American adviser Alan B. Lancz has made a name for himself as a contrarian investor and also has some strong views on how US financial services regulation is likely to pan out.
The US is accustomed to doing things bigger than the rest of the world, and it seems that when it comes to financial services regulation,
it is no different.
Financial regulation reforms, which have just been passed by the Senate, arguably go further than the retail distribution review in effectively banning restrictive advice.
But Lancz of Alan B Lancz & Associates (ABL) says he fears the reforms, which would require brokers to have a fiduciary duty to clients, will be watered down.
As a registered investment adviser, Lancz is already subject to that responsibility, which obliges him to provide clients with the highest standards of care.
‘It’s doing what’s best for the client as if it’s your own money,’ says Lancz. Non-registered advisers, for example brokers and trust companies, have what is called the ‘suitability requirement’, meaning they have to provide an investment from a suitable range. ‘It’s a major difference with fiduciary,’ says Lancz.
However, Ohio-based Lancz believes that opposition to the plans to extend fiduciary responsibility to these sectors will be too strong.
Resistance to change
‘It will be very hard to do because it will change the whole industry and they won’t be able to take it,’ he says. ‘It might change five times in getting approval and the lobby from the securities industry and the stockbrokers is so strong I give it a 20% chance of happening.’
He says that if brokers did have fiduciary responsibility, it wouldn't affect his firm directly but it would ‘affect the long-term competition landscape’.
‘It would be good for the consumer and investor because there would be more transparency and better disclosure,’ he says. ‘Most investors in America don't know the difference - they don't know that there is someone out there who has a responsibility to look after their best interests and would be like a certified public accountant or an attorney.
‘Registered advisers are also obliged to charge fees. But the line has been blurred because now some people are calling themselves investment advisers but they take commission. I think it's very bad, as it causes confusion.’
Top name clients
Lancz’s model has always been about providing bespoke investment solutions. He is a stock-picking fund manager, but tailors portfolios for individual clients.
‘I never wanted to pool investments and lump everyone together. I always wanted to find out the client’s goals and risk tolerance and build around that,’ he says.
In the way he picks stocks to go into his clients’ portfolios, backed up a by his own comprehensive research, he is almost like a UK-style active fund manager and financial adviser rolled into one.
His clients include some well-known ‘hall of fame’ athletes from sports such as baseball and ice hockey. Targeting hockey players led to clients approaching ABL from countries such as Canada, Finland and Russia. ‘We didn't plan to have a lot of athletes, celebrities or overseas clients but now we have dozens, accounting for around 15% of assets under management,’ says Lancz.
‘We got one or two in the early days and realised that, just like any local clients, many superstars were just working with brokers and they had the same conflict with commissions and not fully disclosing. Often the athlete didn't know what they owned. They might have had overseas accounts and taken much more risk than they anticipated. You’d think that someone earning five, 10 or more million dollars a year would have the best advisers!
Carving out a niche
‘For any advisers looking to get into a niche like that, it’s a long-term process. Even when you are with the smaller client or a rookie, just always do what is best for them and word will get out. We developed some relationships with agents and some top people in the players’ associations who really believed in our philosophy in managing their money. So it became natural for them to recommend us.
‘Recently the money has gotten so big that the agents now want to control it and keep it in-house. So it’s harder for us to get the young superstars. However, we’re finding that, three or four years into their careers, they see the conflicts or how they are just riding markets up and down instead of having it managed – then we start to get openings.
‘It’s a big growth area but it could be even faster if it wasn’t for these agents controlling it themselves.’
Lancz is a robust advocate of active investment. The trend towards greater market volatility will leave buy and hold investors out in the cold, he says. This will ‘continue their frustrations from the previous lost decade’. Anyone who expected a V-shaped recovery will be disappointed, he says – it will look more like an anaemic square root sign. Outperformance will require a more active approach based on taking profits during the upswings and ‘buying into panics’.
Lancz has also recently referred to the lack of a sell discipline – ‘simply riding a stock up and all the way down again’ – as the ‘number one toxic tactic’ of unworthy advisers. He says it is ‘why so many investors have not made progress over the last three, or even 10, years’ and is consistently among the top three reasons why clients switch from their current adviser to ABL.
In the latest edition of his ‘Lancz Letter’, he also attacks the concept of passive asset allocation, saying: ‘Investors don't have to be in every asset class, especially when certain classes are at bubble valuations ... At times diversification can actually hurt you, particularly when you are in an asset class you shouldn't have been in in the first place.'
Key influences on investment strategy
Lancz has a long-standing reputation as an investment commentator. From selling and buying stock around the crash in 1987, to accurate predictions about Enron and tips on a wide range of successful stocks over the last 15 years, Lancz has been right often enough to make his insights and investment analysis a sought-after commodity.
He is quoted regularly in national and international media and, when I met him during an annual trip to Europe, he came straight from guest hosting a show at the CNBC studio in London.
Lancz cites two important influences in his career. The first was his father, who owned a heating company but became so unhappy with his brokers that he started using independent research to choose his own investments. ‘I helped him with that when I was 10 years old and that’s how I started,’ says Lancz.
‘Through high school and university I knew exactly what I wanted - to manage money, be independent and do it on a fee basis. My dad’s brokers took commissions but I realised the conflicts of interest. So right out of college I registered with the Securities and Exchange Commission and set up ABL.’
The Templeton connection
The second crucial influence was John Templeton (pictured below), later to become Sir John. ‘I’d read all his books and admired him through college. I never thought I would meet him,’ Lancz recalls. ‘But a money manager I knew invited me down to a meeting between Templeton and a group of managers… I was never more disappointed. Templeton asked everyone what was their best investment idea and that was the end of the meeting. It was very brief and he hardly said a thing.
‘Nine months later I got a call from Mr Templeton. He congratulated me because the company I’d highlighted in that meeting was substantially up on a premium takeover offer. I thanked him, then said "I appreciate the call but I was a little disappointed with our meeting in March". There was dead silence. I felt such a fool. Then he said "I guess we’ll have to remedy that". He invited me down to his home in the Bahamas and I ended up going down two or three times every year until he was 94 years old.
Lancz picked up a lot of handy investment tips on those visits, and learnt about investment processes and disciplines which would set him up for life - and lead to his first big profile boost.
‘We were so much in cash in ‘87 and we got right back in [after the crash],’ he says. ‘Everyone was thinking it was going to be another 1929. But Sir John told me he thought it was a much better situation and it was a great opportunity. CNN was looking for someone who was buying and we were the only ones they could find. They flew me to Chicago for an interview and picked me up in a Rolls Royce limousine. I thought "this is the greatest thing!"’
After the CNN appearance Lancz was quoted in the Wall Street Journal and other publications and started to get a reputation and clients across the US.
Selling researchLancz’s investment research became so well known that he also set up another company, LanczGlobal, to sell research, analysis, publications and model portfolios on subscription to other advisers, institutions or individuals.
Subscribers also receive ‘Lancz Letter’ which started as a simple monthly client communication. But, once again helped by the media who started quoting from it, the letter gradually grew until it became a tool for developing links with high-calibre advisers and trust offices, who wanted to buy Lancz’s research.
‘And they wanted more,’ says Lancz. ‘It was monthly, so we went to 17 times a year. Now you can get daily insights on the web. We didn't plan any of this, it was all because the demand was there.
Responding to volatile stockmarkets
‘The letter is simple and common sense,’ he says. ‘These days, just as Sir John once predicted, it’s information overload, there is so much out there it makes markets much more volatile. That's why we also have a market-neutral, long-short portfolio now. Being market-neutral makes it so much easier.’
The long-short portfolio is just one of several model portfolio types that Lancz has created to cater for different types of investor but recent volatility has made it a focal point.
Lancz does not disclose his funds under management because of the different relationship he has with different clients – he manages money for some but for others just provides investment information, he says.
‘We don't publish funds under management because we are often not managing stocks and bonds. For example, we have some family offices where we are not actually managing their funds. They might own 40 companies in private equity – for them, we are providing analysis. Also we are not a publicly limited company, so we don't disclose income or recurring income.’
Not missing a beat
Lancz admits that individually tailoring clients’ portfolios uses a lot of resources. ‘Even clients with exactly the same goals and profile have a different portfolio depending on when they started [because we buy in and out of companies at different times],’ he says. ‘People ask "how can you compete against companies like Goldman Sachs with so many more resources?"
‘But everyone we hire loves what they do, so they spend a lot of time at it. We have a passion. I live for this. If I didn't do it for a living I would be doing it as a hobby with my own money.
‘I don't ever see myself retiring, though I may slow down a bit. One of our strategies is to have a research team in place where, if I was doing less of the day-to-day and more macro, the company and research wouldn't miss a beat. We have a good team but we are five or 10 years away from that.’
Lancz still enjoys meeting clients when not focusing on research.
‘Sir John always said it was a sacred trust. If you are handling someone else's money that's one of the most important decisions they will make. If you genuinely feel that, it is a dual reward. You are helping the individual, and the family, their kids and their kids’ kids. It is very uplifting and inspiring. I never want to be away from that and I think that's why Sir John spent time with someone like me, because it's so rewarding to give.’
Live to work
Lancz doesn’t even like to take one or two-week holidays. ‘I always like to be in touch with the markets,’ he says. ‘People lay out on the beach but that’s not for me. I like long weekends – that’s my relaxation - after a day or two I’ll be itching to get back. I spend a lot of time on the golf course and I love sports – hockey, football, soccer.
'It’s hard to support a team, as we have lots of clients in different teams! When I was at the Vancouver Olympics I was there with clients and rooting for Russia, Canada and the United States. It was a phenomenal games. It was great to be there and bond with the clients and the teams.’
Five top tips
Flexibility and discipline are the keys to long-term investment success.
Don't follow the herd, especially during times of extremes. For example, too many investors fail to take profits as valuations rise substantially.
Make sure you understand all costs and risks before investing.
Our best investments have been made when others are questioning our purchases, so use your own research.
Manage and control risk when investing.