In Practice February 4, 2016

Rep-as-Portfolio Manager Approach Keeps on Growing

The adviser-as-portfolio manager approach to client service can be a real differentiator, but it can also hamper a firm with significant liability and serious amounts of legwork. 
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A new report from financial research and analytics firm Cerulli Associates explores the increasing popularity of “rep-as-portfolio-manager (RPM) programs,” through which advisers take a step beyond recommending asset allocations and general investment strategies to actually take full discretion over client assets.

According to the February 2016 U.S. Edition of The Cerulli Edge, an increasing number of advisers who have previously outsourced portfolio management to home office consulting groups or another third party are reasserting direct control of client accounts. The trend is especially prevalent looking back to 2008 and the financial crisis—a time that left many advisers and their clients feeling like they couldn’t execute decisions fast enough, in part due to crushing trade request volumes submitted to home offices.

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The primary goal for advisers taking this path, Cerulli explains, is that it permits a more timely and nimble response to clients’ changing risk profiles, especially in a market setting marked by significant volatility. Tom O’Shea, associate director at Cerulli, observes that advisers widely view flexibility as the No. 1 reason for using RPM platforms, with more than 67% citing flexibility and control as the major factors.

One implication of the trend is that more than half of advisers plan to increase their use of managed account platforms that give them discretion over their clients’ allocation to mutual funds, exchange-traded funds (ETFs), and other investments. Cerulli’s research also finds the “changing landscape of investment discretion” is forcing asset managers to rethink their distribution strategies, especially adviser-mediated strategies.

Also important to note, the marketplace for RPM services seems to be converging around a two-pronged approach in which broker/dealers offer either full or partial discretion to advisers, depending on the investment research and due diligence bandwidth the adviser can bring to the table. “Discerning the type of RPM discretion an adviser exercises is critical to the wholesaler’s effectiveness in the field because it will point the salesperson toward the gatekeeper they need to influence,” O’Shea explains.

O’Shea further predicts asset management firms will start to “focus their attention on helping advisers understand how their products complement an adviser’s portfolio construction methodology … Advisers have graduated from selling products to building client solutions, and asset managers need to demonstrate what kind of building block their product is.”

Information about purchasing this and other Cerulli research is here.

Diversions February 4, 2016

Just How Clean Is Your Hotel?

Even five-star hotels aren’t free of millions of swarming germs. Hint: watch out for that TV remote.
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Whether it’s a family vacation or a business trip, chances are a hotel stay is in your future. Although you can tailor certain aspects of your accommodations, one factor remains stubbornly out of your control: the number of germs lurking in your room. And the average hotel room appears to be dirtier than a typical home, airplane, and even a school, according to recent tests by travelmath.com

Bacteria, viruses, and parasites are everywhere, but public spaces seem to be an especial haven for them. The tests assessed bacteria levels in colony-forming units (CFUs)—the number of viable bacteria cells within a sample square inch. Testers gathered samples from three-, four- and five-star hotels.

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For this study, testers looked for the presence of various types of bacteria (including bacilli and cocci), yeast, and gram-positive rods (bacteria that cause various ailments, such as skin infections and pneumonia) and gram-negative rods (bacteria that cause respiratory and other infections).

In an average of nine hotel room surfaces tested, the most often-touched surfaces ranked, in numbers of CFUs per square inch:

  • Bathroom counter – 1,288,817 
  • Remote control – 1,211,687
  • Desk – 604,907
  • Phone – 4,252

Testers noted that you can disinfect most of these surfaces fairly easily with antibacterial wipes or spray. Rather than disinfecting the remote control, one solution is to seal it in a clear plastic sandwich bag before using it.

Three-star hotels appear the least germ-ridden: The dirtiest surface in a three-star hotel room, the bathroom counter, contained an average of only 320,000 CFU/square inches—around eight times less than such a counter in a four-star hotel room and three times fewer than a five-star room.

In four-star hotels, the bathroom counter was the most bacteria-laden surface (and the single dirtiest surface among all spaces), followed by the desk. In the three-star hotels, the bathroom counter was the dirtiest, followed by the remote. Among five-star hotels tested, the remote control was the germiest surface, followed by the bathroom counter.

In three-star hotels, the remote control tended to harbor Bacillus spp., which could be associated with various infections, including respiratory and gastrointestinal. Tests also revealed yeast in the bathrooms in three-star hotels. In four-star hotels, Bacillus spp. dominated on TV remotes and telephones. In five-star hotels, most of the bacteria were gram negative, though the phone was rife with gram-positive cocci.

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