Monthly insights for investment marketing and sales professionals
March 2014
When I ask investment companies for a copy of their marketing plan, I am often told, “There really isn’t one” or “We don’t have anything on paper” or “Our plan is to manage money, and if we do that well, we will attract business.” This issue of our newsletter considers how investment companies can benefit from a thoughtful, flexible marketing plan.
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.
“In the long run, clarity about purpose will trump knowledge of activity-based costing, balanced scorecards, core competence, disruptive innovation, the four Ps, the five forces, and other key business theories we teach at Harvard.“
— From How Will You Measure Your Life? by Clayton M. Christensen
I have had the good fortune throughout my career to work with a number of start-up investment companies, and I love working with start-ups. Why? Because in a start-up, marketing matters. In start-ups, there is almost always a detailed marketing plan as part of the larger business plan. At more established companies, I have learned, this is not always the case.
There are a number of reasons why no plan exists. Planning takes time, and at many investment firms time is the resource in shortest supply. The realities underlying any marketing plan are perceived to be too fluid, dooming virtually any plan to irrelevance before the ink is dry. And, perhaps most prevalent, many investment firms still, even in 2014, are completely dominated by those who invest, consigning all other unfortunate souls (in sales and marketing, for example) to a sad half-life of action without purpose.
Why Develop a Marketing Plan?
There are at least three good reasons why investment companies should create and maintain a concise marketing plan if they do not already have one.
1.
A plan saves time and money. A well-thought-out plan aligns available resources with longer-term goals. When it comes to marketing, some investment firms tend to flail about randomly. This month they want to do advertising and next month all their focus is on client events. None of these activities will have the desired long-term impact without a consistent, decisive, well-defined answer to the toughest question: “How is your firm different from competitors?” Especially when the answer to that question varies day to day depending on which professionals are being asked in different parts of the world.
2.
A plan facilitates swift response to change. The main reason firms don’t plan is fear of change — concern that reality inevitably will invalidate any plan. Yes, change is a fact of life in the investment world. Yet how can a company change course effectively if it never set a course in the first place? By checking a plan against reality, an investment company is more likely to course correct in a timely manner.
3.
A plan provides “clarity about purpose,” as noted in Professor Christensen’s book. I am working with a company now that has a clearly defined marketing plan. My client gave me the plan when I walked in the door for my first meeting with the team. The plan allows me to assess and measure my activities clearly in line with desired near-term realities and long-term goals. It gives me the courage to be a nuisance when I need to be a nuisance. It provides immediate guidance when, say, selecting callouts for the company’s latest white paper (this one as opposed to that one because this one is more clearly in line with your company’s desired long-term identity). A plan helps us all swiftly answer such life-defining questions as “Where should we focus our time today?” One never has the sense of “Why are we doing this again? Oh yeah, because our bosses have decided that this is the priority du jour.”
An investment marketing plan should not become a giant exercise in fixing a future reality that cannot be defined. It should be recorded on paper; it should be short (one page works) and refreshed annually; and it should change as circumstances require while allowing time for it to work. (The reason why many plans don’t work is that investment companies don’t stick to them. One exercise in thought leadership does not a thought leader make, and one or two client events alone do not generate the requisite asset-building buzz.)
While thinking about this article, I had the good fortune to read Apolo Ohno’s wonderful book, Zero Regrets: Be Greater Than Yesterday. In the opening, “Prologue: Toward a Euphoric Clarity,” he writes: “They say the more you think with particularity about things, the more you acknowledge the wanting of a specific thing, the more you articulate that out loud, then the more likely it is to come true. There is great truth in that. It takes a really clear understanding of how to reach a point and what it’s going to take to get there.” That’s precisely what many investment companies need: a clear understanding of how to reach a point and what it’s going to take to get there.
Planning for Financial Advisors
Grounded in a survey of more than 800 financial advisors participating in the Wharton School’s executive education programs, Marketing for Financial Advisors is a commonsense guide for financial advisors seeking to build a successful practice. The book focuses on the need to define a distinctive brand, build value with clients, develop an integrated marketing communications program and, most important, according to the authors, create a clear plan for action. The book’s final chapter, “Putting It All Together: Your Marketing Plan,” emphasizes how vital a plan is to long-term success: “Many studies have shown that without a written plan, even if it is just a sketch or outline … you are much less likely to achieve your goals.” And yet the authors, Eric T. Bradlow, Keith E. Niedermeier and Patti Williams of The Wharton School, note that only 58% of financial advisors surveyed have a plan, and of that 58%, only 65% have updated their plan within the last year.
While written for financial advisors, this book addresses marketing best practices applicable to all investment companies.
Sweaters for Penguins
A client and friend who shares our affinity for penguins sent us information about The Penguin Foundation‘s Knits for Nature program. These sweaters knit by volunteers protect our little friends caught in oil spills, preventing ingestion of toxins prior to cleanup. For more information, click here or email pfoundation@penguins.org.au.
Penguins caught in oil spills need these little sweaters to keep warm and to stop them from trying to clean toxic oil off with their beaks.
Monthly insights for investment marketing and sales professionals
February 2014
It can be a foundation for outstanding marketing communications. Or a showcase of all the shortcomings that typify investment marketing. Its production can be a genuine team effort, bringing together the best of investment management, sales, marketing and client service. Or it is created in a ghetto where people rarely receive recognition and respect. This issue of Excess Returns asks defining questions about what is arguably the most important, least effective marketing document: the library of Request for Proposal (RFP) responses.
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.
“Advisors who develop the same rigor of response that can marshal them successfully through the formal RFP game can use those same attributes to win business through other manager selection processes.”
Once upon a time, an industry acquaintance asked me for some advice. He was working for a small investment firm with aspirations of building institutional assets from a base of mainly high-net-worth clients. I suggested that he consider building a relationship with a leading manager of emerging managers (MOM). The right MOM relationship, I explained, would take time, but would provide a high-quality entrée into the institutional market. He thanked me, but when I heard from him again several months later, he was downcast about the due diligence required to build such a relationship. “Gee, Liz,” he lamented, “I made some calls but those questionnaires they wanted me to fill out … I mean, who has the time?”
I am familiar with such questionnaires and there is nothing unreasonably time-consuming about them. The questions focus on ownership and organizational structure, philosophy, process, track record, performance attribution and patterns of performance. Rigorous responses to these questions not only fulfill RFP* requirements but also animate any robust investment marketing effort.
This fellow’s response, however, exemplifies a shortcoming of many investment firms, from start-ups to multibillion-dollar global companies. Many small firms with mainly high-net-worth clients just want to pick stocks and quote Warren Buffett; they do not want to engage in the intellectual and creative heavy lifting required to develop a compelling set of RFP responses. And many large firms have automated the RFP process to the point where responding to major business opportunities has become nothing more than a gargantuan exercise in cut and paste.
10 Questions to Ask About Your Firm’s RFP Library
To define an optimum role for the RFP in your own company’s marketing initiatives, consider the following questions:
1.
Does your team maintain a library of responses to frequently asked questions for use not only in responding to RFPs but also in preparing more effectively for meetings and in educating new team members?
2.
Is your RFP boring, or does it capture the imagination of prospective investors with fresh examples of the investment philosophy and process?
3.
Based on a review of competitor proposals, does your firm’s response include an interesting, true, well-researched answer to the question, “What aspects of your firm’s investment approach differentiate your strategy from that of competitors?”
4.
Does the proposal communicate understanding of the goals of the investment mandate and an earnest desire to win the business?
5.
Does the RFP reflect reality and can key assertions be proven?
6.
Does it explicitly and fully address the questions being asked, or are some questions answered in a partial or oblique manner?
7.
Is the RFP organized in a way that facilitates review?
8.
Is the information provided consistent with information in other important documents such as the business plan and presentation book?
9.
Are the members of your RFP team treated with respect and paid well, with the opportunity to participate in self-study initiatives such as the CFA Institute’s CFA Program or Claritas programs?
10.
How does your firm measure the success of its RFP team’s efforts?
Several years ago, while working with a company in Paris, I almost gave up on obtaining the information needed to create a cogent investment philosophy and process description. The RFP in English provided almost no detail and (like so many RFP writers) I was granted virtually no access to the investment team. Finally, I had an idea. I asked for the RFP response in French and … Voilà! The French version provided a good foundation for our company’s work. Because it included an in-depth, narrative description of this team’s investment strategy, we were finally off and running. The RFP is the bedrock of any robust institutional marketing effort. That’s why all of our firm’s work in getting to know a company, regardless of the assignment, starts with a careful read of this document.
* For the sake of simplicity, this article uses the term “RFP,” “proposal” or “RFP Library” to apply to any set of narrative responses with data provided to prospective investors and consultants. This may be in the form of consultant database content, a response to a Request for Proposal or Request for Information (RFP or RFI) or an intranet providing responses to frequently asked questions.
Opportunity or Necessary Evil?
Marketing professionals and new business development executives frequently tell me that their firm seeks to move away from RFP-driven searches. The RFP process required in public fund searches is perceived as excessively bureaucratic or rigged against smaller companies. This may be true in some cases and, depending on the nature of the opportunity, it may make sense for your firm to bow out of certain searches. But this desire to avoid RFPs still misses the point. Even if your firm never needs to submit a formal proposal, everyone involved in building new business and servicing existing clients will benefit from access to an inspired set of narrative responses to frequently asked questions. Viewed in this way, the RFP is always an opportunity, regardless of whether one chooses to participate in a given search.
A Plan Sponsor’s Perspective
Often embedded in the belief that RFPs are to be avoided is the belief that institutional investors and their consultants do not really read RFPs. But of course they do. For an interesting tour of a plan sponsor’s take on diverse RFP responses, there is no better source than Philip Halpern’s book, Marketing Institutional Money Management Services. Mr. Halpern currently chairs the advisory board of Edgeline Capital Partners, a boutique private placement firm, and participates actively on a number of industry boards and investment committees. He previously led as Chief Investment Officer the endowments at The University of Chicago, Caltech and The Washington State Investment Board. I read his book when it first came out in 1995 and I still refer to it often. The chapter entitled “Request for Proposals and the Search” offers incisive commentary on diverse answers to frequently asked RFP questions.
Based on real RFP responses,** Mr. Halpern shares his views on what resonates and what repels. “The focus on top-down,” he notes of one company, “provides a consistency and discipline that most stock pickers do not have.” Regarding another firm’s philosophy statement, he comments: “Wyeth believes this and believes that, but why? For all the meaning that is conveyed, Wyeth might as well substitute the terms ‘apple pie,’ ‘mom,’ and ‘baseball’ for their descriptors … Introducing ‘value catalysts’ without explaining their significance is sloppy. There is no philosophy imparted here, only gobbledy-gook.”
Philip Halpern’s book makes it clear that key decision-makers read RFP responses carefully — and they also read between the lines.
** Mr. Halpern provides real RFP responses but fictionalizes the companies using the names of famous artists — for example, Bierstadt, Inc. or The Wyeth Company.
Monthly insights for investment marketing and sales professionals
January 2014
What’s in your bug-out bag? As a denizen of the 21st century, you no doubt are aware that a well-stocked bug-out bag is key to any survival plan. But what about your investment bug-out bag? This issue of Excess Returns considers the implications of survivalist culture for investment management companies. Specifically, how can investment firms do a better job of communicating about risk?
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 bad news is I’ve lost control of the clicker. The good news is, while being doomed (slight pun intended) to watching one of my husband’s favorite and my least favorite television shows, I have an idea for this issue of Excess Returns. National Geographic’s Doomsday Preppers profiles survivalist families getting ready for various forms of natural or man-made disasters ranging from global financial collapse to earthquakes to biological warfare (to name just a few).
Part of me gets this show. There is a certain appealing simplicity in the concept of survival: one is not overburdened with an abundance of choices; one’s focus is clear. But I prefer not to envision a future without raw food restaurants, HBO and perfectly chilled Chardonnay. I do not want to take to the hills and start over.
As I watch this week’s episode, however, it occurs to me that investment managers could learn from all these survivalist families stocking their bug-out bags and building their safe rooms. As evidenced by the number of wealthy investors with portfolios mainly in cash, bonds and gold, the investment industry can still do a much better job of communicating about the realities of risk.
Best Practices for Communicating About Risk
After 2008 many investment firms improved the way they define, monitor and manage risk, and many more companies today now emphasize their risk management systems and strategies. Where I have not seen significant improvements, however, is in the way investment firms communicate about risk. The following best practices, when applied systematically, can turn communications about risk into a competitive advantage.
Define terms first. Your Great Aunt Tabitha and the CIO of a sovereign wealth fund are likely to view risk very differently. Investment company professionals therefore should communicate about risk in the context of what risk means to a prospective client. Is it something that can be described with a Monte Carlo simulation or something that inspires visceral dread? (Describing risk in the context of client goals seems obvious, but if it’s so obvious why don’t investment firms do this more often?)
Demonstrate understanding of what could go wrong. Communicating about risk has little to do with tracking error or standard deviations or correlation coefficients. The real risk that investors understandably fear is that their investment manager’s worst-case scenario does not capture everything that might go wrong. “Understandably” because, as documented in Never Saw It Coming: Cultural Challenges to Envisioning the Worst, human beings do not excel at envisioning worst-case outcomes. Investors thus are likely to gravitate toward asset managers who acknowledge a complete spectrum of risk when describing individual investments and the portfolio as a whole.
Communicate consideration of risk at every stage of the investment process. The typical investment process map ends with the portfolio and then sometimes includes a separate page about risk management. The way one contains or capitalizes on risk should animate the entire process discussion — as opposed to being treated as an add-on or an afterthought.
Give the sell discipline its due. For many traditional investment strategies, a thoughtful sell discipline executed consistently is possibly the most important form of risk control. And yet one still finds detailed investment process descriptions — page after page of information on how the manager selects investments — without one drop of ink on when and why the manager sells. Similarly, a recent white paper on risk management by a large global financial services firm details 24 discrete forms of risk without any mention of faulty sell discipline implementation.
Think big picture. Portfolio managers routinely tell investors that they cannot predict the future. I always find these protestations to be somewhat wearisome, not the least because investment managers make them so often using exactly the same language (we don’t have a crystal ball, blah blah). Of course these managers can’t predict the future. But they can develop a well-informed global macroeconomic view, seeking to understand the full range of risks confronting their investors.
Equate risk with returns. Many investors still don’t understand (or need to be reminded) that returns are derived from risk. Investment opportunities also arise based on ingenious humans finding new ways to prevent worst-case scenarios. An asteroid wiping out all or part of our planet strikes me as being the ultimate risk (sorry preppers, your gas mask or water purifier won’t help you there). And yet a recent episode of NOVA, “Asteroid: Doomsday or Payday?” dramatizes how studying the risk of asteroids is already creating investment opportunities in space.
One of the main reasons I don’t like Doomsday Preppers is that the preppers usually are blinkered in their focus on what could go wrong. Each prepper family, it seems, has zeroed in on just one disaster to prep for (this one over here is prepping for a cyber-attack while that one over there is wholly focused on the negative consequences of global warming). These preppers would have more credibility if they acknowledged the complete range of potential negative outcomes. That’s what I want my investment manager to do.
Envisioning the Worst
Never Saw It Coming: Cultural Challenges to Envisioning the Worst explores what author Karen A. Cerulo describes as “positive asymmetry” or the human tendency to imagine positive outcomes in greater detail than negative outcomes. Positive asymmetry, argues Cerulo, a professor of sociology at Rutgers University, can at least partly explain 9/11 and the 1986 Challenger disaster, while negative asymmetry helps to explain the avoidance of catastrophe in the case of the Y2K millennium bug and the SARS outbreak of 2003. For investment professionals who want to improve the way they think about and describe risk, this book is a must-read cover to cover.
In Never Saw It Coming, Karen A. Cerulo documents “positive asymmetry,” a phenomenon that may explain why so few investment firms communicate effectively about risk.
The Big Short Revisited
Speaking of negative asymmetry, I recently had the pleasure of rereading The Big Short: Inside the Doomsday Machine, by Michael Lewis. The Big Short tells the story of the people who understood the risks inherent in the subprime market long before those risks became front-page news. This is a classic well worth revisiting, and it may soon be a movie, too (Brad Pitt’s production company, Plan B Entertainment, has optioned the film rights).
