The former 'thought leader' is moving three children to Kansas City to more rapidly move the old-line mutual fund company to action

January 4, 2017 — 7:06 PM UTC by Sarah O’Brien


Brooke's Note: The mother of invention is necessity and arguably no necessity is more urgent than that of legacy active asset managers as ETFs and robo-advice take command. The chief value proposition of these products is fiendishly clever: they are dirt cheap. But cutting costs is a loser in the long run without service. See:  Vanguard and BlackRock slash prices at Christmastime but only Vanguard feels the need to defend its actionsThat is where old-line mutual fund companies hope to pounce. There is an implicit promise that newfangled solutions will win over younger clients who don't want to be inconvenienced by service if they can get decent online interaction. But American Century, much like RIAs, is counting on deploying digital advances -- especially now that it has Jay Hummel on its payroll.

Jay Hummel is back in the game to help assure American Century will thrive in the 21st century -- with robotics and a direct-to-consumer strategy very much on the table.

The former managing director responsible for strategic initiatives and thought leadership for Envestnet Inc. is coming to the old-line mutual fund company with a host of newfangled ideas even if his title, senior vice president in charge of direct sales and service for the a Kansas City-based mutual fund company, sounds pretty business-as-usual.

(An Envestnet spokesperson said managing director Matthew McGinness has assumed oversight of the firm’s thought leadership and practice management strategy for advisors through the Envestnet Institute. See: Envestnet gets Matt McGinness as it launches an advisor consulting division.)

Envestnet is a cerebral outsourcer in the thick of the advice business and software company for RIAs and IBD reps. It also happens to own Yodlee. See: This time Envestnet plays most cards face up as analysts press again for cogent Yodlee deal rationalization

American Century is a classic medium-sized mutual fund company, founded in 1958, that has about 1,200 employees. It has $155 billion in assets under management, about $28 billion of which flow through Hummel’s unit, which serves 600,000 clients. Notably, 40% of American Century profits end up flowing to cancer and diabetes research because of how it is owned.

Hummel argues that American Century's smaller size and older-style business model can be turned into plusses in the age of The Vanguard Group, with its $3.5 trillion, especially when responding to enactment of the DOL fiduciary rule and as it ramps up to get with the digital program. See: Mum on DOL rule, Labor chief appointee Andy Puzder's 'check-the-box' 401(k) plan at CKE Restaurants speaks volumes

At first glance, Hummel's decision to leave a new line financial services technology company to move his family to Kansas and join a company with a whiff of yesteryear about it seems counterintuitive. 

Digging deeper, however, the move makes more sense.  American Century seems a likely candidate for self-reinvention while retaining its modest size and philanthropic DNA to good advantage. It evokes a little of what we have seen at Northwestern Mutual -- a stout Midwestern company modernizing in workmanlike fashion. Quiet Northwestern Mutual may be ready to make a big noise with rerelease of LearnVest -- with Alexa von Tobel vowing that innovation and integration aren't mutually exclusive goals.

We recently chatted with Hummel about these and other topics.

RIABiz: What sorts of goals do you have in your new position?

Hummel: My goals are pretty clear: First and foremost ensure we comply with the new regulations of the DOL, whatever they end up to be. We have a great business already in place and protecting our ability to serve our clients is paramount. From there, my goal is to grow the direct business and enhance the client experience so ACI can be a go-to place for “Main Street investors.”

I hope what we do for our clients can also inspire younger people to enter our business. We don’t have enough talent being developed and I want American Century to be a business where young talent wants to come and stay. We will grow the direct-to-client business in a way that helps our financial advisor partners -- becoming a small- and medium-size account solution for them. I’ve been asked if our direct business is competitive to our advisor clients and I don’t believe it is at all -- it can be helpful to their businesses if we think creatively.

RIABiz: In the press release announcing your hire, you said American Century’s direct business is substantial in size but “nimble enough to quickly adapt to the changing industry landscape.” Can you expand on that? What sorts of changes is American Century anticipating or already adapting to?

Hummel: We all know the landscape in asset management, financial services and wealth management is as dynamic as it has been in decades. I believe the companies that can be open to change and actually be able to be flexible and react quickly to the marketplace will be the big winners. I like when the world changes drastically because motion creates opportunity and our smaller size helps us with flexibility. 

As clients expect more from their financial firms you will see us investing in technology to enhance the client experience. You will see us out in the marketplace creating new partner relationships that will help us grow the business -- which we can’t talk about today, but will be able to do so in the future. I’m excited about the leaders in our marketing and digital areas. I believe you will see the American Century brand in places you haven’t seen it before as we create industry-competitive content that end investors and advisors will look to leverage for their success. You will see a continued investment in our Prosper with Purpose concept [clients invested in ACI for their own goals also end up supporting medical research via the company’s investment in Stowers Institute].

RIABiz: What factors contributed to your decision to leave Envestnet and join American Century?

Hummel: This move is certainly all about going to American Century and not me leaving Envestnet. I had a great run at Envestnet and it’s an outstanding company. I’m grateful to [Envestnet chairman and CEO] Jud Bergman and [Envestnet president] Bill Crager for the experiences they gave me over the past four years. The opportunity to run American Century’s direct sales and service organization and to work with what is one of the best distribution organizations in the asset-management business was too good to pass up. American Century is a company known for being a valued business partner to its clients as well as a company that believes giving back to the community is a key pillar to success. To be a part of that type of team is something you don’t say no to. See: At Envestnet event, Sallie Krawcheck alludes to Crager alliance, blasts women-as-niche marketers and edges perhaps closer to endorsing the RIA model

RIABiz: Are you replacing someone or is this a new position at American Century? And is this a long-term commitment?

Hummel: I am replacing Steve McClain [now retired], who led the direct sales and service team for about seven years. This is certainly a long-term commitment. We are picking up and moving our three young children to Kansas City, leaving behind a lot of friends and family, because we believe in what American Century has the opportunity to do for investors and are proud to play a very small part in the life-changing work that is ongoing at the Stowers Institute for Medical Research [via American Century distributing more than 40% of its dividends to Stowers]. Team Hummel is all in on this one.

RIABiz: You’re going from working at more of a tech company to a legacy financial firm. Does that difference pose any challenges or offer advantages?

Hummel: The firms that win going forward are going to be the ones that best leverage technology to provide efficiencies and the best client experience possible. The fact that I come from a financial services technology firm to ACI I think provides the right type of experience for what we need to do to win in the future. 

RIABiz: At Envestnet, the clients are advisors, who in turn serve investors. How different will it be working with a different type of middleman, per se, at American Century?

Hummel: I ran a multifamily office [as president and COO of Cincinnati-based Lenox Wealth Management] before I ended up at Envestnet, so I was with end-clients a lot and have a good feel for what they expect from their financial advisor now and into the future. I also was lucky to spend the last year talking to some of the industry’s top leaders to [co-author with Crager and Jean Sherman Chatzky] “The Essential Advisor” [Wiley 2016]. This work led to us laying out a vision for what clients should expect from their financial advisors going forward.

Regardless of what type of client you are serving, I have always believed the skill set is the same: can you listen and help understand a client’s problems and can you help that client find the right solution to that problem.  Whether that’s an end investor, financial advisor or a home-office leader, it makes no real difference. The type of partnership relationship they need and should expect from you is similar. See: The inverted reverence dynamic at The In|Vest event and why Bill Crager is so over it


RIABiz: The DOL fiduciary rule has put 12(b)-1 fees into question. Will American Century continue to offer its mutual funds through fund supermarkets or is the direct-to-consumer model going to be the future? How is American Century viewing the future of 12(b)-1 fees? See:  The DOL's final rule contains a litany of 11th hour concessions to brokers that show Wall Street lobbyists earned their keep

Hummel: I think there are a lot of decisions to be made as we get clarity around the regulatory environment we will live in as we approach April 2017 and beyond. As a business, we have diversity in the way we distribute our products and we will remain committed to growing the various business segments of American Century: Selling our products through advisors and home offices, serving as a world-class institutional partner to funds, pensions and other retirement solutions, selling our funds to investors who want a direct relationship with us and growing our international presence. The regulations may require different tactics to achieve this growth, but we are committed to a multi-segment solution going forward.   

RIABiz: With the current focus on fees, and competition from low-cost robo advisors and passive products like index funds and ETFs, how does American Century remain a top-line competitor?

Hummel: This is a tough question to give a short answer to, but I will do my best to be brief. I’ll just speak to the direct sales and service business here and not to ACI as a whole. I don’t believe 100% digital is what most clients want now and into the future. As other businesses are struggling to find the right balance between rep-assisted and all-digital advice, we have an advantage because we’ve been educating and servicing more than 600,000 clients already through our call center. We have the ability to scale this and our representatives get outstanding customer-service scores from our clients. I would put our rep-assisted [phone] experience with clients against anybody in the industry. See: The documented RIA threat, 'phono-advisors' and their nearly $300 billion of assets

I also believe over time most clients won’t want to be in 100% passive portfolio solutions and we have the ability to give them access to world-class active management at a fee rate that is fair. See: T. Rowe Price plucks an RIA 'pain' expert from Vanguard Group to rethink asset management delivery

In the end, I believe the negative impact of the robo players is that they have changed the conversation by focusing clients on price and not value. End clients don’t buy household goods that way and they shouldn’t be picking a financial services firm solely on price. When we get at the table and compete for business we will not only win because of our service capabilities, but also because of what we stand for as a company. When an investor is stuck between picking a robo solution or what we are building at American Century, I think they'll see that the combination of our investment capabilities and unique ownership model, which results in more than 40% of our dividends going to medical research, is a winning story. See: BlackRock solicits more regulator scrutiny of robo-advisors, eliciting jeers and a cheer

Mentioned in this article:

Envestnet Inc
Top Executive: Jud Bergman

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