Client Therapy
The iTunes Financial Adviser
Christian Ward 02.11.09, 10:45 AM ET

If anything is clear from the current financial crisis, it is that financial advisers need to become adaptive. Servicing investors’ financial wealth solely using a monthly statement will not suffice much longer. Clients deserve and demand a more interactive experience. Hand holding becomes archaic when information is everywhere.

So how should a financial adviser go about empowering their client base while maintaining a key position in each client’s investing value chain? The answer lies in the adviser recognizing that there is a new way to do business and that their own clients are driving this change.

Perhaps a look at digital music can be informative. While seemingly disruptive to music labels and software providers upon its launch, Apple’s iTunes quickly became the most dominant music outlet by allowing customers to have an interactive “dialogue” with their media and media providers on their own terms. Customers said things like, “I don’t want the whole CD,” and “I want to try a song before I buy it.” They also said, “Don’t tell me how great something is unless I ask, and don’t push products on me. Give me great access to my media from anywhere and give me human contact when I want answers fast.”

The success of Apple and iTunes is that they heard these demands and answered them. The iTunes model empowers each client by putting the best tools and information at their fingertips, while leaving the door open to additional services many don’t even realize exist. In return, iTunes has the most loyal client base in the highly aggressive world of online music and software distribution. (Remember, we are discussing items with a $0.99 price point.)

By empowering consumers and clients to interact with information and products on their own, iTunes created a bridge between old concepts and new demands. The sheer volume of shoppers on iTunes that desired a better alternative was almost unimaginable, and today’s financial crisis and resulting crisis of confidence have created a similar volume of investors seeking a better financial advisory model. We are entering the age of the iTunes investor-enabled, interactive and informed.

Of course tracks from the Rolling Stones are not Dow stocks and ETFs will never be as original as Bob Dylan, but financial advisers must recognize that personal tastes are at the heart of any purchase or investment. Despite the best of intentions, an adviser cannot choose the music on a client’s iPod better than he can choose it himself.

Now I recognize that you may say, “My clients aren’t that sophisticated,” or “Picking music isn’t like picking stocks and funds.” To you, I offer two observations. First, there are more than 10 million songs on iTunes, and there have been over 6 billion downloads as of January 2009. Searching, sampling, reviewing, purchasing and installing these songs and applications from such a massive library has remarkable similarities to investments. Second, if your clients weren’t that sophisticated before October of 2008, they are learning that sophistication right now and searching for the tools to help them achieve that knowledge.

The iTunes investor has two options. Build the knowledge base necessary to go it alone, or work with a trusted adviser who will help him build that knowledge base. Either way, he is going to build his own knowledge base. The question is whether a financial adviser will be involved.

Einstein said, “Information is not knowledge.” Professional advisers know that this statement carries particular weight in their business. As information overload (or TMI in texting parlance) cuts into interaction with every client, it becomes increasingly important to help clients slice through information to get to what is necessary. The same way iTunes can whittle down 10 million song choices in three clicks, so too must a financial adviser. That is where you earn loyalty and provide value for your clients.

Investment advisers need to share their knowledge base with their clients. Advisers must cite and direct clients to informational tools that they respect and utilize so that a dialogue can be achieved. This will allow for more efficient communication for both of you by broadening the base of knowledge.

You must empower them to watch their portfolios and news pertinent to those holdings and be available when things don’t go as planned. Just because they will occasionally download a song they don’t like, doesn’t mean they’ll cancel their iTunes subscription. It just means that they may want to try another song from a different artist. They will seek counsel from their trusted ally and idea supplier, their adviser.

ITunes investors will value relationships that keep them enabled and informed. They will rely on those who share knowledge openly with them. They will demand an informed dialogue about their wealth and financial goals.

Keep your clients informed and your clients will keep you.

Christian J. Ward is CEO of Ockham Research, an information, content and financial research firm in Atlanta. Visit www.ockhamresearch.com for more information.

From Forbes.com:

Stock Of The Week
Buying The Real Thing
John Dobosz 07.02.08, 5:20 PM ET

It’s an iconic American brand that has been a leader in creating a consumer culture and developing overseas markets for most of its existence, making it in many ways a sugary paragon of the corporate structure in the U.S. that took root in the decades following the Civil War and blossomed throughout the 20th century.

In 1886 in Atlanta, Confederate veteran and druggist John S. Pemberton created a “delicious, exhilarating, refreshing and invigorating” drink with “the valuable tonic and nerve stimulant properties of the coca plant and cola nuts.” A year later, Atlanta businessman Asa Candler made what might be considered a shrewd purchase, buying the formula from Pemberton and other shareholders for $2,300.

It grew steadily around the globe through two world wars, and growth went into overdrive as the world became a global village. All of this from what started out as just another syrup and patent medicine with reputed restorative powers derived from the same leaves that yield cocaine.

Coca-Cola went on, of course, to enrich numerous Candlers and Woodruffs, not to mention a guy named Buffett, who bought a bunch of its depressed shares in the wake of the Crash of 1987.

Today, Coca-Cola is a company worth more than $120 billion, with almost $7.5 billion in annual sales. Although your returns may be a bit less than Candler’s, now is looking like a great time to put some Coke into your portfolio.

But like many American brands and businesses that once seemed globally dominant and unassailable, Coca-Cola has struggled recently, finding the spectacular sales and profit growth of the last two decades hard to duplicate today. But it’s not doing a horrible job, last year turning in 17.7% profit growth on sales growth of 19.7%.

At around $51.50, shares are down about 21.5% from their high of $65.59 on Jan. 10, and trade at prices about 3.5% lower than they did 12 months ago. Coca-Cola pays an annual dividend of $1.52 per share, for a yield of 2.9%.

Value investors are starting to like the look of Coke as a good investment, especially after the recent market sell-off and the ascension of Muhtar Kent to the post of chief executive officer this week.

“In our opinion, Coke has been attractive on a cash flow and revenue basis for some time now, but overall market movement has dragged it down,” says Ned Douthat, editor of the Enterprising Investor’s Guide and vice president of Atlanta-based Ockham Research.

Douthat likes to look at stocks the way Benjamin Graham did, comparing the price to what it’s worth and buying if the price is lower with a sufficient “margin of safety.” He doesn’t use intrinsic value, though, preferring to focus on multiples of sales and free cash flow and where they rank compared with historical ranges.

Coke currently sells for 3.93 times sales and 14.25 times free cash flow. Its price-sales ratio ranged between 3.65 and 5.16 last year, and price-cash flow swung between 14.8 and 20.9, making Coke look exceptionally cheap on a cash-flow basis. Douthat figures that Coke is undervalued by at least 17% and could gain even more in price when the market turns.

“While the margin of safety at 17% is not the most attractive of stocks we follow by any means, we see significant appreciation potential for KO and have a price target of about $70 for one to two years from now,” Douthat says.

He looks for international sales to continue to drive overall revenue higher and to reinvigorate profits. “Coke has diversified product lines that include water, hydration, soda, even coffee, and as of last quarter about half of their revenue came from international sales,” he says. “The stock may get a nice boost from the Beijing Olympics, since Coke has been and continues to be a major sponsor of the games and should sell a lot of drinks to hot tourists.”

Douthat’s father, Marsh Douthat, the founder of Ockham Research, passed away last October after a battle with amyotrophic lateral sclerosis. In January 2005, Marsh Douthat appeared in an article on Forbes.com recommending Coke when it was around $37, adjusted for dividends. (See “Ben Graham Special: Merck With A Coke Chaser.”)

It was a good call. Coke went on to gain 75% over the next three years.

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