination of share classes, she says keep them coming.

We love the fact that there are overseas funds. We love the fact that there are real estate funds, and, of course, U.S. equity funds are popular, but we love those other kinds of niche ways to mitigate risk in our clients portfolios, said Malgoire, a 23-year financial services veteran and a four-time national selection to Worth magazines top financial advisers list.

Malgoire, whose practice relies on mutual funds for 90% to 95% of clients investments, also leverages exchange-traded funds but has yet to jump on the hedge fund bandwagon. Her companys philosophy is that, despite recent adviser registration rules from the Securities and Exchange Commission, theyre under-regulated, over-priced, illiquid and not nearly transparent enough. In fact, she said, everything that is wrong with hedge funds represents all the reasons why the mutual fund industry is so attractive.

Stuart, whose practice consists entirely of mutual funds, agrees.

When I look back on my 26 years and every alternative investment that came along, if my response would have been to lay down until the urge went away, I would have been better off. So, I dont think that ETFs are a threat to mutual funds and as far as hedge funds, I think Ill lie down until the urge goes away.

Unlike Malgoire, however, Speck stands in opposition to the alphabet soup of mutual fund share classes. He thinks theyre too confusing-for clients and advisers alike. Speck estimates that hes sold just one B share over his entire career and has never sold a C share. In fact, he claims the growing number of share classes, despite their billing as flexible alternatives to paying an up-front sales load, runs counter to the principle goal of the mutual fund industry: long-term investing.