Chip takes a 90-minute rip at wealth management at the Tiburon CEO Summit

Brooke’s Note: In an industry that sometimes seems determined to turn color photographs back into black and white, there is also the managing principal of Tiburon Strategic Advisors. Chip Roame has peccadilloes but he has two more than compensatory qualities that assure that roomfuls of people with painfully busy schedules make pilgrimages to his conferences on both coasts each year. He is able to see things for what they are, first of all. Roame also can deliver the information with a contagiously boisterous energy that never seems forced. Thank you, Chip.

After Chip Roame spoke and ran through 350 slides in 90 minutes in his biannual state-of-the-wealth-management-industry address to 150 or so chief executives at his own company’s Ritz Carlton-staged event, Skip Schweiss, the intersession moderator, declared in his understated way that it was like “drinking water from a fire hose.”

Were it only so!

Drinking the whole incoming tide whooshing into San Francisco Bay from under the Golden Gate Bridge might be more like it. But, get used to it and welcome to the Tiburon CEO Summit, where you can be talking to a tip-top source and peripherally see three others picking at the Danish tray — after hearing the findings of 35 studies completed by Roame over the course of 10 years in the time you’d watch a rerun of “Law & Order.” See: From a Wall Street perch, Chip Roame imparts wry skepticism anaerobically at Tiburon CEO Summit of 2013, spring edition.

Most obnoxious social media is ever is:

What bumped up sheer PowerPoint volume this year in San Francisco — and had the managing principal of Tiburon Strategic Advisors LLC LLC doing his usual thing skipping over three and four slides at a time muttering “boring, boring, boring” with even more intensity — was a big injection of quotes collected from Tiburon surveys.

Most of the comments read like tweets. Still, Roame even let drop the heresy that he’s not wild about all social media. He doesn’t have a Facebook page (See: RIAs fed up with Facebook should hop on the Google+ bandwagon) and he finds LinkedIn to be the “most obnoxious thing ever invented.” Warming to his theme, Roame continued: “'I want to link in with you.’ What does that mean?”

(Note to Chip: It means I want to be your virtual business friend. But what that means, I don’t know, and that endorsing function is downright bizarre. Hope that helps.) See: Social media can turn regulatory exam into fiery wreck.

Chip’s nuggets

So without further ado, here are a few of the most quenching virtual cups of water I was able to quaff from the Tiburon ocean of information — and, Chip, this one’s for you: I won’t even try to tweet them out. See: The RIA business’ most prolific tweeter and blogger unexpectedly suspends activity with a semicryptic letter to his readers.

1. Stay away from stupid stuff

In the first panel there were a number of business-of-the-business experts discussing markets and the economy. Chris Wolfe of Merrill Lynch said the economy would grow nearly twice as fast if only the government would get out of the way. He blamed, for instance, greater scrutiny of oil company applications to drill new wells.

Fortunately, the conversation switched gears to industry issues outside the oil patch, including the role of financial advisors. Steve Lockshin, chairman of Convergent Wealth Advisors, starred in this conversation. Referring to what will happen when consumers can connect value received to fees, he said: “I think the rug is going to be pulled out from under us as an industry.”

Still, Lockshin made it clear that financial advisors can add value way beyond their fees by not only understanding where they add value but how to communicate it to the client. One big value adder: “Keep people from doing really stupid stuff” like neglecting the use of trusts where they are applicable. See: Lockshin: All advisors must deal with the threat of low industry standards — before investors do it for them.

2. Who’s overleveraged? We are.

Roame captured the state of the consumer in a micro and macro sense.

On a macro level: “What’s the crap about being overleveraged It’s 20% [debt-to-assets]. Who thinks that’s overleveraged?” There were no hands from the crowd.

Roame continued: “The problem is, the people with the debt aren’t the same people who have the assets, so per capita we’re very overleveraged.” Similarly he showed that the average U.S. investor has assets (including retirement assets) pushing $500,000 but that the median is more like $14,000.

3. Assets in odd places

Roame showed that an important milestone was reached in the past year: RIA assets have caught up to wirehouse wrap account assets with each sitting at about $3 trillion.

What’s ironic here is that managed accounts were a way for wirehouses to act like RIAs but their fee-based assets surpassed the original. Now the imitated is both the trendsetter and the winner in total assets.

Roame also pointed out that Schwab Advisor Services has finally surpassed a wirehouse, UBS, in total assets under custody, nearly $800 billion. Pointing out that assets show up in odd places, he also showed that Edward Jones has $600 billion of assets. See: 8 notable takeaways from the spring 2012 Tiburon CEO Summit.

4. Actively managed ETFs are duds — mostly

Roame did his usual effective job of pointing out that virtually every bucket of assets you can think of is bigger than the two that get the most press — ETFs and hedge funds. Each category has about $1.3 trillion compared with $13 trillion for open-end mutual funds. “ETFs are $12 trillion behind,” he says.

Still, Roame sees a bright future for passive investing and ETFs in general — but not for actively managed ETFs, i.e. the ones that act like most mutual funds. “Active ETFs: I will put it in the dud category.” See: Fidelity launches major division in Denver with an 'ETF quarterback’ calling the shots.

Roame then amended his comments to say that he had some hope for the way that T. Rowe Price is doing it while acknowledging a T. Rowe Price executive in the crowd. He also mentioned JPMorgan active ETFs that look intriguing — relatively speaking.

Roame rammed home his skepticism about active management by pointing out that 2013 is considered a banner year for active managers because 50% of managers of large-cap funds are beating the S&P 500. “They’re celebrating!” he said with a tone of mock disbelief. See: The hedge fund legal elite meet in NYC to wrestle with a terrifying new threat — RIA-like accountability.

5. 401(k) revolutions

Following a theme we have played on a bit at RIABiz, Roame noted a quiet but effective player of the online and 401(k) realms — Financial Engines Inc. “I think people under-appreciate how big Financial Engines is today; they are dominant” [with about $70 billion of assets.] See: Financial Engines more than doubles its share price by defining a niche in the 401(k) market between target date funds and RIAs.

On that same subject of defined contribution, Roame said: “The 401(k) market is ripe for revolution. Somebody needs to reinvent the 401(k) market.” Schwab is making moves in that direction though it has hit snags, as reported yesterday. See: Why the whiff of another delay of Schwab’s ETF-only 401(k) plan is drawing so much attention.

Fidelity has also made noise about high-level structural changes. See: Fidelity Investments recognizes power of RIAs in 401(k) market and has increased efforts to work with advisors.

6. FINRA light and dark

Roame had good news and bad news for RIAs concerned about FINRA and the fiduciary standard. Channeling a comment from a Tiburon client, he said that the Financial Industry Regulatory Authority Inc.'s effort to take over RIAs is looking like a “scrawny guard” trying to keep LeBron James from driving to the basket. In other words, FINRA is looking pretty ineffectual. See: An in-depth analysis of FINRA’s attempted takeover of RIAs and why the group should be disbanded, Part 2.

The CEO Summit isn’t bad, but
the afterparty back in Tiburon, priceless.
L to R, Roame, Rick Walker
of Efficient Technology and Micheal Kim
of Genworth.

The bad news is that a real fiduciary standard may never get applied to FINRA-ruled brokers. “I don’t think that this is on the radar screen. I think it’s issue 400.” See: FINRA’s scandalous litany of failures and its efforts to redefine the true fiduciary standard out of existence.

7. VC-PE slapdown

What about the ways that “smart money” is being spent in the RIA business? Roame described a rift between venture capitalists and private-equity investors. The VC guys are mostly betting on online advice companies like Personal Capital or Motif Investing. (For more on Motif, see: A Microsoft alum stomps into the RIA business with $26 million in VC money, Sallie Krawcheck and a 'new’ approach that looks old to skeptics.)

The private-equity investors are buying up distribution. Roame seems to lean in the direction of the PE investors, saying that the closer a firm gets to the customer, the greater the market power it tends to hold. Still, Roame pointed out that online brokers are outgrowing RIAs and have about $4 trillion to the RIAs’ $3 trillion. See: Even as mired markets stalled Q2 merger deals, private-equity-fueled national acquirers revved up prices.

Who is the big loser? Products. The one segment that he says is showing promise in its product category: companies that sell actively managed ETFs. See: Windhaven misses its 12-month benchmarks again but still hits asset-gathering mark.