Last week I offered out Part I. At least one person was confused as to what I was offering there, but I think the title was self explanatory. For anyone who is thinking about running other people’s money–and I think more than a few people aspire to that–the following points are what I perceive as the biggest potential missteps when growing your investment advisory.
1. Selling is everything to your growth
2. Selling is everything to maintaining existing AUM
3. Every interaction with a client is an opportunity
4. Eliminate the impact of any one individual
5. Exceptions conflict with efficiency and growth
Your investment philosphy can be more original, your research can be deeper, your work ethic can be stronger, and your technology can be faster, but none of that will matter if you can’t communicate that to a prospect. Your track record matters insomuch as it can’t be terrible, but ultimately you are selling yourself–not your results. The first and final decision a client makes is whether or not he is comfortable with you handling his money.
I run the investment strategy at my firm, yet, I am suggesting that the sales role is more vital to keeping existing clients. I consistently deliver top-quartile returns* but only my recent track record matters–and even then, not so much. There are going to be periods of portfolio underperformance** and clients that were sold on investment strategy and / or returns are going to walk. Maybe they don’t leave you that quarter, but they will leave when someone with a better sales pitch comes along.
Employees represent you and your brand; make sure they are representing it the right way. All of your hard work to establish trust, confidence, and a particular image can be irreparably damaged by the receptionist who lacks ettiquette or the client service admin with the wrong tone. Spend the time, effort, and money on training. Your employees will either move your firm forward or stall your growth–there is no in between.
I’ve seen many brokers transition to independence and not comprehend the concept of building an organization. A small firm is fragile. Don’t let the direction of your firm be sidetracked by a departure or a vacation or error caused by lack of systems. Implement redundancy. Create teams. Cross train.
Are you going to manage both taxable and qualified accounts? Are you going to accept clients who require monthly distributions? Are you planning on offering services other than managing investments? Are you trading with multiple brokers? An affirmative answer to any of those questions creates an exception. Every exception requires at least one system or policy, and more likely than not, multiple systems or policies. Some exceptions are in the best interest of your clients and your firm. But most exceptions are in the best interest of only a single client at the expense of other clients and your firm as a whole.
None of what I’ve written suggests you need to produce the best investment returns. John Paulson still manages $19+ billion and it has nothing to do with his recent performance***. If I left this firm, I would leave a large gap on the investment side, but this firm would continue because the client relationships are sales related, not investment related. I think this industry offers an unparalled opportunity to be unaffected by the general economy; but your sales skills / sales team need(s) to be top notch. Don’t rely on your investment returns to carry you.
*I’m low-balling depending on which industry segmentation you use
**Benchmarking is such a flawed concept; particularly with clients
***Sure, part of the reason is related to historical performance, but I would argue that his track record is part of his brand at this point; that is, Michael Burry doesn’t run $19+ Billion. His brand sucks–by his own admission–he is inept at dealing with clients.