Blackrock is off to a great start. They are "instructing" their portfolio managers to encourage clients to think long-term, not just for today. This is a wonderful way to begin a meaningful dialog between investment "adviser" and client. Particularly, when you consider that most retail investors are eitehr in ca$h or in bonds: both are rubbish when it comes to returns YTD.
Here is the article from Monday's Investor's Daily, page A-8. See what you think...
"What have you done for me lately? That’s the top question most investors ask their asset managers.
But New York-based investment adviser BlackRock BLK created a special program in 2012 that trains its portfolio managers to encourage clients to think long-term, not just for today.
Nudging clients to consider investing over an extended time frame is critical in a volatile world of finance, says Robert Kapito, BlackRock’s president. Investors, he said, are “struggling to make sense of the new world of lowyield, volatile markets and generate returns.”
But investors require guidance to navigate financial ebbs and flows. Investing for the future can produce higher returns than just concentrating on daily fluctuations.
In 2012 BlackRock introduced “Investing in a New World,” a program that helps clients invest strategically to spark healthy returns.
“We wanted to move them beyond the perceived comfort of cash and low-yielding bonds and build for the future,” Kapito said.
But to help investors think about the future, BlackRock needed to train its staff to project for the longterm and nix focusing on today, tomorrow and the end of next week. “What we’re telling investors is you can’t build the future in the future. It’s too late,” Kapito said.
Touting Asset Mixes
The honcho says portfolio managers are trained to help clients “invest their money in a more dynamic, diverse portfolio, using a broader mix of assets.” That includes domestic and emerging investments.
After faltering returns in 2008 and 2009, many investors got skittish and pulled back. “The concept was to provide a road map to get them back into the market; we wanted to cast a wider net to use income as a wealth builder for both investments in retirement and when they’re working,” Kapito said.
To hit those retirement goals, asset allocation is pivotal. Black-Rock’s 2011 annual report noted that its product mix was diversified with 53% in equities, 37% in fixed incomes, 7% in multiasset class and 3% in alternative investments. As of Dec. 31, 2012, Black-Rock managed $3.79 trillion in assets for its institutional investors and affluent clientele.
While some firms have been chided for placing their returns over their clients’ needs, Kapito says it avoids these traps. “We’re only in one business: asset management. We manage no money on behalf of ourselves,” he said.
Edgy investors who kept their money in cash in 2012 “missed capturing the double-digit returns of equity markets and high-singledigit returns in bonds. We are encouraging them to get invested,” Kapito said, who grew up in Monticello, N.Y., before graduating from Harvard Business School.
“People are going to live longer,” Kapito added. With interest rates staying low, investors have to find ways to boost returns such as ETFs and index funds.
Kapito says that portfolio managers are trained at the BlackRock Institute to focus on diversifying portfolios for the long term in stocks, bonds, liquidity and alternative investments. They are given benchmarks and pushed to excel.
Kapito says the key obstacles for clients’ investing long term revolve around “uncertainty.” Media attention to deficits and fiscal cliffs, regulatory issues and volatile returns in equities contribute to investors’ jitters, he says.
In an uncertain fiscal environment, the maxim of 60% of investments in stocks and 40% in bonds may be too formulaic to work. Index funds, iShares, alternative investments, emerging markets, combined with real estate and equities, are required to offset volatility.
Long-term planning is often overlooked because investors crave immediate gratification. Focusing on short-term results “feels like the path of least resistance,” said David Yeske, author of “Finding the Planning in Financial Planning.” Most investment managers don’t take “control of the dialogue and often go into a reactive model rather than resetting the agenda or framework,” he said.
Setting long-term goals makes the most sense for investors. “Those plans won’t be derailed by short-term volatility,” Yeske said.
But financial advisers must be trained to convince clients of farreaching benefits. Asset and investment managers must conduct “deep discovery, understand who their clients are and their personal history with money, their values, fears and anxieties,” Yeske said. Once that trust is developed, investors won’t be easily distracted by random market changes.
Helping clients visualize their future goals helps determine strategic investments. If clients paint a vivid image of where they’d like to be in five to 10 years, they’re better able to consider investments in the future, Yeske said.
Clients can’t be forced to opt for future investments over shortterm results.
“The only way to accomplish that is by understanding clients’ inner values, investing based on who they are, and taking long-term perspectives,” said Yeske.
Personally, I think it's going to be a v-e-r-y hard sell. The old adage about return OF capital as opposed to return ON capital will be the enormous hurdle that any adviser/client conversation will have to surmount.
Until the SEC finds the HFT's as abhorrent a practice as do most of the retail investors, this "long term" holding philosophy is going to be a very tough sell, in my opinion.