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The Seven Deadly Sins of Investment Marketing

I sometimes lie awake at night worrying about whether our work with investment managers will lose its impact as our strategies for building assets become more widely known. How can we get results if all investment companies start implementing our advice on a consistent basis? Will the Alpha factor, like some form of convertible arbitrage, lose its potential to make money as it becomes more widely applied?

But then I recall the principles of behavioral finance. Just as some investment firms outperform by exploiting certain persistent foibles of human behavior in the realm of investing, so too can they outperform by exploiting certain persistent human foibles in the realm of sales and marketing. We think of these persistent shortcomings as The Seven Deadly Sins — and they are sinful when one considers their negative impact on new business development and client retention:

#1 Arrogance. Arrogance manifests itself as a sense of entitlement. Arrogance is the hedge fund manager who can’t be bothered to explain clearly the source of his competitive edge. Arrogance is the institutional salesperson who tells you that her company has “the best risk model” without any solid basis for this comment other than a big-name firm and a galloping ego unfettered by the need for facts. During a presentation, Arrogance slouches back in its chair, arms crossed casually, as if to say, “We don’t need your stinking money. Take us or leave us.” The opposite of arrogance is Humility, which, investors often tell us, is one of the primary attributes driving their decision to choose one investment manager over another. Click here for a war story about the virtue of Humility.

#2 Greed. Greed is quantity over quality. Greed is the small-cap manager with the ever-ascending cap on assets under management. First it’s $1.5 billion, then it’s $2 billion, then it’s $2.5 billion, then the cap rises yet again, performance starts to slip and the firm loses all credibility with the consultant community. Greed is the high-net-worth firm that wants to become a player in the institutional market, yet can’t quite suck it up to make the investment required in time, discipline, people and resources.

#3 Inconsistency. Does an inconsistent investment process description signal inconsistent process implementation? You bet. We know of a firm where the two founders argued for years over the name of one of their quantitative models. In the end, no one really cared whether it was the “Multi-Factor Zippo Model” or the “Ultra-Quantitative Zappo Model.” What mattered was that these guys just didn’t get along well enough to pull their investment boat with the same set of oars. The more common manifestation of inconsistency, especially in large firms, is the inability of salespeople to tell the same story. Even when there is a cohesive story that has been communicated clearly across the organization, the desire to make an impact leads to reinventing the wheel every time the story is told — with the result that one cohesive, memorable story never emerges.

#4 Sloth. Sloth just shows up and does a brain dump. Sloth never studies the consultant’s website or researches the goals for the investment mandate. Sloth mistakes near-term activity (lots of phone calls and presentations) for lasting results (lots of thoughtful phone calls and meetings, reflecting a keen desire to work hard and enthusiasm for the work itself even before being hired). Sloth — a.k.a. Lack of Preparedness — is the root cause of many other deadly sins, such as Verbosity, Ambiguity and Self-Absorption.

#5 Verbosity. Verbosity mistakes volume for depth. Because she has not prepared what to say, she says too much about too little. Verbosity likes the sound of her own voice. She never slows down to see if the audience is following or if anyone has a question.

#6 Ambiguity. Ambiguity creates a generalized, ill-defined sense of dissatisfaction every time he presents. Because he does not take the time (thanks to Sloth) to prepare specific examples of the investment process in action, no one in the audience really understands how the process works.

#7 Self-Absorption. Just as Narcissus is doomed to gaze longingly at his own reflection, Self-Absorption invariably opens every presentation with the same boring parade of self-referential facts (when the company was founded, assets under management and so forth). Self-Absorption closes every presentation with the ubiquitous exhibit, “Why Hire My Company?” Self-Absorption never makes any but the most perfunctory comments about why he is interested in winning the business. “We would really love to work with you,” he might say after the mind-numbing procession of facts is over. Even in client presentations, Self Absorption spends more time on news about his company than on a detailed explanation of portfolio performance. Self-Absorption never conducts any market research — even when Self-Absorption represents an investment firm that prides itself on in-depth, objective research about the companies it targets for investment. He doesn’t care what the market thinks of him, or he thinks that he already knows.


We have sat through hundreds of new business presentations and mock sales calls where the presenters tragically exemplify these deadly sins — even when they have been provided extensive educational resources and trained by professionals in the art of marketing and sales. Why haven’t they learned, we wonder? Why don’t they listen? Never mind. Human nature being what it is, not everyone will seek good counsel or act on it consistently — and isn’t that good news for professionals who do become exemplars of virtue over vice.

 

Q&A Success Strategies

Investment firms spend a lot of time, money and energy on their new business and client presentations. But business is mainly won or lost — and client confidence reinforced or compromised — during the Q&A after (or during) the formal presentation. To assess if you and your team are prepared for success during the Q&A, consider how many decisive “yes” answers you can provide to the following questions:

  1. Does the main body of your presentation already cover the obvious tough questions (about performance, for example, or a change in the portfolio management team)?
  2. Do you have a comprehensive list of potential questions with answers posted on your company’s Intranet?
  3. Are you prepared to answer questions concisely and explicitly?
  4. Do you have a clear strategy for dealing with any unexpected questions that you cannot answer?
  5. Can you get seamlessly back on track when confronted with a series of digressive questions?
  6. Do you designate respondents to specific types of questions in advance?
  7. Have you recently reviewed your own company’s marketing literature, RFP responses and website?
  8. Do you always read the newspapers the day of your presentation, anticipating any questions that may arise about the investment environment or specific holdings?
  9. Are you ready for situations where no one asks any questions?
  10. Have you prepared questions for your audience based on close review of their website, RFP and other background information?

A lively Q&A shows potential clients how much they would enjoy working with you and reminds existing clients that they made the right decision in hiring you. Be ready for the most important part of any presentation by moving toward more yes answers to the questions here.

For more on Q&A strategy, see these related war stories:
Let’s “Just Talk”
On The Merits of Throwing Away the Script
Asked and Answered
Call On Me…I Know!

If Investment Managers Are Different, Then Why Do They All Sound Alike?

You are giving a new business presentation, and it seems to be going well. But suddenly a key decision-maker leans forward and asks, with sharp skepticism:

That’s all well and good. But tell us, please, what makes your firm any different from the other firms that compete in this asset class?

You can babble a few platitudes and slink back to your prepared remarks with your tail between your legs. Or you can win the business with the precision, honesty and clarity of your response.


A fundamental problem in investment marketing is that most new business presentations completely fail to answer the question, “How are you different from your competitors?”

The people who buy investment management services express poignant concern over this lack of competitive differentiation. Says one chief investment officer of a large corporate plan, “It is becoming more and more difficult for individual managers to differentiate themselves — to define why they are successful relative to others.” Says another representative of a large public pension plan, “I have begun to dislike meeting with managers because they all say the same thing.”*

 
Different for the Same Reasons?

These investment professionals lament not only time spent in considering a parade of predictable new business presentations. They lament how difficult it is to do their jobs. They need to justify their hiring decisions. Yet where can they find justification when all investment firms say they are different for the very same reasons: “We believe that the markets are not always efficient. We believe in bottom-up fundamental research. What differentiates us is our people. We do not time the markets. We do not invest in fads. At the end of the day, we stay the course and stick to our knitting.”

How can buyers of investment services discern the information advantage required to generate long-term alpha when investment firms make exactly the same claims using virtually identical language?

 
Breaking Out of the Mold

Here are a few ways to avoid sounding like clones of your competitors:

Shun the obvious. Follow this simple rule in deciding what information to include: If what you are about to say seems too obvious, it probably is. The statement that “markets are not always efficient,” for example, sits blandly on the “Philosophy” page of many active investment managers’ presentation books. (Of course you believe markets are not always efficient. You are an active manager, are you not?) This truism consumes valuable real estate on a page that should introduce beliefs linking to genuine competitive advantages.

Ask yourselves, “Who doesn’t?” Always lead with and anchor your presentation in any information that truly is different. In prioritizing the elements of your story, ask yourselves this telling question, “Who doesn’t?” As in, “Who doesn’t believe in bottom-up fundamental research?” Or, “Who doesn’t claim to have an experienced team?” Or, “Who doesn’t avoid market timing?”

Use examples. As we discuss elsewhere on this site, examples are risky. But the greater risk lies in a lifeless presentation devoid of specificity. Examples are necessary if potential buyers are to understand your strategy and why you are good at it. In his excellent book about the rise and fall of Long-Term Capital Management, When Genius Failed, Roger Lowenstein writes, “Long-Term even refused to give examples of trades, so potential investors had little idea of what the partners were proposing.” Examples not only make an investment story come alive, they generate understanding and show that you do what you say you do.

Prove it. Ask yourselves of every statement you plan to make in a presentation, “Can we prove this?” If you can offer compelling proof, doing so in itself represents a competitive advantage. If you can’t, you might want to consider deleting certain claims from your presentation.

Be consistent. In the investment business, consistency may well trump originality. A consistent story told by the same people in the same language — even a story that is not particularly new or different — might put your firm ahead of a competitor with a novel strategy communicated three different ways by three professionals who fail to agree on how best to position the firm.

Listen to the market. Insularity fosters sameness. Yet many investment firms that claim excellence in investment research rarely conduct market research about their own firm. Interviews with clients and consultants yield invaluable insights on how your firm does — or does not — stand out from the crowd. When asked to define a competitive edge, it helps if you can answer the question knowledgeably based on outside perspectives.


Your company may offer a clearly defined competitive advantage. Or your company’s competitive advantage may lie purely in consistent execution by a team of smart, motivated people. In either case, we hope this article ensures that, the next time you present, you effectively answer the question, “What makes our firm different?” before your audience feels compelled to ask.

*Based on interviews by Alpha Partners with pension plan sponsors.

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