John Mauldin on the future of the advice business

Combining his thoughts on matters financial with the thinking of economists, strategists, investment managers and a passel of others he finds interesting, John Mauldin has built a business based on ideas. We’ll get into those ideas and some of his interesting thoughts on the future of the advice business in a minute.
But first, let me explain the Great Marketers of Financial Services and why I’ve chosen to induct John into the GMFS Hall of Fame.
The retail financial services business has been built on the mantra that securities are sold, not bought. As a result, the business — and I use that umbrella term to describe brokerage, advisory, mutual funds, insurance and other retail financial products and services — has always rewarded and emphasized sales and selling, not marketing and activities that encourage buying.
Today, because of the Internet, marketing is the distribution king. Selling and sales still are critical and essential, but buyers now have more information and choices than ever, and they’re in the driver’s seat. So enticing finicky buyers is more important than ever.
This why I want to call attention to great financial marketers by recognizing them in the Great Marketers of Financial Services Hall of Fame — a creation of yours truly to honor those who are particularly effective in getting someone to say, “Take my money, please.”
Charles Schwab was one of the first to recognize that investors would willingly buy brokerage services on their own and turned that heretical idea into a giant securities firm. For that reason, he is in the pantheon of the GMFS Hall of Fame.
Here’s why John Mauldin qualifies for induction.
If you are one of the thousands of advisers who receive his e-mails, hear him speak at conferences, read his books, subscribe to his newsletters or use the services of his Millennium Wave Advisors, you know John Mauldin as a source of terrific ideas. As a fan — though not an adviser — I always look forward to the insights in his “Frontline Thoughts” and “Outside the Box” e-newsletters.
Before I talked to him on the phone a few days ago, I had never met John, although I felt I already had interesting conversations with him because he has shared so many ideas over the years and introduced me to so many provocative thinkers. But here’s what I didn’t know.
John, who’s about to turn 63, started as a manager of managers in the late 1980s. He sold that business and started another money management firm, Millennium Wave Advisors. (He’s also a registered rep with Millennium Wave Securities, his broker-dealer).
“For lead generation, I published a print newsletter for free, and nobody in 2000 was doing that,” he told me. “We started with a few thousand names and the letter started getting forwarded. It was something from the ‘who knew’ category.” The one thing I did that was smart, as opposed to lucky, was requiring people who came to my site to give me their e-mail address.”
After a few years and the newsletter’s continued growth, John realized that he was actually in the lead generation business, not the money management business, so he reached an agreement with Altegris, the alternatives money manager, to provide them with leads from his newsletter, “The Accredited Investor.” From those accredited leads who become clients, his firm earns a percentage of the fees that Altegris charges. He’s been associated with the firm for 11 years and said he has raised “well over $1 billion” for them.
“I’m a secular bear and I believe investors should be looking for alternatives to long-only indexing,” he said, explaining why he and Altegris are a good fit.
In addition to that relationship, writing free newsletters, speaking before investor and adviser groups and consulting to hedge funds, John and his colleagues created Mauldin Economics earlier this year to publish subscription e-newsletters (at under $200 a year each). So far, there are two: Yield Shark (on how to get higher returns) and Over My Shoulder (his favorite research ideas culled from a variety of sources) — promoted on his website (mauldineconomics.com) with the kind of traditional, long-form direct-mail copy that has always worked successfully in the financial newsletter business.
Since few advisers are going to become direct marketing stars, what should they do to enhance their marketing efforts and build their business?
First, he suggests that advisers assess, honestly, what they’re good at. If you’re a good money manager, do that and turn over selling and marketing to someone else.
“I’m a lousy salesman,” he admitted. “If I had to live on what I closed, I’d have to get another career.”
He believes that advisers’ marketing goal should be to get people to talk to them.
“Give people reasons to trust your insights and point of view; get them to read what you’re reading. Share your ideas with them. You can amalgamate other people’s information with your own.”
Mauldin also believes that advisers should think outside their geographic box.
“As the Internet evolves, I think what we’ll end up with in 10 years is a smaller number of advisers who become the focus for a larger number of like-minded people,” he said. “Their advice will attract a particular crowd. But that crowd won’t be limited by geography. You’ll be in their living room on a 50-inch high-definition screen. That means you have to be prepared to become a larger personality or to get on the team of a larger personality.”
John believes competition among advisers will become more intense as more investors demand transparency about performance and costs. Pressure on profitability will be even greater.
“Think of how the music business has changed,” he said. “The big record labels now make money on tours and concerts; they sell some music and CDs, but not like what they did in the past. That market went away. I’m not sure it won’t happen in the investment business.”
Whatever happens in the way of technology or distribution, advisers can be sure of one thing: John Mauldin will out there marketing ideas.

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