Have you ever been asked the question “why should I invest with you” by a prospect? What was your answer? Was it convincing? A recent survey during the annual funds fare in Zurich, Switzerland showed disappointing results. Asset managers either stressed the quality of their people, or they focused on “selling” their investment performance track record. About a third of the interviewed asset managers were unable to articulate their value proposition. Being able to formulate a convincing and honest investment philosophy forms the basis for successfully formulating a sound and differentiating value proposition allowing to answer the “why should I invest with you” question.
“Why should I invest with you” – a simple question, it seemed to me! So I decided to put it at a test at the annual funds fare in Zurich, Switzerland. Showing interest into their specific actively managed investment products, I asked different exhibiting fund and product managers that questions. Although not statistically representative, I got the following answers – or at least that is the way I understood their answers.
- One third of all interviewees responded that they have the best people and that is what makes them stand out of the crowd.
- One third of the participants replied that their investment performance track record speaks for itself.
- The last third of the fund and product managers I talked to had no clue why I should invest with them or tried to convince me with arguments on how they operate. I identify them as the “just trust-me” asset managers
Rather disappointing answers – or looked at from a positive angle: there exist a lot of opportunities to improve.
A star based business model approach
As asset management is, to a large extend, a trust based business, the first answer – having the best people – may sound compelling. So I tried to figure out why their people are the best – or at least better than those of the competitor next door. Most of the time, the main argument was around the number of years of experience that their portfolio manager or portfolio management team has. Not a very compelling argument to me! Independently verifiable expertise would have convinced me more. From a business model perspective, asset management companies focusing on individual people or teams as their differentiating factor follow a so-called star based business model. If you are focusing on people to differentiate yourself, ask yourself whether this is by design of your business model or whether it is more by coincidence. In the latter case, we can help you adjust your business model maximizing the value you can generate out of your stars!
An investment performance based business model approach
When being “sold” past investment performance as a key differentiating factor, I always get suspicious. This may be due to job conditioning. So I try to understand what was driving past performance – whether it was intended or coincidental. What investment decisions were taken and how were they related to the achieved performance? Were the investment decisions based on a sound investment philosophy and derived through a systematic process? What should relate future performance to past performance? What skills and resources are required? A well formulated and communicable investment philosophy should allow to succinctly answer all these questions. If this is not the case, why not envision a collaboration with us to develop your specific investment philosophy that will allow you to consistently market your track record and extend it – at least with a high probability – to the future. Broadly speaking, this means implementing an investment performance based business model.
The just trust me non-approach
It is sad but true. There still exist asset managers that are unable to phrase their value proposition. In many cases the investment product is defined – at least that is the impression I get – through gaining exposure to specific market characteristics, combined with some rather ad-hoc, not to say random, active positions. Sometimes the focus is also put on cost efficient execution or implementation. But why should an investor be willing to pay an active management fee, if the product is not more than a dressed up index replication. It is my conviction that, at least for some of those investment products, reasonable adjustments in their related business model, for example using the wealth management canvas framework, would allow to answer the “why should I investment with you” question convincingly and honestly.
If you are unable to answer the “why should I invest with you” question honestly – ideally within the size of a tweet – why should any investor choose your actively managed investment product over that of your competitors!
My experience over the years has shown that, with the help of an external subject matter expert moderator in combination with a sound framework – assuming willingness to change – success can be achieved with a moderate investment in a rather short period of time. So why not have a first confidential and non-binding chat on how to structure your value proposition!
Interested? Don’t hesitate to contact us for a first noncommittal discussion.