Author: Mike McLaughlin

Marketing Alternatives: The Importance of Education (Part II)

Posted by Mike McLaughlin on Apr 11, 2012, in Thoughts , tagged with , ,

Second in a series of posts about marketing alternative investment vehicles to financial advisors. Check out the first post here.

Last week I made the case for why educating advisors needs to be a focus for any investment manager attempting to market alternative investments.

Today I’ll make the case that I was wrong. And I’ll start, again, with a graphic:

from Rydex | SGI via getalts.com

The above is from Rydex | SGI’s getalts.com, and it communicates a nearly-identical message to the one from Natixis I referenced last week. Namely, that alternatives can enhance portfolio returns while reducing volatility.

This story sheds light on a major reason not to expend a lot of effort on educating advisors about alternatives: everyone is broadcasting a similar message. While often viewed as table stakes in messaging alternatives, the fact is that it’s very tough to stand out when it comes to the basic “Why Alternatives?” conversation.

Besides sameness, two other reasons support focusing efforts away from education:

  • Distribution partners will get more picky. Yes, distributors need help educating their FAs, but they’re also seeing an influx of similar materials. We’ve had a few managers tell us they’ve gotten lukewarm responses to educational offerings. I think that’s in part because there are many already out there. Not every firm can be a go-to resource for informing advisors.
  • Usage of alternatives is concentrated. This is the exact same statement I used to justify including education as a core marketing component – because so many FAs are dabblers. The converse, and also valid, view holds that there’s no point in focusing on the dabblers. Instead, flows to alternatives will come primarily from the 10-20% of FAs who are heavy users, at least for a while. And they are the ones that don’t need the education.

Given that most firms have limited marketing resources and a finite slice of advisors’ attention, it’s perfectly justifiable to focus on the proprietary aspects (e.g., firm, strategy specifics) of the alternative story at the expense of educational content.

Ultimately the importance of education when it comes to marketing alternative vehicles presents a tricky situation for firms. In the next post, I’ll address the mixed messages being provided on how alternatives should be used in clients’ portfolios.

Marketing Alternatives: The Importance of Education (Part I)

Posted by Mike McLaughlin on Apr 05, 2012, in Thoughts , tagged with , ,

First in a series of posts about marketing alternative investment vehicles to financial advisors.

My guess is that the graphic below is (conceptually, if not specifically) familiar to most investment management marketers:

from Natixis Global Asset Management via AdvisorPerspectives.com.

It’s a concise, data-driven way to illustrate the potential benefits of incorporating alternatives into portfolios, namely that alts can:

  • Enhance returns,
  • Reduce volatility, and
  • Improve downside protection

With $120+ billion in assets across nearly 350 mutual funds, the alternative push into the mainstream, specifically aimed at advisors, continues. And this type of educational content has become pervasive. The risk/return angle is often complemented by:

  • An introduction to the types of alternative investments
  • The importance of extending traditional asset class and strategy diversification

So let’s say you’re charged with marketing new alternative products. How important is selling and educating advisors on alternatives as an asset class? Should you expend significant effort on information that isn’t directly tied to your specific vehicle? How much education is necessary?

I see this is one of the toughest issues in marketing alternatives. The rationale for including educational content has three key points of support:

  • Education provides context. The why and how for including long-only, US large cap strategies in portfolios are fully-ingrained in advisors. But that same information is NOT secondhand knowledge for many FAs when it comes to alternatives.
  • Distributors want it. Large broker-dealers in particular have been asking for educational support for years. They realize it’s a long, effort-intensive process to get their advisors up to speed on how to effectively incorporate alternatives. And they’re more than happy to share that responsibility.
  • Most advisors are dabblers. According to Cogent Research, almost 80% of advisors use some type of alternative product. However, only 15% of FAs allocate more than 15% of client assets to alts. That means many advisors are simply dabblers at this stage, in part because they lack a complete grasp of how alts should be used.

Together I think those points form a strong case. And most firms agree, given their inclusion of educational content in alternative product marketing. That said, if I was launching a new product tomorrow, I’d at least consider skipping over the educational component in my marketing.

I’ll get to why that is next week.

A Reminder of What Technology Can Do

Posted by Mike McLaughlin on Mar 22, 2012, in Thoughts , tagged with , , ,

A few weeks back, we presented at the MFEA Distribution Technology Summit in Tampa. Much of the discussion focused on the impact of mobile – Web sites, apps, CRM, advertising – on both asset managers and financial advisors. We’re biased, but it was a good day.

The last session was a panel of sales executives. Among the many issues the panel touched on was the idea of adoption – how much are advisors and wholesalers actively using mobile technology?

The sales executives provided a valuable reminder – there is a non-trivial subset of  advisors and wholesalers who will NOT embrace mobile. While technology can bolster execution and add a positive dynamic to relationships with advisors, it is not essential for everyone.

The reality is:

  • Many wholesalers and advisors have been successful for a very long time before mobile became important
  • Some wholesalers and advisors will always be inclined to avoid new technology

Image via Kevin Knight

It reminded me of a project we did a few years ago. We spent 20 days in the field with some of the most successful insurance producers in the country. As it turned out, two of these producers were complete technophobes. When I say complete, I mean they:

  • Did not have a computer or laptop in their offices
  • Did not carry a smartphone
  • Spent exactly zero minutes per day surfing the Web and using e-mail

And yet, both were HUGELY successful by any measure. In fact, these guys are in the top 0.2% of producers in terms of overall production. Similarly, some of the best wholesalers in the industry rely on zero cutting-edge technology. The MFEA panel discussion reminded me of this.

Technology in and of itself is not a solution, but part of a suite of resources that can make doing business easier. We need to avoid thinking that technology is universally transformational, that more of it is always going to help everyone.

Our collective excitement at the opportunities presented by technology needs to be coupled with an equal dose of pragmatism.

The Most Overused Word in ETF Marketing

Posted by Mike McLaughlin on Feb 16, 2012, in Thoughts , tagged with , , ,

Innovation is the biggest cliche in ETF marketing.

This was reinforced for me yesterday after reading about the liquidation of 8 Global X ETFs. Having never checked out the Global X Web site, I went there and immediately encountered this:

We’ve been working with an emerging ETF provider on how to best position their product lineup, so I went back and reviewed notes on 6 other firms. Five of them prominently include innovation in their marketing messages:

  • As an innovator in exchange-traded funds…
  • …providing access to an innovative array of opportunities…
  • …provides innovative ways to enhance return potential…
  • …our track record of consistently creating innovative investment vehicles…
  • [firm] is an innovator in its field…

The definition of a cliche is something that has lost originality and impact through overuse. I believe that innovation has reached the point of having almost zero resonance with prospects and clients. It is a concept that everyone uses and tries to own, and therefore it has no power. Even when it might be factually true.

Now don’t get me started on solutions…

27 Words: Can You Name that Firm?

Posted by Mike McLaughlin on Nov 28, 2011, in Thoughts , tagged with , ,

One of the tools we use in our marketing work is language analysis – the words firms use in talking about themselves. We use it to help:

  • Identify terms that are over- and under-used across the industry
  • Find opportunities for firms to uniquely position themselves
  • Evaluate if a firm’s brand aspirations are actually supported by the words they actually use

Most often we find that firms fail to differentiate themselves in a meaningful way. Take the word cloud below, for example. It shows the 30 most-frequently-used words one investment manager uses to describe itself. In this case we’ve blocked the firm’s name, variations on the name, and the city where it is headquartered.

It leads to a simple question: can you name that firm? If you work inside the industry, maybe. If you’re an institutional investor or financial advisor, I doubt it.

And while the word cloud is an oversimplification, the problem it uncovers – the lack of a differentiated voice – is real for many investment managers.