February 11th, 2020 · 4 min read
This time on the Pulse: net-net, wirehouses lost advisors while RIAs gained them in 2019; sovereign funds are showing signs of age; and a look at who’s getting rich in the green economy.
Before we start, here’s a question for you. What’s the best way to motivate colleagues? Well, the views on that topic of one famous military leader may surprise you. We’ll tell you more shortly.…How do you get the best out of your co-workers? It starts with trust, according to US General George Patton, whose daring strategies helped the Allies win WWII. “Never tell people how to do things,” Patton once said. “Tell them what to do, and they will surprise you with their ingenuity.”
Wirehouses, Insurance BDs Hemorrhaged Advisors in 2019
Two wealth-management delivery channels saw net outflows of financial advisors in 2019: wirehouses and insurance-company-owned broker-dealers. That’s according to a report in InvestmentNews.
The four wirehouses — Merrill Lynch, Morgan Stanley, Wells Fargo and UBS — saw a net headcount decrease of 1,398 advisors, by InvestmentNews’ count. Insurance broker-dealers coughed up a net loss of 653 advisors.
Meanwhile, independent broker-dealers — names like LPL, Commonwealth and AXA — saw a loyt of movement in and out, but when the dust cleared that channel gained 1,288 advisors in 2019.
Most impressively, RIAs saw a net increase of 990 advisors last year. Meanwhile, regional brokerages — a category that includes outfits such as Raymond James, Baird and RBC Wealth Management — also saw a net increase in advisor headcount, but only to the tune of 197.
InvestmentNews says shrinking channels suffering from more complex payout structures, carrot-and-stick incentives to cross-sell banking products, and other policies that have made it harder (but perhaps more desirable) for advisors to jump ship in recent years.
Take it with a spoonful of skepticism, however. Despite all the precise-sounding numbers, InvestmentNews’ research is based on anecdotal evidence rather than audited company disclosures.
Sovereign Wealth Funds Get More Stodgy with Age
Sovereign wealth funds are getting more conservative, according to a report by Reuters.
These notoriously contrarian entities are owned by sovereign nations and entrusted with investing their countries’ money, typically derived from central-bank reserves, for the benefit of their citizens. But lately they’ve been falling into line with mainstream investing as they grow in size, says Reuters, citing a report by State Street Global Advisors.
Comparing three periods — 2012-2014, 2014-2016, and 2016-2018 — State Street says sovereign funds went from loving cash investments and distaining equities in the earliest period (the opposite of the global trend at the time). In the middle period, sovereign funds favored private markets and equities while shedding cash. Meanwhile, global flows put equities in the doghouse but shared the sovereign funds’ admiration for private markets.
In 2016-2018, the trend for sovereign wealth and global asset management was similar, differing primarily in the sovereign entities more pronounced dislike of equities. The declining divergence between sovereign funds and broad-market trends say it’s a function of the national funds’ growth, according to State Street’s Elliot Hentov. “As funds get larger that can provide a constraint on the markets they want to invest in,” he tells Reuters.
Hentov, who runs State Street’s macro policy team, adds that sovereign funds may still be backing contrarian plays, but as they mature these allocations have become side bets — proportionately smaller chunks of overall holdings
“You can still make selective contrarian bets, but your portfolio is likely to be more fixed,” Hentov says of the sovereign funds’ new perspective.
And sovereign funds’ new conservatism could affect market trends in a downturn.
“During crisis moments some might again step in when valuations are low, but they’ll be less contrarian,” Hentov tells Reuters, harkening back to the role sovereign funds played in the aftermath of 2008 Fiancial Crisis. “They’ll generally be more cautious about placing additional funds into the private markets, as it would require a significant relaxation of risk tolerance.”
Some Are Making a Killing in the Green Economy
Recently several interesting stories about very wealthy people and the environment have appeared in Bloomberg News
One article spotlights a handful of rising billionaires who have made their fortunes in the “green” economy. The top five on this list are:
Zeng Yuqun of CATL, an electric-battery maker (China; “green” net worth $16.7b)
Elon Musk of the all-electric-car maker Tesla (US; GNW $14.6b)
Aloys Wobben of wind-turbine maker Enercon (Germany; GNW $7.3b)
Anthony Pratt, recycled-paper mogul (Australia; GNW $6.8b)
Li Zhenguo of solar-panel maker Longi (China; GNW $3.4b, shared with partners Li Chunan and Li Xiyan )
Jose Manuel Entrecanales of all-renewable-energy supplier Acciona (Spain; GNW $2.9b)
On the flipside, another Bloomberg piece focuses on billionaires (and billionaire clans) whose fortunes are derived from fossil fuels. At the top of this list are:
The Koch Family (US; net worth $150b)
The House of Saud (Saudi Arabia; NW $100b)
Warren Buffett (US; NW $89.3b)
Mukesh Ambani (India; NW $58.6b)
Leonid Mikhelson (Russia; NW $42.7b, shared with Gennady Timchenko)
A few months back, Bloomberg compiled a list of the biggest landowners in the US. There are fewer household names at the top of this 100-person list, but lower down come familiar names such as Amazon chief Jeff Bezos, Subway Restaurants co-owner Peter Buck and CNN founder Ted Turner. Altogether the 1oo top US landowners own roughly 2% of the US landmass, which approximates the size of Florida.