In Practice September 30, 2014

Growing a Multi-Office Practice

Having more offices often means more opportunity, but even well-organized advisory firms can find it challenging to deliver consistent services across disparate geographic locations.
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Industry experts convened for a multi-office practice management panel at the 2014 PLANADVISER National Conference, held earlier this month in Orlando, said communication is key in achieving and maintaining cross-office consistency. Keeping in touch via email and phone calls is helpful, but for many teams, holding regular in-person meetings will be the best way to keep everyone on the same page.

“For us, getting together regularly is a key component of how we can maintain cross-office consistency,” explained Earle Allen, a vice president at Cammack Retirement. “We also have conference calls between our two offices on a regular basis, usually every couple of weeks.”

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Allen said the recurring discussion may touch on sales initiatives, practice updates, or strategic planning for the future. “We make sure that the senior leaders participate in those meetings so that they can then deliver the message down to the other members of the consultant staff that are involved in each office,” he added.

Other panelists included Gary Josephs, principal at Retirement Benefits Group, and Jon Upham, president at SageView Advisory Group. Along with Allen, the panelists each warned that distance can be a serious barrier in growing a multi-office advisory business. They said it is important for advisers to maintain effective tools, such as dedicated conference lines, to keep the doorway of communication open. Furthermore, the panelists encouraged an overall atmosphere of inclusivity, especially in relations between the “home office” and any satellite locations that are established, warning against the paralytic effect of an “us against them” mentality.

Firm leaders were also encouraged to be consistent in the way that they reach out to each affiliate. The firm should be identified as one brand, no matter where offices are located or how many there are. It is also important for each satellite office to maintain that same brand when working with any other affiliates or service providers, panelists said.

When it comes to multi-office recruiting, panelists said adviser candidates should be entrepreneurial and independent-minded, as well as upstanding. These traits are critical because advisers in a multi-office firm are often called on to manage their own daily operations without constant home-office oversight, and at the same time their actions will reflect on the firm’s brand as a whole.

Even with the perfect adviser team, there is still the risk of more-than-friendly competition developing between offices. Does it actually happen? The panelists said yes, but they also offered advice in combating this problem. Some solutions discussed included letting the adviser who has the longest-standing relationship with a given client simply have control of that client relationship. When it comes to recruiting, they suggested firm leaders should strive to avoid areas in which other advisers in the firm are already doing business. In the end, sometimes the teams end up joining forces and working together across offices on the same client relationships, panelists said.

The panelists concluded by encouraging the audience to focus on servicing the client and keeping up the quality of their brand and business—do these things and the rest should fall into place. It is a challenge to run a multi-office firm, they said, but it can certainly be done.

“We meet the challenge by trying to have a tightly focused process,” Allen explained. “It’s really a function of getting together with the senior leadership in the offices, having them come together and come up with an agreement on the key things we want to deliver, and then hitting that message with the teams within each office.”

The Markets September 30, 2014

Retirement Plan Advisers Eye PIMCO Total Return With Caution

Outsized redemptions from PIMCO’s $221.6 billion flagship fund are a concern for retirement plan advisers, sponsors and participants.
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Any immediate outflows following Friday’s sudden departure of the fund’s portfolio manager, Bill Gross, will be driven by individual investors, Jeff Holt, an analyst with Morningstar, tells PLANADVISER.

The next, possibly more critical pressure on the fund’s assets would be retirement plan sponsors removing the PIMCO Total Return fund from their investment lineups, he says. This is a lengthy process that starts with retirement plan sponsors and their advisers first putting the fund on watch, reviewing it in investment committee, and, if deciding on a change, then issuing a 30-day notice to participants.

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“Realistically, these outflows won’t be apparent until 2015, and they will come at different times as plan sponsors reach their decisions,” Holt says. “Other plan sponsors may give PIMCO a longer leash” and delay a decision to replace the fund until many months from now.

Nonetheless, reviews are inevitable, Holt says: “The PIMCO Total Return Fund is common in most defined contribution [DC] plans—it looks like it represents $100 billion in DC plans—so it is a big piece of the pie, and a lot of participants have exposure.”

Fund reviews triggered by the departure of a prominent portfolio manager happen all of the time, but because Bill Gross was the most famous bond fund manager of the biggest bond fund in the world, the news has put sponsors on alert, says Dan Peluse, director of corporate plan services at Wintrust Wealth Management in Chicago. As a result, some plan sponsors may hasten their review process. “With every investment policy statement, you want discretion over odd circumstances, so some sponsors could probably move out more quickly than they normally would,” he tells PLANADVISER.

In the meantime, as far as the data on outflows and the fund’s net asset value since Gross’ departure on Friday, Holt says it is too early to determine a pattern, but Morningstar will be paying close attention to these figures and making them available to advisers, sponsors and participants. Since May of last year, investors have redeemed $68.8 billion from the fund.

No Immediate Decisions

Retirement plan advisers say they will be paying close attention to redemptions from the PIMCO Total Return fund, along with its performance and management—but they will not be making any immediate recommendations to replace it.  “With all but one exception, my clients are cool, calm, collected and rational and not looking to immediately put the fund on watch or alert, “ one adviser tells PLANADVISER, speaking on condition of anonymity. “We are standing by PIMCO. Our clients are standing by PIMCO.”

Linda Lubitz Boone, president of Lubitz Financial Group of Miami, issued similar commentary on Gross’ departure to her clients, saying: “We are not going to take a knee-jerk reaction and sell out of this fund, because the underlying bonds in the fund have been selected for a good reason. In the short term, if there are large withdrawals, PIMCO has advised us that due to their current secular and cyclical outlooks, they had raised their liquidity position so the impact on the share price should not be impacted significantly should they have to liquidate to raise cash in an unfriendly environment.”

A call to a PIMCO spokesperson for remarks on the impact of Gross’ departure on retirement plans and participants—as well as the firm’s capability of handling a high volume of redemptions—was not returned by press time. However, Michael Herbst, director of active strategies research at Morningstar, notes in commentary on the firm’s website that “at least a third of the fund’s holdings is in highly liquid securities—before you even account for cash or coupon payments into the fund.” However, Herbst adds, “that situation could change as we start to see flow data.”

Although Morningstar downgraded the Total Return Fund from a five-star gold rating to a four-star bronze rating Monday night, Morningstar notes that the three managers who have replaced Gross on the Total Return fund are well-experienced and have been well-known to the research firm for more than a decade. The new managers had been providing bottom-up analysis for the flagship fund as well as several other of the 26 funds that Gross ran, and also served on the PIMCO investment committee, Herbst says. “This is not a gloom and doom situation for PIMCO by any stretch, but the things we will be watching very closely are flows and personnel departures,” he says.

Lipper Senior Research Analyst Jeff Tjornehoj expects a “whole spectrum of reactions” from plan sponsors, but one thing he does believe is that large redemptions are inevitable. “Bill Gross was so closely associated with management of this portfolio that investors are going to feel inclined to restart the core bond fund search again,” he says. “For plan sponsors, it is more than just performance they are concerned about. They look at management and other personnel moves, and PIMCO has had a lot of those this year. It is going to be a trying time for PIMCO to retain some of those assets, because plan sponsors do care a lot about the structure and management of an investment firm, and if they sense any amount of disorder, that causes the hairs on the back of their necks to rise.”

Already on Watch

Given the management turbulence at PIMCO that led to the departure of the man who co-founded the company in 1971, some advisers had already put the Total Return fund on watch. Another adviser speaking anonymously says, as PIMCO began to replace management and research teams on the star fund manager’s funds in the past year, Gross’ departure “is a situation that we anticipated. We started moving out of PIMCO Total Return” when it became obvious that PIMCO was building a foundation for Gross’ replacement. Additionally, “unstable management was an issue.” And—“the fund was simply too big, and it could not outperform the market because it became the market.”

In commentary to its clients, Ascende Wealth Advisers (AWAI) of Houston said: “For 401(k) plan fiduciaries, this is an important development. AWAI and Ascende’s retirement team have had the entire PIMCO fund family on watch for several months. Going forward, it will be moved to an ‘alert’ status.”

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