Thoughts

Advisors’ Use of Fund Firms: What’s the Truth?

Posted by Mike McLaughlin on Jun 22, 2011, in Thoughts , tagged with , , , , ,

Last week Cerulli Associates released a study built from a survey of over 1,800 advisors. As chronicled in Ignites (subscription), a key finding focuses on how advisors are using fewer mutual fund providers and “…the importance of cementing solid relationships to secure preferred provider status…”. A snippet of the relevant data:

  • 57% of advisors use 5 fund firms or less, up from 37% in 2009
  • 13% of advisors use 15 fund firms or more, down from 25% in 2008

The idea of concentrated mutual fund family usage has been increasingly trumpeted over the past few years. And I have no doubt that the data is reported accurately based on advisors’ responses. But I am dubious of the idea that so many advisors use so few fund firms. Two reasons why:

  • The first-hand knowledge we have of our clients’ data shows it’s common for firms to have huge numbers of small, single-product advisor relationships.

  • Many firms prioritize cross-selling over pure prospecting. Sales strategy and comp plans are frequently driven by the desire to build deeper, multi-product advisor relationships. Highly-concentrated assets among advisors, as indicated by the survey data, would seemingly dictate a greater focus on new client acquisition.

So what does this mean? Two takeaways:

  • Beware Self-Reported Data: I think it’s human nature to neglect the “long tail” of small positions within clients’ portfolios. There may be 5 primary firms used by advisors, but not 5 total.
  • Beware Aggregated Data: The survey is cross-channel and includes advisors with an average AUM of $50M. But fund firms typically have a more targeted, specific strategy than that. It’s important to isolate the subset of comprehensive data that is relevant and draw conclusions from there.

We’ve been involved in enough syndicated research to know that the data gathered always leaves room for interpretation. The findings here fit the bill.

Vanguard & Twitter

Posted by Anu Heda on Jun 16, 2011, in Thoughts , tagged with ,

I decided to look through the 835 folks Vanguard follows (follow the link and you can too) on twitter.  Why?  Besides having a bit of evening time and a lot of curiosity, I wanted to understand how Vanguard participates in social media.

Here are five typical accounts Vanguard follows:

  1. YoungMoney – magazine targeted to financial & business matters of young Americans
  2. LipperLeaders – mutual fund industry research pioneer
  3. IRSnews – yes, that Internal Revenue Service
  4. BrandRyantInsure – a Virginia-based insurance agent
  5. RedCross – the Red Cross

This says that Vanguard is (a) engaged in social media, (b) interested in other opinions and thoughts, & (c) charitable.  Also, none of these accounts have fewer than 691 followers themselves; so there’s a good opportunity to hear from their followers via retweeting.

We’re not advocating that all firms need to use social media.  But if you do consider it, examining Vanguard’s usage and engagement is a good, early step.

Subject What You Mean

Posted by Anu Heda on Jun 14, 2011, in Thoughts , tagged with , ,

We subscribe to numerous hedge fund and asset manager e-newsletters.  The typical e-mail subject is something safe , like “Q3 Investment Opportunities.”

Atyant Capital, a hedge fund manager with a gold-focused flagship fund, sent a newsletter recently with a clear subject I thought to share: “Credit Deflation is Prime Driver of Resurrection of Gold Mining Industry”

We subscribe to numerous hedge fund and asset manager newsletters. The typical e-mail subject is something safe like “Q3 Investment Opportunities.”

Atyant Capital, a hedge fund manager with a gold-focused flagship fund, sent a newsletter with a clear subject recently.

“Credit Deflation is Prime Driver of Resurrection of Gold Mining Industry”

I liked the subject for three reasons:

  1. Reminds the recipient of the fund’s focus (gold).
  2. Makes a statement, so the reader can agree/disagree.  Either way, it’s a good hook to convince the reader to continue.
  3. Simplifies sharing the idea with colleagues.  You could imagine one colleague telling another, “Atyant believes credit deflation is driving gold right now.”

Writing compelling emails is difficult.  Subjects are usually the most difficult component.  Perhaps working from this example can help.

Get Clients into Your Hedge Fund

Posted by Anu Heda on May 30, 2011, in Thoughts , tagged with , ,

Raising money is difficult.  When you’re a small, new, or niche hedge fund it can be extraordinarily difficult.

As we continue to meet with hedge fund managers looking to grow, there are four ways to better market yourself and your fund (assuming you’re seeing as many prospects as humanly possible).

  1. Buy Pedigree – Baupost.  Bridgewater.  JPMorgan.  Can you bring on a junior investment person from a top-tier firm?  If you can, many more doors will open and experienced investors will be interested to see if they can catch lightning in a bottle.
  2. Discount – Can you provide your strategy at a markedly lower cost than the competition?  With hedge funds, you don’t have to have a singular price and your clients won’t know the price other clients are paying. Instead of 2/20, can you offer 1.5/5?
  3. Unequaled Service – Most fund managers dislike the client engagement component.  Can you provide a weekly newsletter and a regular monthly conference call?  Many investors may not take advantage, but they will value those service features.
  4. Professional Presentation – Can you design the prospect experience to feel professional?  From “dot com” e-mail addresses, a functioning Web site, not-free business cards,  to pitch books and 1 pagers – invest the money and time to look credible.

On the latter topic, we’ve written extensively on how-to improve your materials: here and here.

Scan, not reading…

Posted by Anu Heda on May 26, 2011, in Thoughts

Most people do not read a Web site like they read a newspaper, book, or magazine.  That’s well covered ground.  In some recent client discussions, we reintroduced the topic and had great conversations.

I thought to share a great image of how typical users traverse a Web site (from www.netbulge.com).  Notice how users begin in the middle, work to the left and around to the right.  Far too many sites use that prime middle-center location for stock imagery (e.g., building, skyline at night, four people huddled around two screens, etc.) instead of conveying the value their firm provides to their target clients.