Monthly insights for investment marketing and sales professionals
April 2012
Virtually all investment companies define “discipline” as a strength or even a competitive advantage. This issue of Excess Returns considers an important manifestation of discipline — being systematic — as it applies to all aspects of running an investment firm, from portfolio management and client service to sales and marketing.
With best wishes,
Liz Hecht
Founder, Principal and Director of Research
Alpha Partners is an investment marketing firm specializing in research and presentation strategy. Our goal is to create alpha (excess returns) by helping investment firms win, keep and diversify assets under management.
The story I am about to tell happened a long time ago, but I remember the details vividly. I was in a cab on the FDR Drive in New York City on a brutally hot day when I saw a Doberman/Rottweiler mix sitting by the side of the highway, panting and looking distressed and disoriented. There was nothing in sight but fast-moving traffic, asphalt … and this dog. She was wearing a bright-red harness. I got out and went up to her. She sniffed my hand, then let me lead her by the harness while the two of us hailed another cab. She had no tags and none of the New York shelters I checked had anyone looking for her, so I set about finding her a new home.
As part of my volunteer job a few weeks later, I happened to be confirming information about all of the animal shelters in our area for a flier put out by our local dog owners association (“What to do when you find a stray dog?”). I thought I had called all of the New York City shelters, but in double-checking found there was one I had missed. I was tired at the time and the following craven thought crossed my mind, “Ahh, I don’t really need to double-check everything. The information is probably fine as is.”
But I am a systematic soul by nature and I have long worked in the investment world, where discipline is critical. So I called this shelter and while checking its phone number thought to ask, “Hey, you didn’t have anyone come in looking for a Doberman/Rottweiler mix lost a few weeks ago, did you?” “Oh my God, yes!” said the woman, “Was the dog wearing a red harness?”
How Investment Companies Can Be More Disciplined
Usually the rewards of being disciplined are not as immediate as helping a family find their lost dog. But recalling this experience makes me think of the many ways in which discipline matters in my field:
Investment process description and implementation. Does your firm document the investment process step by step in writing and does the investment team follow the process consistently as documented? Does the team adhere to portfolio diversification guidelines or is a certain fuzziness occasionally allowed? Does expediency sometimes trump discipline? Does the sell discipline provide a true framework for action or is it merely a series of generic reasons for sale, entirely subject to personal interpretation — “we find a better idea,” “valuation is realized” or (my personal favorite) “fundamentals have deteriorated.” Who does what when and are these actions really performed systematically?
Results measurement and analysis. When the investment process does not work, does the investment team know why? Or are they twisting in the wind? I have spent many hours over the years crafting credible answers to questions such as, “Why are you underperforming and what do you plan to do about it?” and “What have you learned from your investment mistakes?” I can usually tell when the answers make sense or when they consist mainly of hope with a dash of spin. Real answers tend to come wrapped in research and analysis — systematically measuring where performance comes from — and the firms that tend to measure results in one area (investing) also tend to measure results in other areas (client service).
Information sharing. A portfolio specialist once told me that salespeople and client relations professionals at his firm did not receive bonuses until they had updated their notes in the company’s database. “Wow,” I thought, “this is treating them like children — as in, ‘You can’t have any ice cream until you do your homework.'” The reality, though, is that many client-facing professionals do not update their company’s database routinely or in depth. Our company frequently asks for database notes about a specific product. Sometimes, the information we receive is stellar — detailed observations, insights and feedback that provide a valuable history of market interactions. Too often, though, what we get is unintelligible and/or completely lacking in information value.
Editorial standards. Does a professional proofreader review every document your firm sends to clients, consultants and prospects? Does your company follow a style sheet to ensure accuracy and consistency? (See Special-Ops Editing for more on the importance of a style sheet.) Are all facts checked in every document? In my experience, rare is the investment company that can answer “yes” decisively to all of these questions. There are many different categories of people who are likely to be annoyed by shoddy and inconsistent editing: (1) people who care about language, (2) people who make their living as teachers (think decision-makers at university endowments and state teacher retirement funds), (3) people who despise verbosity (which usually results from nonexistent or sloppy editing) and (4) people who value quality and consistency and are offended (whether consciously or subliminally) by its absence. Hmmm … that sounds like just about everyone, doesn’t it?
The dog’s name was Tillie and her owner had been calling her local shelter frantically for several days after Tillie ran away en route to the vet. The owner and her entire family (mother, father, sisters, brothers and even a few cousins) came to bring Tillie home. There was much hugging and weeping and they gave me a sizable contribution for our dog owners association.
If I had not checked that one fact in that one document (while feeling tired and not wanting to be bothered), Tillie most likely would have been placed in another home, never to be united with her family. But as I give myself a pat on the back for this one disciplined action, I also start thinking about all the different ways I can become more disciplined in running my own business and in helping my clients to do the same.
Special-Ops Editing
A friend who always sends me cool Internet links recently provided an excerpt from an email sent by author Robin Sloan about his editors at Farrar, Straus and Giroux. Mr. Sloan describes the use of a style sheet to ensure accuracy. A time line is created. Character descriptions are cross-referenced. Inconsistencies are culled or corrected. Here is how Mr. Sloan describes the rigor and efficiency of his editorial team:
“FSG’s copy-editing team is like a special-ops squad. Clear the area! Check for bombs! Here’s the map! Go go go! I’m the timid informant being shepherded to a safehouse by this super-competent crew, and once I’m inside, safe from harm (and spelling everything consistently) they’ll head right back out into the firefight.”
The intense discipline described here underscores the need for higher editorial standards in the investment world. All investment companies should have an updated style sheet that serves not only as a guide to editorial consistency but also as a guide to consistency of the story. For instance, the special-ops editors at Alpha Partners might discover that the same quantitative investment model is sometimes described as a “relative value model” and other times as an “intrinsic value model.” At best, prospective investors are confused by such inconsistent labeling and at worst they may suspect (probably correctly) that the investment process is not implemented consistently.
The Power of Habit
In The Power of Habit, Charles Duhigg describes how changing one habit can create “a chain reaction, starting a process that, over time, transforms everything.”
The Power of Habit: Why We Do What We Do in Life and Business, by Charles Duhigg, explores the role of habits in creating change. I love this book for several reasons. It shows how researchers reinterpret their findings to shift strategy, turning a product with disappointing sales into one that earns a billion dollars a year. It tells the story of how changing a “keystone habit” revitalizes the culture and earnings of a major corporation. Perhaps best of all, it provides invaluable guidance for individuals seeking to replace bad habits (smoking, drinking, overeating or nail biting) with good ones. My favorite part of the book is the section describing how “small wins fuel transformative changes.” If you are serious about creating change, in yourself or in your organization, you should read this book.
Monthly insights for investment marketing and sales professionals
April 2012
Virtually all investment companies define “discipline” as a strength or even a competitive advantage. This issue of Excess Returns considers an important manifestation of discipline — being systematic — as it applies to all aspects of running an investment firm, from portfolio management and client service to sales and marketing.
With best wishes,
Liz Hecht
Founder, Principal and Director of Research
Alpha Partners is an investment marketing firm specializing in research and presentation strategy. Our goal is to create alpha (excess returns) by helping investment firms win, keep and diversify assets under management.
The story I am about to tell happened a long time ago, but I remember the details vividly. I was in a cab on the FDR Drive in New York City on a brutally hot day when I saw a Doberman/Rottweiler mix sitting by the side of the highway, panting and looking distressed and disoriented. There was nothing in sight but fast-moving traffic, asphalt … and this dog. She was wearing a bright-red harness. I got out and went up to her. She sniffed my hand, then let me lead her by the harness while the two of us hailed another cab. She had no tags and none of the New York shelters I checked had anyone looking for her, so I set about finding her a new home.
As part of my volunteer job a few weeks later, I happened to be confirming information about all of the animal shelters in our area for a flier put out by our local dog owners association (“What to do when you find a stray dog?”). I thought I had called all of the New York City shelters, but in double-checking found there was one I had missed. I was tired at the time and the following craven thought crossed my mind, “Ahh, I don’t really need to double-check everything. The information is probably fine as is.”
But I am a systematic soul by nature and I have long worked in the investment world, where discipline is critical. So I called this shelter and while checking its phone number thought to ask, “Hey, you didn’t have anyone come in looking for a Doberman/Rottweiler mix lost a few weeks ago, did you?” “Oh my God, yes!” said the woman, “Was the dog wearing a red harness?”
How Investment Companies Can Be More Disciplined
Usually the rewards of being disciplined are not as immediate as helping a family find their lost dog. But recalling this experience makes me think of the many ways in which discipline matters in my field:
Investment process description and implementation. Does your firm document the investment process step by step in writing and does the investment team follow the process consistently as documented? Does the team adhere to portfolio diversification guidelines or is a certain fuzziness occasionally allowed? Does expediency sometimes trump discipline? Does the sell discipline provide a true framework for action or is it merely a series of generic reasons for sale, entirely subject to personal interpretation — “we find a better idea,” “valuation is realized” or (my personal favorite) “fundamentals have deteriorated.” Who does what when and are these actions really performed systematically?
Results measurement and analysis. When the investment process does not work, does the investment team know why? Or are they twisting in the wind? I have spent many hours over the years crafting credible answers to questions such as, “Why are you underperforming and what do you plan to do about it?” and “What have you learned from your investment mistakes?” I can usually tell when the answers make sense or when they consist mainly of hope with a dash of spin. Real answers tend to come wrapped in research and analysis — systematically measuring where performance comes from — and the firms that tend to measure results in one area (investing) also tend to measure results in other areas (client service).
Information sharing. A portfolio specialist once told me that salespeople and client relations professionals at his firm did not receive bonuses until they had updated their notes in the company’s database. “Wow,” I thought, “this is treating them like children — as in, ‘You can’t have any ice cream until you do your homework.'” The reality, though, is that many client-facing professionals do not update their company’s database routinely or in depth. Our company frequently asks for database notes about a specific product. Sometimes, the information we receive is stellar — detailed observations, insights and feedback that provide a valuable history of market interactions. Too often, though, what we get is unintelligible and/or completely lacking in information value.
Editorial standards. Does a professional proofreader review every document your firm sends to clients, consultants and prospects? Does your company follow a style sheet to ensure accuracy and consistency? (See Special-Ops Editing for more on the importance of a style sheet.) Are all facts checked in every document? In my experience, rare is the investment company that can answer “yes” decisively to all of these questions. There are many different categories of people who are likely to be annoyed by shoddy and inconsistent editing: (1) people who care about language, (2) people who make their living as teachers (think decision-makers at university endowments and state teacher retirement funds), (3) people who despise verbosity (which usually results from nonexistent or sloppy editing) and (4) people who value quality and consistency and are offended (whether consciously or subliminally) by its absence. Hmmm … that sounds like just about everyone, doesn’t it?
The dog’s name was Tillie and her owner had been calling her local shelter frantically for several days after Tillie ran away en route to the vet. The owner and her entire family (mother, father, sisters, brothers and even a few cousins) came to bring Tillie home. There was much hugging and weeping and they gave me a sizable contribution for our dog owners association.
If I had not checked that one fact in that one document (while feeling tired and not wanting to be bothered), Tillie most likely would have been placed in another home, never to be united with her family. But as I give myself a pat on the back for this one disciplined action, I also start thinking about all the different ways I can become more disciplined in running my own business and in helping my clients to do the same.
Special-Ops Editing
A friend who always sends me cool Internet links recently provided an excerpt from an email sent by author Robin Sloan about his editors at Farrar, Straus and Giroux. Mr. Sloan describes the use of a style sheet to ensure accuracy. A time line is created. Character descriptions are cross-referenced. Inconsistencies are culled or corrected. Here is how Mr. Sloan describes the rigor and efficiency of his editorial team:
“FSG’s copy-editing team is like a special-ops squad. Clear the area! Check for bombs! Here’s the map! Go go go! I’m the timid informant being shepherded to a safehouse by this super-competent crew, and once I’m inside, safe from harm (and spelling everything consistently) they’ll head right back out into the firefight.”
The intense discipline described here underscores the need for higher editorial standards in the investment world. All investment companies should have an updated style sheet that serves not only as a guide to editorial consistency but also as a guide to consistency of the story. For instance, the special-ops editors at Alpha Partners might discover that the same quantitative investment model is sometimes described as a “relative value model” and other times as an “intrinsic value model.” At best, prospective investors are confused by such inconsistent labeling and at worst they may suspect (probably correctly) that the investment process is not implemented consistently.
The Power of Habit
In The Power of Habit, Charles Duhigg describes how changing one habit can create “a chain reaction, starting a process that, over time, transforms everything.”
The Power of Habit: Why We Do What We Do in Life and Business, by Charles Duhigg, explores the role of habits in creating change. I love this book for several reasons. It shows how researchers reinterpret their findings to shift strategy, turning a product with disappointing sales into one that earns a billion dollars a year. It tells the story of how changing a “keystone habit” revitalizes the culture and earnings of a major corporation. Perhaps best of all, it provides invaluable guidance for individuals seeking to replace bad habits (smoking, drinking, overeating or nail biting) with good ones. My favorite part of the book is the section describing how “small wins fuel transformative changes.” If you are serious about creating change, in yourself or in your organization, you should read this book.
Alpha Partners LLC Marketing for Excess Returns®
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Monthly insights for investment marketing and sales professionals
April 2011
In getting to know an investment firm, we always ask if there is any market research that would be useful in our work. Almost invariably and paradoxically, the answer in some form is "no." Paradoxically because most investment managers claim investment research as a primary competitive advantage. But when it comes to research about their own companies, they haven’t done any. Or it is dated. Or, for various reasons, even though they have spent a lot of money on it, it is irrelevant. This issue offers some advice for professionals who are serious about using market research to build a better business.
With best wishes,
Liz Hecht
Founder, Principal and Director of Research
Alpha Partners is an investment marketing firm specializing in research and presentation strategy. Our goal is to create alpha (excess returns) by helping investment firms win, keep and diversify assets under management.
Every once in a while, I have an experience that is so bizarre, so completely out of context, that I don’t even try to make sense of it. I know that it must be filed away for future reference when time or experience or some random flash of insight will make it all come clear. Here is one of those:
A few years ago I was in the middle of an interview with a portfolio manager and a product specialist. The goal of the meeting was to develop an understanding of this team’s investment strategy in order to assist with various marketing initiatives.
During the first few minutes, I asked a question that I routinely ask, "Have you done any client research that might perhaps be helpful to us — interviews with clients to understand why they initially chose your team over competitors, for example?" "No," the portfolio manager said. "It would be impossible to conduct such research with any meaningful level of statistical significance." Wondering why on earth not, I politely ventured the following: "We don’t necessarily need client research to be statistically significant. It would be helpful to us merely to understand what some of your major clients see in you that they do not see in your competitors."
This person’s response was so astonishing that I still wonder if this really happened. "Oh well," he said, with sardonic emphasis, "I guess you know far more than I do about that. So you don’t need me here today!" and proceeded to walk out. Storm out? It’s hard to find the right verb, but anyway it was clear: This person was mad at me. After meeting him for the first time and after an exchange that consisted of only a few sentences, my simple statement about market research caused him to leave in a snit a few minutes into an interview scheduled for one hour. Later that day, the head of marketing for this same firm, when asked by a colleague about the "XYZ Research Company" report, said, with genuine bitterness, "That crap! It is completely useless to us."
Strong Emotions and Closely Held Opinions
Crap? Useless? People walking out of meetings? It has taken me a long time to make sense of all this, but I think I finally have. The moral of the story is: Investment company professionals have strong, closely held, often strange opinions about the role of market research. They don’t necessarily know what they want, but they do know they want more than they are getting.
They want genuine insights about how to run a better business and have better relationships with their clients. They want interpretation and analysis, not just facts. They want an objective basis for important decisions that often hinge on subjective factors; or, as one of our clients put it recently, "we want to stop living in the land of anecdote." And perhaps most of all, they want ideas about implementation — recommendations for how to act on the research as opposed to a mere litany of findings.
In the early phases of setting up a research study, our clients ask us many questions about the best methodology and approach:
Do we need market research? Maybe not. We counsel clients to avoid conducting a research study when the answers to the questions may well reside in good old-fashioned common sense.
What kind of research might be best for us now? The answer depends on the size of your firm, what you want to know and why, your time frame and the size/composition of your target audience. You might be best served by a client survey every two years, systematic win/loss research, a periodic consultant evaluation, a lost client survey or some combination. The best way to get started is to survey others within your firm about what they want from research and then create a project brief or RFP.
Should the research be qualitative or quantitative or both? Quantity is vital in certain situations but always must be combined with quality. The reason why some view expensive research studies as "crap" is that there is insufficient qualitative data to understand let alone act on the findings. We call this "statistical insignificance." We use the quantitative work (an online survey with mainly quantitative questions targeting a large audience) to gain credibility in a world where numbers rule. But where we get our real answers is in the qualitative work (in-depth telephone interviews targeting a smaller group).
Will people want to participate? Clients and other key constituents such as consultants always want to participate. We have been conducting research interviews for institutional asset managers for more than 20 years and I cannot recall a situation where a client or consultant declined an invitation. For the reasons described in How Can We Serve You Better?, clients in particular like to be included. (Of course, one must be judicious in not asking the same clients to participate in multiple research initiatives within a short period of time.)
How do we thank participants for their time? The best thank-you is a report (or a letter) summarizing the research findings. Consultants, clients and prospective clients always like to receive this information because they want to know what others think who walk in their same shoes. Sometimes these reports can be an excellent way to correct market misperceptions. If one of your clients believes something about your firm that is not true, it can be corrected in a factual, non-defensive manner with a simple Editor’s Note. But caveat emptor: the findings should not be watered down to the point where they say nothing. Nothing has a distinctive look, feel and smell no matter how many nice words you wrap around it. A research summary that fails to address true findings may do more harm than good.
Should we conduct the research ourselves or hire a third party? In most cases, the answer is "hire a third party." As the head of a firm focused on market research, do I have a vested interest in this response? Yes! But I also speak from hard-won experience. I used to conduct research interviews with our company’s clients. When asking questions about my own firm, I felt I could not press for more information about positive comments (fishing for compliments) or probe for the realities behind negative comments (too defensive). So now a third party conducts our client interviews and win-loss interviews and, as a result, we get better information — information that over time has changed for the better the way we do things.
What should we look for in a third-party researcher? Experience. You need an interview team consisting of senior researchers who understand the asset management business. Remember, too, even if only for an hour, these people are representing your company.
How do asset managers leverage their market research to gain strategic value?By acting on the findings. By escaping from the land of anecdote and going bravely forth into the real world. By making decisions based on objective knowledge about why your firm is or is not hired, why your clients are or are not happy, what perceptions and misperceptions characterize the market’s view of your organization and how you can improve all aspects of your business.
I still don’t really know why that portfolio manager got so mad at me (maybe he was simply having personal issues that day). But I do know that market research generates strong emotions, either because it can be so powerful or because, in the wrong hands, it is not powerful enough.
Have you ever noticed that the best restaurants and hotels usually provide a customer survey to determine how they can improve your experience — and the worst, well, don’t? Our clients sometimes ask us how market research creates value. In addition to capturing candid insights from influential market participants, a well-managed, thoughtful research initiative always creates value by sending this vital message: "Your business is important to us, and we want to learn how we can serve you better."
Alpha Partners would like to find out more about your firm’s views on different kinds of market research. To participate anonymously in a survey focused on client research, click here.
