I’m working with a client who is now constructing a business/marketing plan. As I mentioned in my last white paper, a SWOT analysis is very helpful in this exercise, and it’s proven to be invaluable for my client. This technique analyzes stengths, weaknesses, opportunites, and threats, and it really helps one focus. It can help to quickly identify areas for improvement and where to really concentrate one’s attention. One important point: when planning, don’t get to the end of the process before bringing in team members and subordinates. You will always get valuable input, and investment management employees generally don’t appreciate a plan which is delivered to them for execution without having had any input.
August 19th, 2009
Last month, I posted some thoughts on this subject. Since then, I have continued to get numerous questions on this topic so I decided to expand on my thoughts. Many managers seem to be seeking training for their sales people. When I’m asked about that, I try to get underneath what they are really asking. Often it turns out that they are looking for solutions for a perceived lack of sales results. Training sales people seems logical, but it may not make sense if the problem with sales lies elsewhere. Further, standardized training is just that, standardized. It doesn’t seek to find the underlying problem. There are many possible issues ranging from firm and product positioning through general marketing to various elements of the sales process. When asked to help specifically in sales training, I seek to understand the entire sales process that the firm uses and find the weak points. These weaknesses may include sales presentation skills often addressed in standardized training, but frequently the problems are more complex and require more thoughtful solutions.
August 13th, 2009
It’s a tough time right now for any manager. Although there is far more optimism in the air than there was a few months ago, the investment community is still cautious. Many managers continue to have trouble gaining any business momentum. I have spoken to quite a few emerging managers lately who express frustration. These firms are either recent start-ups or just small managers who by virtue of their size fall into the emerging manager category. A number of these firms are questioning whether they can survive in an environment which seems to place a premium on stability. How will they attract assets if their prospects are afraid to place assets with a firm that may not survive?
If misery loves company, they should know that they have it with the large managers. Many of these firms have fallen out of favor, rightly or wrongly, due to their affiliation with other financial services businesses under scrutiny from the government and the public. Despite their size, they are not necessarily viewed as more stable than the small managers. Small managers, many feel, have the advantage of focus and dedication to their specific investment approach. They are also often employee owned which aligns their interests with their clients’ interests.
So, emerging managers should stay the course if they are passionate about their investment approach and their business. The investment management business tends to require considerable staying power before firms see the rewards of their efforts. But if they deliver strong investment results, dedicate themselves to their clients, practice persistence, and deeply believe in themselves, they are likely to succeed, perhaps dramatically, over time.
August 4th, 2009
A manager mentioned to me recently that their marketing and sales people and investment people are not on the same page with respect to products. The investment people know in their hearts that they can deliver certain investment capabilities to the marketplace, but their passionate pleas fall on deaf marketing ears. The marketing and sales people are certain in terms of what products and capabilities the marketplace demands, but their claims feel ignored by the investment staff. How can they improve their communication and arrive at consensus? Who should drive the process?
The answer is that it needs to be a collaborative process. Investment personnel are in the best position to know their strongest investment capabilities. Marketing and sales personnel are in the best position to understand marketplace trends, what is being demanded by their client base, and the state of the competitive environment. All of these factors must play a part in making important commitments to product development. Often a product development function exists to coordinate all of this. But with or without that function, communciation forums must be created to exchange information across departments so that all critical personnel arrive at the same conclusions with respect to product development and delivery. It is very important to create an open environment where all views are vetted and respected. Investment management requires a team oriented culture, not a rigidly divided one by function.
July 28th, 2009
One of the issues that institutional asset managers ask me the most about is their sales/service model. Should sales people also manage client relationships? Isn’t it a different skill set? Shouldn’t the best sales people be constantly looking for new clients in order to grow the business while others nurture existing relationships? The answer I most often give is that in the institutional business, sales and service are not distinct, but rather occupy different points on a continuum. In this business, sales is all about long term relationship building where the sales person gains credibility over time with the potential client. Service is about long term relationship strengthening where the client receives frequent value added communications and hopefully adds more assets in both existing accounts and cross sold products. Some professionals are better at bringing in new clients while others are better at servicing existing clients, and perhaps cross selling. Their respective responsibilities should align with their strengths. But organizations should be careful about drawing more of a functional distinction between sales and servicing than exists in practice.
July 22nd, 2009
Selling investment management services to institutions has always been a consultative process. Sophisticated investors want to understand and appreciate the capabilities of an asset management firm. This knowledge is generally transferred over a period of time in a series of encounters between personnel from the asset manager and institutional investors. However, for quite some time, the marketplace has forced these capabilities into buckets with specific names. Initially they were styles within asset classes, such as large cap growth and high yield fixed income. Then, we had the division between traditional and alternative investments. This has been followed by more solutions-based strategies such as Liability Driven Investing.
When businesses flourish, there is a tendency to keep things the same as much as possible. Therefore, changes in business approach are slow, and the investment management industry has experienced this until recently. For example, the death of style boxes has been discussed for many years, but many manager searches still are defined by style box. However, industry and market events of the past year are likely to disrupt this relative stability. More and more managers are telling me that their opportunities are now about specific customized capabilities rather than defined products. Artificial distinctions between alternative and traditional strategies are blurring. Easy labeling is fading in favor of specific descriptions of capabilities designed to meet specific client needs. In order to succeed in this new environment, managers must meet the challenge of convincing institutions that they can fit their capabilities to client objectives, while continuing with their focused consultative approach.
July 20th, 2009
It seems prudent right now to be cautious with spending. Profitability at asset managers is way down in 2009, primarily driven by the drop in asset values. It’s not clear yet, as it never really is, where markets will be going , so it seems prudent to limit all spending. Budgets set early in the year are very tight. As I speak to managers, many seem to be waiting for the Fall to set their budgets for next year and to assess whether they have any discretionary spending left this year to hire employees, and fund discretionary spending such as advertising and conference sponsorships. But another way to look at things is through the lens of value resource spending, which is like contrarian investing. Because most managers are not spending freely, there is a lot of talent that can be acquired at deep discounts. A contrarian value resource spender should strongly consider hiring this talent, and using some discretionary spending, while they have the leverage in the marketplace, before the spending rebound occurs this Fall and in 2010. Investment managers should evaluate their budgets and spending patterns as a value investor would.
July 12th, 2009
Why can’t I sell more? When I talk to managers, I get this question all the time. To some, it seems that it should be simple. Develop a good investment product, hire some talented sales resources with contacts, and off you go. The truth, of course, is that there is much more to it than that. Most managers don’t realize how competitive the business is. For the majority of asset classes, there are many strong managers. In order to compete effectively, a manager must clearly differentiate its products and capabilities, and promote them through a well crafted marketing plan. Over time, this will generate “demand pull.” Then, talented sales resources can be more successful. Otherwise, they can spin their wheels and management can waste a lot of time and money. In the best of cases, patience is required as it takes time to build a client base. Look for my next white paper coming out this summer which touches on much of this.
July 7th, 2009
Any business that generates 30-40% profit margins is tempting, especially if it seemingly has few barriers to entry. This has been the record of the asset management business over the past 30 years. While the days of outsized margins across the industry are over, the best managers will still enjoy excellent profitability. However, while barriers to entry are not substantial, barriers to success are.
I have often heard that the average restaurant stays in business for three years. Perhaps something similar can be said about the average asset management business. Insurers, banks, and other financial services firms often see asset management as good diversifier and an extension of the use of in house investment resources. But managing money for a parent company is very different from convincing independent institutions that they should entrust their investments with you. Firms generally have to demonstrate performance as an asset manager, not just an investment department, for a period of time before gaining the confidence of potential clients. They need to show separate focus and business management.
Similarly, asset managers who try to extend their brand into new distribution channels, such as retail-oriented firms targeting institutions, face hurdles. Existing investment capabilities are not necessarily directly transferable to the new client base. Many firms attempt to use the same investment engine to serve all types of clients; the results have been mixed. Success often hinges on convincing each client that its specific needs will be served well, despite the fact that the firm is trying to serve the needs of a diverse client base. History indicates that the more diversified an investment firm is with respect to product and client, the greater the profitability challenges are.
Finally, pure start-ups face the greatest challenges. It is often unimportant to potential clients that managers of start-ups have had previous success. It only matters that they are successful in the current endeavor.
So, while asset management can be a profitable and enjoyable business, creating great temptations, barriers to success are significant. It often takes quite a few years before success is achieved. Unfortunately, too many owners and executives responsible for the business lose patience just before they might be seeing the fruits of their labor and investment.
June 29th, 2009
Welcome to my blog.
I intend this to be a forum for lively discussion of topics related to the investment management industry. I invite you to be an “active” reader by sharing comments, as I value your ideas and opinions.
During my 25 years in the industry, I’ve learned important and valuable lessons which I’m committed to sharing on my blog, face-to-face with my clients, and through white papers. My initial white paper, “Tackling Investment Firm Challenges: Successful Execution of Strategies and Plans,” addresses the importance of linking strategy, planning and execution. My second white paper is in the works. In this paper, I present the process of building high functioning and productive sales and marketing organizations. I hope you find these white papers to be helpful business tools. I plan to blog on a regular basis, so please visit frequently and share your comments.
June 18th, 2009
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