Margolis Advisory Group Margolis Advisory Group - iiforums.com

iiforums.com

Margolis Advisory Group Margolis Advisory Group - iiforums.com

MARCH 2010

Vol. 2 • Issue 1

Margolis Advisory Group

Margolis Advisory Group

Inside a Successful Investment Management Firm

Tackling Investment Firm Challenges

Building a Premier Marketing, Sales and Client

Relations Organization

Successful Execution of Strategies and Plans

Paper 2: Define Capabilities and Offerings, and

Develop Marketing Strategy

• Clearly defined capabilities and offerings are a

manager’s core.

• Strategic marketing includes a well-crafted plan and

continuous assessments.

• Successful firms understand the importance of

and prioritize marketing.

• A strong marketing strategy and plan can separate great

firms from good firms.

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


Executive Summary

Inside a Successful Investment Management Firm is a series of papers that

presents the process to build a premier marketing, sales and client relations

team (“marketing team”), and its role and importance to a manager’s lasting

success. The investment management industry rode a three-decade wave

of unprecedented profitability that crashed recently, leaving the surviving

managers to adjust to increased competition and leaner profit margins — the

“new normal” environment. Managers that respond to this challenge with

a strong marketing team, strategy and plan are better positioned to gain a

foothold in the marketplace and achieve sustainable success than those that

rely solely on investment capabilities.

The initial paper provides a macro-view of the process to build a team —

a foundation — from which to delve deeper into the individual steps of the

process. This paper, the second in the series, details the first two steps of

the process:

} Define Capabilities and Offerings, and

} Develop Marketing Strategy

Disciplined yet flexible, the process is proven effective for both new and

established investment management firms: to build a team or evaluate an

existing one, and to develop a marketing strategy or ensure the veracity of

a current one. With micro-level insight about the initial steps of the process,

this paper provides tools to help managers arrive at a sound marketing

strategy, which is executed through a well-constructed plan.

2 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Contents

Process.................... 3

Define Capabilities and

Offerings.................. 4

Develop Marketing

Strategy.................. 5

Getting Started......... 6

What is the Firm’s

Focus..................... 7

Who is the Firm

Targeting................ 7

Why Choose the

Firm...................... 8

How to Measure the

Firm’s Success........ 9

Conclusion.............. 11

process

Disciplined and Systematic

The investment management industry is crowded with managers touting their

investment capabilities, philosophies and expertise. Against this competitive

backdrop of firms with comparable offerings, those that rise to the top—and

have staying power—are generally equipped with a premier marketing team,

strategy and plan instead of simply counting on strong capabilities to speak

for themselves. The days of passive marketing — the “you build it, people

will come” approach—have been replaced with an environment that demands

strategic marketing.

Forward-thinking firms understand that when times are difficult, marketing is

more important than ever. In fact, a firm with a solid team and strategy are

more likely to harness market share than its unprepared competitors. This is

why a significant allocation of time, effort and resources toward reaching goals

and profitability is a smart long-term business investment, which most often

reaps sizeable rewards.

The process to build a team, and develop a strategy and plan is disciplined,

with built-in fluidity to accommodate new and established firms. In all

situations, the process serves as a logical guide driven by the realities of

the firm—skills and resources—as well as stated goals and objectives as

opposed to guesswork.

This paper provides detail and direction on the first two steps of the process.

Define

Capabilities

and Offerings

Develop

Marketing

Strategy

Determine

Product and

Distribution

Model

Build Marketing,

Sales and Client

Relations Team

Create Growth

Plans and Budgets

Evaluate

Marketing Strategy

and Team

3 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


DEFINE CAPABILITIES AND OFFERINGS

The Firm’s Core

An investment management firm’s core—investment skills, philosophy and

process—is critical to its success. Managers that clearly define and embrace their

capabilities and offerings are more firmly poised to accomplish established goals

than those with a weak core.

“Before

developing

its marketing

strategy, and

executing a

plan, a firm

must articulate

its overall

investment

skills and

capabilities.”

Before developing its marketing strategy, and executing a plan, the firm must

articulate its overall investment skills and capabilities. To do so, management

must agree upon answers to seemingly basic questions. A surprising number of

managers discount the importance of this exercise, assuming there is general

consensus on the firm’s strengths, weaknesses and direction when there may

actually be dissension. A management team that can consistently describe their

firm’s skills and capabilities is on course to develop an effective strategy.

Questions to consider include:

} Can we add investment value across a number of asset classes and

geographies or is our core competency more narrowly focused

} Equity managers: is our strength fundamental or quantitative analysis;

bottom-up stock selection or macro bets on the market

} Fixed income managers: is our strength credit research, sector rotation

or interest rate anticipation

} Hedge fund managers: can we excel in a number of strategies or should

we operate in a niche where our skills have demonstrated success

The investment philosophy should be explicable—both inside and outside the

firm. That said, communication begins inside the firm with the goal of ensuring

the philosophy is understood and supported by the entire staff. In essence, the

investment philosophy is glue that binds the firm. When this happens, the message

can be consistently and effectively conveyed outside the firm.

A well-constructed investment process is clear, consistent and repeatable; designed

to transform the philosophy into competitive investment results over time. The

process should also be flexible, allowing personnel to join the firm and integrate

into the team seamlessly, with no disruption in the process or adverse impact on

performance.

The investment process may result in one or more investment strategies. To

compete successfully in the marketplace, the strategies must stem directly from the

philosophy and process of the firm, and the investment results should make sense

in various investment environments; natural market cycles.

4 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Let’s consider an equity firm with a deep value philosophy that believes good

companies not yet recognized by the market will generate strong returns over an

extended timeframe. In this case, the team uses a fundamental research-oriented

process, which includes various statistical measures and valuation methodologies

about the company, and regular meetings with company management. This

process is aimed at distinguishing intrinsic good companies that are merely

underpriced from flawed companies.

Guided by this philosophy and process, the firm creates both U.S. large cap

value and small cap value strategies. Historically, the team has indentified good

investments before the market, which has led to strong gains when the market

eventually discovers these companies. Not surprising, the team’s investments

have lagged in environments that favor growth stocks.

Over the long-term, however, the firm has an impressive record of identifying

undervalued investments, which have generated competitive gains. If the firm

can maintain this performance over time, it’s solidly positioned to promote its

philosophy, process, and returns as consistent and repeatable, even though it

may underperform in certain environments.

As this example illustrates, a firm must continuously educate the marketplace

on its philosophy and style so temporary underperformance can be understood

and accepted instead of cause for unnecessary concern. In this case, the firm

will ultimately develop a powerful, understandable brand that can be presented

and reinforced with a marketing strategy. The firm’s brand—who it is and what

it offers—should evoke positive thoughts in the public’s mind; a credible and

desirable manager.

DEVELOP MARKETING STRATEGY

Well-constructed Guide for the Firm

While investment capabilities are the heart of an investment management

firm and, undeniably important, strategic marketing can propel a firm’s overall

performance from good to great. Managers routinely focus considerable time to

develop and refine their investment process, as they should, yet they spend far

less time to develop a marketing strategy. In fact, few business strategies are

more misunderstood than marketing.

Some managers view marketing as simply tactical sales—an essential part of

the process—although one that provides little guidance to the strategic direction

of the firm’s growth. A strong marketing plan, however, is grounded firmly in a

clear understanding of the firm, which is both embraced and communicated by

management throughout the organization.

5 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Strategic marketing includes a thoughtfully developed marketing plan, as well as

ongoing assessments of specific elements of the plan to monitor its alignment

with the firm’s core competencies, results and effectiveness. Elements of the

plan include:

} Firm’s overall strengths and weaknesses

} Marketplace environment

} Product growth and retention projections over various time periods

“Firms should

capitalize on its

strengths and

minimize the

effect of–or

ideally correct–

its weaknesses.”

} Resource requirements to meet or exceed projections

} Risks to the success of the plan

} Sales and marketing functions

The component of the plan that addresses sales and marketing functions will be

discussed in a subsequent paper.

The categories below—streamlined yet comprehensive—can serve as a guide to

capture information to inform a strategic marketing plan.

WHAT Investment menu, philosophy and process

WHO Target market and clients, which may be organized by areas of

specialty including:

} Channel: Such as institutional or intermediary

} Segment: Such as pension fund or insurance company

} Geography: Such as U.S. or Global

WHY Competitive advantages, solution selling (identify the way investment

offerings fit within the clients’ portfolio context)

HOW Short- and long-term plans for gaining and retaining clients, and

baseline assessments of key metrics

GETTING STARTED

SWOT Analysis

One useful tool—and suggested starting point—to gather information necessary

to create the plan is a “SWOT” analysis, which assesses the firm’s strengths

and weaknesses, and evaluates the marketplace opportunities and threats.

By candidly making these assessments and evaluations, management can begin

to hone in on a direction for the marketing strategy. In general, firms should

capitalize on its strengths and minimize the effect of—or ideally correct—its

weaknesses.

For instance: A firm with strong fixed income performance, but poor fixed income

client service resources might choose to capitalize on returns by enhancing client

service resources. On the flip side, if performance is unfavorable, the firm should

consider channeling resources to another area of the firm.

6 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


WHAT IS THE FIRM’S FOCUS

Investment Menu, Philosophy and Process

Patience can pay large dividends in the investment industry. Eager to succeed,

firms often cast a wide net, which dilutes limited resources. Generally, the most

successful firms are focused and strategic, identifying investment strategies

and target markets in which they have a distinct competitive edge. Managers

with diverse capabilities at inception or early in the life of the firm can certainly

succeed, although they face a higher risk of being ill-prepared to build and

maintain their client base compared to narrowly focused firms.

In fact, firms with a single focal point—a specialization—typically make a deep

footprint in the marketplace and enjoy earlier success than firms that initially

offer too many products or rush expansion. Once a firm achieves a certain level of

success, appropriate and deliberate expansion—if desired—can be a logical step to

diversify the firm’s products and client bases.

WHO IS THE FIRM TARGETING

Target Markets and Clients

In terms of target markets, the firm must first consider the various channels

then pursue those segments within the channels most likely to be receptive

to its offerings. The terms “channels” and “segments” are commonly used to

describe pieces of the pie—the broad market. In this paper, “channels” will

describe broad slices such as institutional versus retail, while “segments” will

describe finer cuts including pension funds versus endowments. Target markets

and segments should be chosen based on knowledge of each market’s unique

investment needs and buying behaviors, and the fit of the firm’s investment

capabilities within the market.

Firms should link its investment strengths to associated target channels and

segments. While firms can be tempted to distribute investment products across

the market spectrum, it’s likely that its capabilities are naturally suited to certain

segments.

For example: In the past several years, the institutional channel’s demand for

alternative products has been concentrated in endowments. During this time,

firms with strong traditional long-only equities skills weren’t in the most attractive

position to target endowments. (In light of the dynamic nature of the markets;

however, the landscape is changing.) At all times, it’s critical for managers to

proactively monitor their product demand in various segments. Since both product

development and sales require considerable lead times, a firm must watch and, to

the best of its ability, forecast demand over a one- to three-year time period.

7 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Marketing activities to promote the firm’s brand and capabilities are also a primary

driver of success. These activities demonstrate the firm’s thought leadership

and build its credibility in the marketplace, which leads to “demand pull” from

potential clients, so the firm doesn’t rely entirely on “sales push.”

“An assessment

of the

marketplace

environment

is essential

to determine

an accurate

marketing

strategy.”

Thought leadership generally takes the form of white papers and speaking

engagements, which should be geared toward topics that both showcase the

firm’s competitive edge and reach the firm’s target markets. Success of these

activities—leading directly or indirectly to new client business—should be

measured so the firm can track the expenditure to effectiveness ratio.

WHY CHOOSE THE FIRM

Competitive Advantages and Selling Solutions

An assessment of the marketplace environment is essential to determine an

accurate marketing strategy. When a firm carves out time and dedicates resources

to gather this information, the plan will more tightly align with the executives’

view of and goals for the firm. Specifically, the firm should identify and evaluate

both the opportunities and threats present in the marketplace. Ideally, the firm’s

strengths should correlate with marketplace opportunities to take advantage of its

strong points.

In the previous fixed income manager example, if marketplace trends indicate

increased demand for fixed income managers, the firm’s strong performance

likely will attract new clients. Concurrently, fixed income managers new to the

marketplace create competitive pressures. The established firm should then assess

its positioning against those competitors, analyzing its strengths and weaknesses.

An honest SWOT analysis will direct a firm toward the investment strategies and

target clients likely to maximize its potential for sustainable success. It will also

provide a framework to evaluate opportunities that arise in the context of an

overall strategy.

Let’s look at a firm focused on a suite of international equity products for U.S.

institutional clients. This firm should pause and carefully consider expansion

opportunities, such as a specialized international equity fund on an intermediary

platform, before making a move. In this case, the marketing plan and SWOT

analysis may lean toward a focus on institutional clients; however, the firm

decides to thoughtfully balance the opportunity between its obvious benefits

(additional revenue) and those less apparent costs (tangible and intangible).

These costs, which are relevant to all managers considering expansion, likely include:

} Additional resources to support the relationship;

} A specialized vehicle or product;

} Reduced focus on existing resources; and,

} Compromise to the accepted plan.

8 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Since compelling prospects may depart from the firm’s primary focus they should

always be analyzed and accepted only after weighing all possible consequences—

positive and negative. Depending on the outcome of the analysis, the smart

decision for the firm may be to take advantage of this opportunity, but they

should proceed only after assessing the projected costs and benefits.

The strategy and plan must be informed by the firm’s competitive advantages—

the investment capabilities, and other differentiating characteristics, that set

it apart from competitors. Importantly, the manager must know how their

capabilities add value to clients within their broad portfolio objectives. Armed

with this understanding, the firm can tailor its investment offerings to the most

appropriate clients.

HOW TO MEASURE THE FIRM’S SUCCESS

Assessment, Plans and Budgets

The plan must include baseline assessments of key metrics that are measured

regularly to keep the firm on the desired trajectory. Firms need to routinely assess

results of the marketing efforts against the plan to confirm the veracity of the

strategy, making necessary and timely adjustments. A truthful assessment will

include risk factors, such as poor investment performance, personnel turnover

and changing market conditions that may cause results to fall short of projections.

A sound plan will include necessary guideposts: expectations based on careful

consideration of a firm’s strengths and weaknesses, and an assessment of

marketplace opportunities and threats. These guideposts allow executives to

insert current information into the context of an overall marketing plan. That

said, executives are inundated with a variety of data points—emanating from

internal and external sources—therefore they must learn to distinguish between

marketplace noise and relevant data.

Finally, growth plans and budgets are an integral part of a marketing plan.

growth plans

Growth plans are multifaceted: strategic and tactical; directional not precise.

The strategic component of the plan takes a long-term view, while the tactical

side is real-time oriented. At the same time, the directional nature of the plan is

necessary to accommodate constant shifts in the marketplace.

The overall plan should incorporate:

} Gross and net sales projections based on marketing and sales across

products and segments.

} Realistic scenarios, from stellar to grim performance, which prepare

executives for a range of potential outcomes.

9 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


} Resources for successful execution, with an eye toward marketing,

sales, consultant relations, client relations, and product development and

management. Specifying resources allows management to track results of

the plan against actual and planned resources.

Combined, the strategic and tactical plans allow for a far- and close-range picture

of the business, specifically:

“The strategic

and tactical

plans allow for

a far- and closerange

picture of

the business.”

Strategic plans take a long-term view on issues, such as:

} Client focus based on investment capabilities, and

} Resource requirements to accommodate expected expansion of product

offerings.

Tactical plans are real-time oriented, looking at:

} Market conditions,

} Environment’s affect on the firm’s competitive positioning,

} Current year’s sales projections by product and segment,

} Near-term resource gaps based on the firm’s structure, and growth

trends and projections; and,

} Marketing tools and techniques to be implemented in current year.

For new firms, the strategic plan needs to cover a relatively long time horizon to

allow necessary time for the business to achieve profitability, typically five to ten

years. The tactical component of the plan should consider a shorter time period of

one to three years.

Plans for mature firms are generally shorter term, with the strategic plan in the

three- to five-year range, and the tactical plan covering one year or less.

In terms of measurements, projections should be frequently compared to

actual results to understand the accuracy of the anticipated growth. If results

deviate from projections, management should try to pinpoint the reasons for

the deviation, which might include investment performance, product and brand

positioning, and changing demand and sales skills.

Budgets

Annual budgets—typically allocated between compensation and non-compensation

expenses—are incorporated into the growth plans.

Compensation Expenses

Compensation arrangements among staff can—and often will—vary based

on job scope and responsibility.

10 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


Compensation for sales personnel is divided between fixed and variable

components. The variable portion is either formulaic, as in straight

commission or subjective, or a blend of the two. In any case, the variable

compensation is determined largely by actual assets raised. Variable

compensation for client service and consultant relations personnel is

generally based on stated success hurdles.

The compensation structures should include incentives to reward the team

for functioning both effectively and cohesively, fueling the firm’s success.

Non-Compensation Expenses

Non-compensation expenses for marketing and sales functions typically

include travel and entertainment, promotion, advertising, materials,

sponsorships and conferences. A properly balanced budget, which includes

both compensation and non-compensation, can leverage direct sales efforts.

conclusion

As the dust from an 18-month financial crisis settles, a new and challenging

investment industry landscape is emerging. Gone are the days of managers

succeeding solely on solid performance. Today, firms that survive—and thrive—

understand the importance of and prioritize strategic marketing. Beyond this basic

understanding, they are committed to do the necessary work, including allocation

of resources, to develop a marketing team, strategy and plan designed to set

them apart from the competition.

Strategic marketing—as articulated in a well-crafted marketing plan—is essential

to the lasting success of an investment management firm. The process to

develop a marketing strategy and a plan is systematic yet fluid, allowing new and

established managers at various stages in the process to engage in the steps that

are most beneficial in advancing their firm.

The bottom line: firms that succeed in this environment will be guided by

thoughtful strategic marketing, which is continuously reviewed—and adjusted—

to ensure its accuracy in the context of market conditions and the firm’s overall

market position. n

11 March 2010 Define Capabilities and Offerings, and Develop Marketing Strategy


MARCH 2010

Vol. 2 • Issue 1

Inside a Successful Investment Management Firm

Building a Premier Marketing, Sales and Client

Relations Organization

Paper 2: Define Capabilities and Offerings, and

Develop Marketing Strategy

About Margolis Advisory Group

We work exclusively with the investment management industry to

enhance sales growth and retention through people, product and

process improvements and practical solutions.

With extensive industry experience raising billions of dollars for

investment firms, from start-ups to large organizations, we work

with executive management teams, and sales and marketing staff

to achieve desired results.

While our expertise assists investment managers in thinking

through problems and analyzing the marketplace, our clients

benefit most when we help them in translating that thinking and

analysis into execution.

For more information, please contact Jeffrey Margolis:

T 516.277.1050

E jeff@margolisadvisory.com

Margolis Advisory Group

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


OC TOber 2009

Vol. 1 • Issue 2

Margolis Advisory Group

Margolis Advisory Group

Inside a Successful Investment Management Firm

Tackling Investment Firm Challenges

Building a Premier Marketing, Sales and Client

Relations Organization

Successful Execution of Strategies and Plans

Paper 1

• A strong marketing, sales and client relations organization

can transform a firm from good to great.

• Building a team requires a disciplined yet flexible

process.

• Firms with a focused marketing strategy are less

susceptible to impulse decisions.

• Controlled growth through strategic planning and

marketing leads to long-term success.

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


Executive Summary

The investment management industry is intensely competitive, crowded with

firms offering comparable investment capabilities, philosophies and expertise.

A premier marketing, sales and client relations team (“marketing team”) is a

key driver of long-term success in the marketplace—one that can transform a

firm from good to great.

This paper is the first in a series, Inside a Successful Investment Management

Firm, that presents the process to build a marketing team, and its role and

importance to a manager’s lasting success. As the foundation of the series, this

paper provides a macro-view of the process to build a team.

Managers with a clear understanding and knowledge of the overall building

process have a solid framework in which to address the individual steps with

an eye on the desired end result. Both new and established managers can

follow the process, which offers logical structure with built-in fluidity

to accommodate firms of all shapes, sizes and structures.

Each subsequent paper will delve deeper into an individual step in the

building process, with micro-level insight, detail and direction.

2 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


Contents

Introduction.............. 3

Importance of Strategic

Marketing................. 3

Process..................... 4

Define Capabilities and

Offerings.................. 4

Develop Marketing

Strategy.................. 5

Create Growth Plans

and Budgets............. 6

Determine Product and

Distribution Model..... 7

Build Marketing, Sales

and Client Relations

Function................. 11

Evaluate Marketing

Strategy and Team... 14

Conclusion.............. 15

INTRODUCTION

A Premier Marketing, Sales and Client Relations Organization

On the heels of three decades characterized by unprecedented profit margins

in the investment management industry, a new and challenging economic

environment is exerting extreme pressure on managers both to attract and retain

clients. In recent years, a large number of managers succeeded primarily with

strong investment capabilities. Moving forward, an effective marketing, sales and

client relations team, and strategic plan, will differentiate successful investment

managers from those that struggle to survive—or even fail.

Investment firms—with few exceptions—apply a detailed approach and disciplined

process to portfolio management. The same intense focus should hold true in

the process to build a marketing team. While a firm’s investment capabilities

and offerings are essential to its success, these attributes are only as strong as

its ability to clearly identify and articulate them in the marketplace through solid

marketing efforts.

Initial recognition and assets can potentially be gained without a thoughtful

marketing plan, such as the case of an established investment team launching

their own firm. Longevity in the marketplace; however, is firmly rooted in a

premier team armed with a well-constructed strategic plan.

IMPORTANCE OF STRATEGIC MARKETING

understand its intrinsic value

A strategic marketing plan can separate a successful investment management firm

from one that falters in the increasingly demanding environment. Unfortunately,

firms often lack an understanding of the true value and vital role of strategic

marketing so they favor the “you build it, people will buy it” philosophy.

Firms can succeed for a period of time without a strategic marketing plan;

however, a disciplined plan is the roadmap for long-term success, informing

decisions about the expansion of products, distribution and staff.

A meaningful plan can help managers avoid common mistakes such as engaging

sales resources too early in the development or expansion stage—before products

are seasoned, saleable or properly positioned—leading to large expenditures and

potentially disappointing performance. Firms frequently hire salespeople or thirdparty

marketers then send them into the marketplace to gather assets without

a structured plan or proper guidance, which can result in frustration for both the

firm and employees.

Managers with a focused marketing strategy are far less susceptible to impulse

decisions than those that lack a plan.

3 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


PROCESS

Disciplined and Systematic

Investment managers should follow a detailed process to build an effective

marketing, sales and client relations team. Established firms may or may not

have engaged in a disciplined process to build its marketing team. In either

case, it’s smart business practice to create or evaluate the marketing function

for maximum effectiveness and efficiency.

Depending on each manager’s circumstances and goals, certain steps in

the process may be more important than others, while other steps may not

be necessary. In all situations, however, managers should follow a process,

assessing each step against the current structure of the firm to inform decisions.

Firms that invest time and effort to build a marketing team will enjoy greater longterm

success than those that take a less focused approach. The following process

can be used both to build a marketing team and evaluate an existing team.

Define

Capabilities

and Offerings

Develop

Marketing

Strategy

Determine

Product and

Distribution

Model

Build Marketing,

Sales and Client

Relations Team

Create Growth

Plans and Budget

Evaluate

Marketing Strategy

and Team

DEFINE CAPABILITIES and OFFERINGS

The firm’s core

An investment manager’s core—investment skills, philosophy and value proposition—

is essential to its success. The stronger the firm’s core, the greater the likelihood it

will realize its objectives. For this reason, a firm’s investment philosophy must be

sound, designed to produce competitive results for its clients. The philosophy must

be clearly understood and articulated inside—and outside—the firm. When a firm

consistently communicates and executes its investment philosophy and delivers

competitive performance, a true value proposition emerges, forming a solid core.

Communication begins inside the firm. The investment philosophy must be

defined then communicated, believed and supported at all levels throughout the

firm. Then the philosophy is translated into a repeatable investment process,

which is used to develop one or more investment strategies.

4 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


Next, both the firm’s philosophy and strategies must be properly positioned and

communicated in the marketplace. To determine appropriate positioning, the firm

should engage in stringent market research to uncover key competitors, important

differentiating factors, and current and projected marketplace trends. Then to help

clients identify a match for the firm’s capabilities, the product positioning strategy

should present a value proposition within a broader portfolio context.

Ultimately, this work leads to an overall branding strategy in which an

understandable definition of the firm and its products—who it is and what it

offers—is formulated and executed.

DEVELOP MARKETING STRATEGy

Well-constructed guide for the firm

A marketing strategy directs a firm’s actions and decisions, with the goal of

creating “demand pull” in the marketplace so that the firm’s growth isn’t entirely

reliant on “sales push.” In the increasingly competitive investment industry,

strategic marketing is an important driver of a firm’s long-term success. The

strategy should include baseline assessments of key metrics that are measured

regularly to ensure the firm is on the right trajectory. Firms must routinely assess

results of the marketing efforts against the plan to confirm the veracity of the

strategy, making necessary adjustments.

The following categories—streamlined yet comprehensive—serve as a guide to

develop a marketing plan.

WHAT

WHO

WHY

HOW

Investment menu, philosophy and process

Target market and clients, which may be organized by areas of

specialty including:

} Channel: Such as institutional or intermediary

} Segment: Such as pension fund or insurance company

} Geography: Such as U.S. or Global

Competitive advantages, solution selling (identify the way investment

offerings fit within the clients’ portfolio context)

Short- and long-term plans for gaining and retaining clients, and

baseline assessments of key metrics

Each category should be carefully considered and defined to shape the most accurate

and effective marketing plan.

investment offerings

Firms often embrace “the wider the net, the greater the catch” philosophy by

forcing investment offerings in the marketplace. Instead, a firm’s investment

strategies should be designed to meet the needs of its target market—a natural fit.

5 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


Firms should also identify—and clearly convey—the value of its investment offerings

in a client’s portfolio.

“Investment

firms that create

a product to

meet clients’

needs, then

strategically

position and

market it,

establish a

foundation on

which to grow.”

Successful firms usually expand incrementally after gaining momentum and

establishing credibility in the marketplace. Investment firms that first create

a product to meet clients’ needs, then strategically position and market it,

establish a foundation on which to grow the firm in a deliberate and controlled

manner. Expansion, when appropriate, allows a firm to diversify its investment

offerings.

While managers with robust capabilities at inception or early in the life of the

firm can succeed, they are at greater risk of being unfocused and unprepared

to build and maintain its client base compared to narrowly focused firms. On

balance, highly focused firms—those with a distinct specialization—generally

garner earlier success than firms that initially offer too many products or rush

expansion.

thought leadership

Successful investment firms understand that its intellectual capital is valuable

currency. As such, managers should focus on building and promoting their brand

through the media with interviews and coverage in industry publications. Thought

leadership can be presented and reinforced through topical white papers and

speaking engagements. A steady stream of papers and speeches will create a

reputation of cutting-edge leadership. To maximize efforts, managers benefit

from writing about topics that are both relevant to their clients and in which they

have a proven expertise. When considering speaking engagements, a manager

should choose venues that will best reach their target market.

Selective advertising in industry publications can be a powerful marketing tool;

however, advertising on a broad scale such as television generally is not ideal.

Institutional managers typically have difficulty justifying the return on investment

since their marketing efforts target a specific market rather than a mass

audience.

CREATE GROWTH PLANS and BUDGETS

Blueprint for business

With the marketing strategy established, the firm shifts its attention to create

growth plans and develop budgets. In the early stages of business, market

research reveals a wealth of information to factor into business planning so that

management arrives at tactical decisions based on the freshest and most relevant

data. Tactical market feedback should also be incorporated into a more mature

business’ planning process.

6 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


growth plans

For a relatively new firm, strategic plans range from five to ten years to allow the

average time necessary for a business to become profitable. Concurrently, they

should include a short-term tactical plan of one to three years to address the

short-term viability of the firm. In the case of more mature firms, a strategic plan

in the three- to five-year range may be appropriate, although it must be coupled

with a short-term, one-year tactical plan to ensure smart allocation of resources.

Success hurdles are included in all plans, which can be measured against a range

of factors including payback period and net present value. To accommodate the

unpredictable markets, plans must be directional not precise; dynamic not static.

Plans serve as a map, with built-in flexibility for continuous recalibration.

budgets

Annual budgets are incorporated into the plan, which are typically allocated by

departments, including both compensation and non-compensation expenses, with

the former generally being the greater expense.

Compensation Expenses

Sales personnel are incented to raise assets through the variable portion of

their compensation, which is either in the form of formulaic commission or

bonus based on established success targets. Variable compensation for client

service, consultant relations and marketing personnel is generally based on

specific success hurdles, which are tied to the staff’s respective functions and

responsibilities. Incentives can be structured in a variety of packages, with

one common element: an emphasis on incenting personnel to function as a

cohesive team in service of the success of the firm and its clients.

Non-compensation Expenses

Non-compensation expenses typically include travel and entertainment,

promotion, advertising, materials, sponsorships and conferences. A properly

balanced budget, which includes thoughtful incorporation of compensation and

non-compensation expenses, can effectively leverage the efforts of a direct

sales team.

DETERMINE PRODUCT and DISTRIBUTION MODEL

Start narrow then expand

As mentioned, investment firms that define both a specific product and

distribution strategy then stay intently focused—and excel—tend to be more

profitable than managers with a diluted focus. While managers with multiple

products and distribution channels can achieve substantial success, managers

that start narrowly focused, and expand incrementally, generally have greater

staying power.

7 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


product and distribution model

A firm’s product and distribution model should coordinate with its resources—

both people and money—strengths and weaknesses, and expertise. Managers

frequently underestimate the time, effort and resources required to build a

firm able to achieve lasting success. Therefore, managers should carefully

and honestly assess their resources both at inception and when considering

expansion. At the same time, managers should continuously monitor

marketplace opportunities, making necessary real-time adjustments.

“To make a

footprint in the

marketplace, a

manager must

demonstrate

a competitive

edge–in terms

of investment

capabilities–

over a period

of time.”

To make a footprint in the marketplace, a manager must demonstrate a

competitive edge—in terms of investment capabilities—over a period of time.

Targeting specific products and distribution channels, better positions firms

to penetrate the competitive marketplace and accomplish objectives. Once a

certain degree of success is achieved, incremental expansion can be considered.

A firm’s expansion should be logical, correlated with its investment capabilities

and distribution. A natural extension of capabilities will be better understood and

received by the marketplace as opposed to radical additions to the product menu

or distribution channels. For example: a large-cap growth manager adding a

small-cap growth product to its menu is likely to be more readily accepted than

the same manager attempting to launch a fixed-income product. While a team

lift-out or an acquisition can introduce a new—and perhaps relatively different—

product to a firm’s offering, organic growth is likely to be less disruptive to the

organization and its marketplace position.

define distribution model

A firm’s distribution model serves as a platform from which to operate and

expand, when and if desired, and as appropriate. The distribution model

typically contains three components: channel, segment and focus. Two

major channels in the industry are institutions and intermediaries, which are

characterized by distinct segments. Today, institutional firms often extend

distribution into intermediaries that select managers on behalf of their clients.

In terms of focus, firms typically organize staff by geography or specialty.

Following is a framework in which to establish a distribution model for the

institutional and intermediary spaces in the market.

CHANNEL Institutional Intermediary

SEGMENT Such as Defined Benefit,

Defined Contribution,

Endowments, Foundations,

Such as Defined Contribution,

Variable Annuity, Bank Trust,

Subadvisory

Taft-Hartley

FOCUS Geography vs. Specialty Geography vs. Specialty

8 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


channel and segment

To determine channel and segment focus, a firm should identify those markets in

which its products are a natural fit. Managers often target one channel, and one

or more segments. However, larger firms may choose to service both institutional

and intermediary. The institutional and intermediary channels are defined by

different product needs, buying behaviors and client service requirements.

Therefore, firms that cater to both channels need to understand the nuances

of the different clients, and be staffed to offer necessary investment skills and

services. Defined contribution is somewhat unique in that it spans both channels.

In this case, the institutional plan sponsor selects managers to be included in

its plan; however, only the manager’s products on intermediary recordkeeping

platforms can be considered for the plan.

Institutional

Institutional clients can be categorized by corporate pension funds, public

pension funds, endowments, foundations and insurance companies. Growing

this client base requires patience to cultivate relationships with, and gain the

confidence of, potential institutional clients over time.

Investment consultants influence the asset management decisions of a large

number of institutional clients. Therefore, an investment in a consultant

relations team can leverage long-term business growth. To ensure the

credibility of a manager’s capabilities, consultants conduct in-depth due

diligence for an extended period of time. Among the most important factors

in the due-diligence process are successful management of one or more

products, consistent performance, adherence to the stated investment

strategy and a stable team. Earning a solid reputation with consultants is

necessary to be considered for the numerous new client mandates awarded

each year.

Intermediaries

Intermediaries hire investment managers for further distribution of products

to their clients. In recent years, intermediaries began conducting due

diligence comparable to that of consultants and institutions. At the same

time, intermediaries are increasingly emphasizing the importance of their

business partnerships with managers, placing a premium on growing

assets at a mutually beneficial price point. Distribution strength is also an

important element in the hiring decision. In fact, intermediaries often require

distribution support from managers.

focus

A firm’s focus will inform the final step in the process, which is to actually staff

the team.

9 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


Establishing a distribution organization typically requires a trade-off between

effectiveness gained through specialization and efficiency offered through

geographic focus. Both are viable approaches when the realities of a firm’s product

menu and staff are considered. The structure of the distribution model is based

on a variety of factors including business goals, resource availability, quality and

strength of existing personnel, and supporting infrastructure.

“Establishing

a distribution

organization

typically

requires a tradeoff

between

effectiveness

gained through

specialization

and efficiency

offered through

geographic

focus.”

Specialization

A firm’s ability to specialize depends primarily on the size of the firm and staff,

with larger firms generally better equipped to specialize. Specialization begins

with positioning products in the consultant community. Since consultants track

a manager and their products for an extended period of time to determine

suitability for client mandates, it’s important to gain exposure in the

consultant community as early as possible.

This exercise is different than selling to an end client. In this situation, a

manager’s goal is to capture a consultant’s attention then build a positive

reputation over time. When consultants view a manager and particular products

favorably, they will recommend the manager in the institutional marketplace.

The strongest strategies are not necessarily in the highest demand within

the consultant community. For example: the market is typically saturated

with large-cap domestic strategies, while small-cap offerings are in short

supply. With this in mind, firms should consider the supply/demand in the

marketplace when positioning strategies with consultants.

Distribution can be organized by strategy, although this structure should

be considered only with highly specialized products in which expertise is

necessary to be effective. This is most often the case with alternative offerings

such as hedge funds, private equity funds and real estate. However, in a

multi-product firm with generalists covering traditional offerings, coordinating

client relationships with product-focused sales personnel can be challenging.

Geography

Firms focused on the institutional marketplace can consider organizing a small

sales team entirely by geography in which each individual covers all segments

within a specific region.

While organizing by geography—within the U.S.—is considered an efficiency

strategy, when targeting clients on a global basis, this strategy becomes a

specialization. Clients around the globe are characterized by different cultures,

languages, investment objectives and buying behaviors. A local presence to

focus on clients within a particular country or region may provide a tremendous

advantage. In this sense, when constructing a global distribution model,

organizing by region or country may be considered a specialization strategy.

10 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


BUILD MARKETING, SALES and CLIENT RELATIONS FUNCTION

A strategic, thoughtful process

Firms should carefully staff its marketing, sales and client relations organization

for maximum effectiveness and efficiency.

Marketing teams run the gamut from large to small, and can be organized in a

variety of configurations. Therefore, the process to build a marketing team is

flexible rather than “one-size-fits-all.” While the building process is generally

sequential, starting with the marketing function, staffing for specific areas

may overlap and vary among managers. Regardless of the structure, the firm

must concretely define the responsibilities of each individual. Perhaps most

importantly, the team should be organized and encouraged to operate as a

cohesive, collaborate group.

Following are the three primary functions in the overall marketing area, as well

as the hiring process:

} Marketing: Executes the firm’s marketing strategy and supports sales.

} Sales: Distributes the products according to the marketing strategy.

} Client relations: Manages the relationships with clients gathered by the

sales team.

MARKETING TEAM HIRING PROCESS

MARKETING

} Production-oriented

} Strategic

CLient relations

} Client relationship

managers

} Client administrators

} Portfolio specialists

Functions

and

responsibilities

may

overlap

SALES

} Geography

} Specialization

An example of the hiring process: A manager establishes a marketing group then

starts to build the sales function. While staffing the sales area, the manager adds

personnel to handle client relations in anticipation of projected growth. In this

scenario, the manager is prepared to manage client relationships in advance of

having a fully built-out client relations area.

11 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


marketing

Firms are encouraged to staff for distinct marketing roles: production-oriented

and strategic. Most individuals are best suited for one role or the other, in terms

of their skills and interests.

Production-oriented

The marketing area is commonly charged with supporting the sales team, which

covers production-oriented functions such as RFP production, presentation

creation, portfolio reporting and market commentary development. This

function is a key component of both the sales and client service processes, as

the firm’s marketing materials promote and reinforce its brand.

Strategic

Strategic marketing looks beyond immediate circumstances, in the process

clarifying where a firm wants to be in the future. As mentioned, the

importance of strategic marketing is widely underestimated. However, firms

that thoughtfully develop and execute a strategic plan rather than make

spur-of-the-minute decisions are more likely to achieve lasting success.

Strategic marketing, which can include promotional campaigns, Internet

marketing, advertising and public relations, shapes the direction and growth

of a firm.

When building the marketing function, management should evaluate the option of

hiring versus outsourcing specific positions. Recent market conditions have forced

managers to downsize, leaving them to operate with lean staffs and budgets.

However, smart firms understand that when times are tough, marketing is more

important than ever. Marketing outsourcing is gaining popularity due largely to

the increase in talented and experienced consultants combined with the cost

effectiveness relative to hiring a full-time employee. To provide top-level service

its clients, many firms rely on outside resources for a quick ramp-up or rebuild,

with less expense and long-term commitment.

sales

At most firms the sales team is organized around the client not the product, so

the client has a single point of contact. Exceptions to this generalist structure

should be carefully explored before implementation, as streamlined and consistent

client communication is extremely important to client satisfaction.

Geography

Geographic segmentation is often the first step in building a U.S.-based sales

team. As the team grows, it is possible to segment by client type. Within

a large sales team, the staff is often initially organized by client type then

further divided into subteams by geography.

12 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


A multi-channel focused firm—those targeting both institutional and

intermediary clients—must understand and respond to the unique needs

of these clients. Requiring the team to cover multiple channels can exert

undue strain on the staff, resulting in inadequate client service, which may

negatively impact client growth and retention. However, if the firm is focused

on one channel, institutional for example, it is certainly possible—and perhaps

preferable—for the staff to be geographically aligned.

In the intermediary marketplace, the team may also be organized by either

geography or specialization. This channel often includes defined contribution

platforms, variable annuities, subadvised mutual funds and RIAs. Individuals

specializing in these segments are likely to be extremely effective in their

areas of expertise; however, the team must be adequately staffed to handle

such specialization. Smaller teams are likely to be organized geographically in

an effort to effectively cover the broad channel with limited resources.

Specialization

From a specialization perspective, firms should maximize each employee’s

specialties and strengths. If an employee brings extensive public fund

experience to the table, he should focus on that area. At the same time,

an individual with established relationships with institutions outside of an

assigned region might stretch beyond his assigned region to cover those

firms. Overall, the team structure should clearly define responsibility and

accountability, with flexibility for adjustments and modifications that are in the

best interest of the firm and its clients.

Finally, just as the firm should initially establish a narrow focus on products

and distribution and expand gradually, the sales and consultant relations teams

should be built purposefully as the business grows. Managers are often tempted

to add salespeople as the firm gains even slight momentum; however, business

development in the investment industry typically takes longer than management

expects, and managers should resist the urge to staff too early. On the other

hand, managers need sufficient resources to build a sizeable prospect pipeline.

While striking this balance can be challenging, it’s both necessary and possible for

a firm’s success.

client relations

The client relations area is primarily responsible for ensuring a consistently

positive client experience. The structure of this team can vary among firms,

however, the bottom line is the same: when properly managed, clients can be a

valuable source of recurring revenue, through retention of current business, cross

sales and referrals for new clients.

Generally speaking, three roles reside in the client relations area: client relationship

managers, client administrators and portfolio (or product) specialists.

13 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


Client Relationship Managers

At many firms, sales personnel serve as relationship managers for clients,

functioning as the “quarterback” for the firm’s relationship with the client.

Other firms separate client relations from sales, with different personnel

serving this function. Either structure can be appropriate, based on the skills

of the staff, and the communication among the client-facing colleagues.

“A firm’s success

correlates

directly with

it’s ability and

willingness to

carefully review

and evaluate

its product

menu and

distribution.”

Client Administrators

Firms often add client administrators—individuals who support the

“quarterbacks.” Client administrators are able to carry weight for the sales

team, freeing up the salespeople to focus on building new client relationships.

Both relationship managers and client administrators should be added in

tandem with the firm’s growth.

Portfolio Specialists

Portfolio (or product) specialists can be considered when the firm is

positioned to cover the additional costs. A valuable resource to the firm,

portfolio specialists are able to attend client and sales meetings in lieu of the

portfolio manager. In this situation, portfolio managers are able to concentrate

on their primary responsibility of managing clients’ assets. While these

specialists are closely connected to the investment department, they serve a

client relationship rather than a portfolio management function. Often they

play a critical role in both sales and client presentations, demonstrating the

investment expertise of the firm.

From an organizational perspective, portfolio specialists may be part of either

the overall marketing area or the investment team. In either case, it’s important

they are viewed as tightly linked to the investment team. Multi-product firms

often develop portfolio specialists linked to specific products or asset classes.

A benefit of having both sales and client relations teams in the field is that they

can harness valuable and current feedback from the marketplace through direct

conversations with prospects, clients and consultants. This information should

be continuously incorporated into the firm’s strategic thinking and planning

through both informal and formal communications such as a client relationship

management (CRM) system.

EVALUATE MARKETING STRATEGY and TEAM:

Ensure the firm, team and strategy are aligned

A firm’s success correlates directly with its ability and willingness to carefully

review and evaluate its product menu and distribution, marketing strategy, and

marketing team on a regular basis. Successful firms are nimble, making necessary

adjustments, rather than operating on autopilot. The evaluation process includes

the following exercises:

14 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


} Analyze plan and budget to ensure that the firm is functioning efficiently

and effectively.

} Review assets and clients under management considering the rate of

growth relative to stated plans. If asset growth is below target, research

the situation to determine the possible reasons for and solutions to improve

growth. In the event of higher-than-expected growth, make sure the client-topersonnel

ratio is sufficient to provide high quality service.

} Evaluate product menu and distribution to determine if expansion is

an option for the firm. Many successful firms choose to remain focused;

expansion is optional.

} Consider marketplace trends and competition to make certain the firm is

properly positioned based on the most current information.

} Implement a client relationship management system to capture real-time

market and client feedback.

Success can lull firms into a sense of contentment and belief that its strategy and

organizational structure are as efficient and effective as possible. However, regular

check-ups will shed light on areas of strengths and weaknesses, allowing even the

most prosperous firms to make necessary adjustments.

conclusion

Investment managers that enjoy long-term success are increasingly differentiated

from those that struggle to survive—or even collapse—by the strength of their

marketing efforts: a solid marketing, sales and client relations team able to

execute a well-constructed strategic plan.

To build a premier marketing team requires diligence both to follow a systematic

process and review the organization on a regular basis. The disciplined yet flexible

building and review process is suitable for new and established firms of all shapes,

sizes and structures.

The marketing team is most effective when closely aligned with a solid investment

philosophy, strong investment skills and a well-planned strategic marketing plan.

Expansion of the team and product offering should be incremental—and tightly

correlated—based on business development, marketplace feedback and the firm’s

resources to expand. Managers that resist the urge to expand prematurely are

more likely to achieve lasting success.

Ultimately, firms with a strong marketing, sales and client relations organization

combined with solid investment skills—that expand gradually (and as desired)—

tend to achieve more rapid success and greater, lasting profitability than less

focused firms. n

15 October 2009 Building a Premier Marketing, Sales and Client Relations Organization


OC tOber 2009

Vol. 1 • Issue 2

Inside a Successful Investment Management Firm

Building a Premier Marketing, Sales and Client

Relations Organization

Paper 1

About Margolis Advisory Group

We work exclusively with the investment management industry to

enhance sales growth and retention through people, product and

process improvements and practical solutions.

With extensive industry experience raising billions of dollars for

investment firms, from start-ups to large organizations, we work

with executive management teams, and sales and marketing staff

to achieve desired results.

While our expertise assists investment managers in thinking

through problems and analyzing the marketplace, our clients

benefit most when we help them in translating that thinking and

analysis into execution.

For more information, please contact Jeffrey Margolis:

T 516.277.1050

E jeff@margolisadvisory.com

Margolis Advisory Group

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


MARCH • 2012

Perspectives on the Investment Industry

How to Gain and Retain Clients

Triad for Lasting Success:

Differentiate Investment Capabilities,

Understand Prospects and Clients,

and Communicate Effectively

By Jeffrey Margolis, CFA

Executive Summary

What drives an asset management firm’s success Investment

performance While a strong and consistent track record is

undeniably critical to a firm’s success, a firm cannot survive—or

thrive—on performance alone. No doubt, a firm must have the

capabilities and resources to generate differentiated and explainable

performance, and then do so consistently. At the same time, and

equally essential, a firm must be able to attract and retain business

by deeply understanding prospects and clients, and then effectively

communicating the benefits of their capabilities, as well as firmand

market-specific news. With the heightened competition and

challenges in today’s environment, it is more important than ever for

managers to get this right.

Margolis Advisory Group

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


Margolis Advisory Group

A firm’s track

record does not

guarantee future

results; however,

it can offer

proof of a firm’s

commitment

to a specific

philosophy

and style.

Differentiate

Investment Capabilities

Strong and Consistent Track Record

Managers are hired, in large part, on the

belief that they will make money for the

client. So, it is no surprise that strong and

consistent investment capabilities will help

a manager attract new business.

The most obvious way to measure and

promote investment capabilities, and

certainly the most easily quantified, is

investment performance over a period

of time—the longer, the better. An

impressive track record touts not only solid

performance, but also impressive historical

accomplishments including:

} Consistent performance over a prolonged

period of dynamic environments

} Benchmark outperformance,

specifically when the manager’s style

is in favor

} Stable team and process

} Adherence to stated investment

philosophy and style

A firm’s track record does not guarantee

future results; however, it can offer proof

of a firm’s commitment to a specific

philosophy and style.

While strong performance is important,

temporarily weak results will not necessarily

derail a client’s confidence if the results are

both explainable and consistent with the

manager’s style. For example, a deep-value

manager might dramatically underperform

during a strong growth period such as the

NASDAQ bubble. If the performance is in

line with expectations, and then recovers

when the environment shifts, it should not

negatively impact client relationships. In

fact, managers that routinely adhere to their

stated philosophy establish client trust and

confidence, which bodes well for raising and

retaining assets over the long-term.

Explainable Investment Process

In addition to a highly marketable

performance record, a manager must

be able to clearly explain its underlying

investment process. The process should be

understandable, logical and aligned with

the firm’s style and results. Importantly, the

process should be presented in audiencefriendly

language, meaning in laymen

terms instead of complex investment

terms. There should also be enough detail

to instill confidence without sacrificing

proprietary information. Broadly speaking,

asset managers, particularly hedge funds,

are prone to guard the details of their

investment process. Prospective and current

clients, however, want—if not demand—

transparency. The importance of this cannot

be overemphasized because, as mentioned,

a manager’s historical record should validate

its ability to adhere to a stated style.

It is also critical that the process and

personnel be consistent over time. Of

course, slight changes at the margin often

are part of the normal evolution of a firm.

So, in all instances, whether the changes

are minor or more significant, a firm’s ability

to articulate changes will either promote or

tarnish its reputation.

Luck or Skill

Are investment results generated by luck

or skill Statistically, it is very difficult to

prove that skill generates results because

such evidence requires more data points

than are typically available. That is why it

is important for an asset manager to rely

on other factors to build a case for skill

over luck. The factors discussed earlier,

specifically around the performance record

and investment process, will help bolster

such a case. Since future performance

2 Perspectives on the Investment Industry


Margolis Advisory Group

cannot be guaranteed and linking skill

to results is quite challenging, a manager

should build a solid case for the probability

of continued competitive performance by

making sure these factors are in sync.

Understand Prospects

and Clients

Align Investment Style

and Prospects

The potential client universe can be

divided broadly between retail and

institutional segments, with a growing

intermediary channel that blends

characteristics of both. The intermediary

channel consists of sub-advisory

relationships, fund-of-funds, investmentonly

defined contribution and other

segments where the sale can exhibit

institutional characteristics, while the

ultimate customer may be retail.

Each segment within these broad channels

has unique needs and buying behaviors.

As such, the sales personnel should

understand these particular nuances and

respond to the prospect’s investment goals

and challenges with appropriate, tailored

solutions. A well-informed salesperson

should understand the prospect’s entire

investment portfolio and current managers

to accurately position the investment

strategy in the context of the overall

portfolio, and the role it will play in tandem

with other managers and investments,

instead of simply selling the merits of the

investment capabilities in a vacuum.

The importance of understanding

potential clients’ needs has become even

more critical in the post-crisis period as

institutions and individuals increasingly

struggle to achieve adequate riskadjusted

returns within the parameters

of their liabilities and cash-flow needs,

with a greater awareness of the risks

that came to light during the crisis. As

a result, managers are challenged to

provide customized solutions to mitigate

those risks, while achieving adequate

returns. As the intermediary and retail

markets gain ground on the institutional

channels, in terms of sophistication, a

number of investment approaches and

techniques have converged across the

various channels and segments, including

alternatives and liability-driven investing.

The Role of Consultants

Consultants play an integral role in the asset

management business, advising investors on

the most effective investment program and

evaluating potential investment managers.

Asset managers would be remiss to not

make it a priority to both understand and

get to know consultants. Two different roles

within consulting firms are research and field

consultants.

Research Consultants

Research consultants evaluate asset

managers based on several factors

including:

} Repeatable performance

} Logical and understandable process

} Stable personnel

} Manager and client compatibility

In light of these criteria—and the fact that

consultants are highly trained to evaluate

the efficacy of the manager’s investment

capabilities—a manager must be able to

clearly articulate these attributes. Some

consulting firms are asset class specialists,

while others focus on specific client types.

Concurrently, large consultants may have

broad expertise, with internal specialists.

It is important to understand each firm, so

they can be targeted just as the prospects

themselves are targeted.

The importance

of understanding

potential clients’

needs has become

even more critical

in the postcrisis

period

as institutions

and individuals

increasingly

struggle to

achieve adequate

risk-adjusted

returns within the

parameters of their

liabilities and cashflow

needs.

Perspectives on the Investment Industry 3


Margolis Advisory Group

Relationship

building begins

during the sales

process, making

the transition

from prospect

to client smooth

and seamless, and

establishing a firm

foundation for the

relationship.

Field Consultants

Field consultants are responsible for client

relationships, which fuels motivation to

build a relationship with those managers

with whom there is a mutual client. The

better consultants know and understand

their clients’ managers, the better

equipped they are to serve those clients.

In terms of relationship building, let us

think about it this way:

} Consultant relations officers should

approach and develop relationships

with research consultants.

} Meanwhile, client relationship officers

should contact field consultants where

there is a common client. In these cases,

the field consultant is focused on the

mutual client, not on finding interesting

managers for others.

In instances where there are multiple

relationships with a consulting firm, solid

coordinated communication is critical,

with the consultant relations personnel

being responsible for the overall

relationship.

Ultimately, consultants strive to provide

significant value to their clients. So, to the

extent that asset managers can help in this

process, the consultant generally will be

open to a relationship.

Communicate Effectively

Cultivate Lasting Client

Relationships

Managers widely understand the

importance of generating impressive

performance and gathering clients;

however, some gloss over the necessity of

nurturing those relationships—a potentially

costly mistake. Relationship building

begins during the sales process, making the

transition from prospect to client smooth

and seamless, and establishing a firm

foundation for the relationship.

Communication is paramount. At the

onset of the relationship, take the time to

understand—and manage—the client’s

expectations around performance,

reporting, servicing, meeting frequency

and access to personnel. Once the client

relationship is established, the client

service representative must communicate

promptly and effectively in all situations

including:

} Investment Results Deviate from

Expectations: Give clients a “heads-up”

call, and in the event of an unusual

market occurrence, communicate the

firm’s views and resulting actions.

} Significant Personnel Depart or Change

Roles: Notify clients immediately on

how the firm is filling gaps to prevent

disruption in the investment process. It

is critical that the client hears important

information from the manager instead

of through the grapevine. This can

be complicated when the client uses

a consultant because both the client

and the consultant want to hear

news directly from the manager, so

careful planning and coordination of

communication is essential.

The bottom line: lasting relationships start

with a solid foundation of honest, candid

and timely communication.

Handle Negative Events Effectively

The way a manager handles negative

events, such as performance downturns,

client defections and personnel turnover, is

the true test of the strength of both client

service and relationships.

As mentioned, performance downturns

can be handled most effectively if the

results are consistent with the style—

perhaps even expected. If communication

4 Perspectives on the Investment Industry


Margolis Advisory Group

Margolis Advisory Group

provides consulting services

exclusively to investment

management firms to

enhance sales growth and

retention through people,

product and process

improvements. We tailor

solutions to our clients’

business objectives and

challenges incorporating

their unique competencies

and culture.

For additional information,

please contact:

Jeffrey Margolis

T 516.277.1050

E jeff@margolisadvisory.com

Janie S. Kass

T 415.990.7356

E janie@margolisadvisory.com

Margolis Advisory Group, Inc.

85 Barberry Lane

Roslyn Heights, NY 11577

www.margolisadvisory.com

has been strong both before and during

the downturn, so that the style and process

are well understood, client defections

should be minimized. Then, if performance

improves when the environment

shifts, as might be expected from the

communications, client relationships are

even likely to strengthen.

When client defections occur, the firm

must both smoothly transition the

clients out and effectively communicate

the reasons for the departures with the

remaining clients. If the remaining clients

understand the reason for the defections,

and the manager skillfully communicates

how it plans to operate with fewer client

assets, the manager stands a good chance

of “stemming the tide” of defections.

Finally, personnel turnover, particularly

investment personnel, can cause

significant concern among clients

who may fear that performance will

not continue as anticipated. When

the manager communicates turnover

promptly and directly, including a logical,

effective plan to fill any gaps, client

concerns can be managed and minimized.

Clients are typically most concerned with

investment staff departures, particularly

those responsible for generating

performance; however, experienced

clients also watch for changes in

distribution personnel. The latter is

considered to be the proverbial “canary

in a mine shaft” as high turnover in

distribution often signals problems in the

investment platform—and its salability—

or challenges to the business model.

Again, communication is key.

Maintain Long-Term Focus

A long-term focus is another important

ingredient to lasting client relationships.

Managers should approach relationships

as long-term partnerships where their

role is to add economic value for the

client over the course of inevitable market

cycles.

Assets under management generate

revenues that drive profitability. Over time

assets under management will, for certain,

dip as a result of performance and client

issues, and natural market downturns.

During these valleys, it is important for the

asset manager to maintain a long-term

view of its client base, without sacrificing

investment and service personnel just

when they are most critical to the business’

livelihood. Accepting short-term drops

in profitability and compensation—and

taking care of clients’ needs—in exchange

for long-term stability and success is

generally a good long-term trade-off.

Conclusion

Lasting success in the competitive

investment management business requires

a triad of skills:

} Differentiate investment capabilities

} Understand prospects and clients

} Communicate effectively

Solid, style-adherent investment

performance generated over a period

of time certainly is critical to both gain

and retain clients. A manager’s ability

to generate impressive performance,

however, is only one component of

success; effectively communicating the

philosophy and process, and the benefits

to prospects and clients is equally

important. Managers that combine strong

investing skills with a commitment to

understand potential and existing clients,

and to fine tune communication skills, will

be positioned for lasting success. n

5 Perspectives on the Investment Industry


SEPTEMBER 2012

Vol. 4 • Issue 1

Co-authored by:

Margolis Advisory Group

Margolis Advisory Group

Tackling Investment Firm Challenges

Successful Execution of Strategies and Plans

The JOBS Act

The JOBS Act Will Accelerate the

Institutionalization of Hedge Funds

• JOBS Act will drive the next major shift for the industry

• Lifting the “advertising ban” opens the playbook for hedge

funds, so they can compete on a level playing field with

traditional managers

• To seize the opportunity, firms must take a more strategic

approach to communications

Margolis Advisory Group

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com

River Communications

Justin Meise

T 845.226.8970

Ted Jablonski

T 617-721-1317

www.riverinc.com


Co-Authored by Margolis Advisory Group and River Communications, Inc.

Jeffrey Margolis

T 516.277.1050

E jeff@margolisadvisory.com

Justin Meise

T 845-226-8970

E jmeise@riverinc.com

Janie Kass, CFA

T 415.990.7356

E janie@margolisadvisory.com

Ted Jablonski

T 617-721-1317

E tjablonski@riverinc.com

Executive Summary

The JOBS Act is bringing change to the hedge fund industry, and, most

likely, this change will accelerate the trend towards institutionalization. The

lifting of the “advertising ban” opens the playbook, allowing hedge funds

to engage in a wide range of strategic communications and marketing

activities. For some, this will offer a new opportunity to compete for assets

with traditional managers adept at managing their brands and marketplace

perceptions. Others will resist, possibly to their detriment, as funds will no

longer have the luxury of hiding “under the radar.”

Hedge funds who embrace the new, less restrictive environment will need

to build mature, comprehensive strategic communications programs. The

best practices include:

} Revisiting the brand and value proposition on a regular basis to

ensure it accurately and effectively reflects a “firm’s DNA.”

} Implementing a consistent process that provides for the

regular refreshing of value-added content to communications

vehicles.

} Creating content that provides true thought leadership,

enhanced with proprietary surveys, and investment & industry

commentary.

} Considering a broad range of distribution and engagement

vehicles to build awareness of the firm, including: web and

mobile devices, public relations, marketing communications,

targeted advertising and investor communications.

2 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


Contents

Building World

Class Strategic

Communications........ 4

Value Proposition....... 5

Strategic

Communications:

Opening the

Playbook.................. 6

Conclusion................ 7

Hedge funds have thrived by embracing and even becoming catalysts

for change. In this hyper-competitive industry, it is commonplace to

expend disproportionate resources to capture even a minimal investment

performance advantage. Because of this, it is surprising that there has not

been more enthusiastic support in the trades for what is potentially the next

major shift for the industry: the Jumpstart Our Business Startups Act

or JOBS Act.

Passed with little fanfare, the JOBS Act lifts the ban on advertising for

hedge funds (among other provisions) and has the potential to transform

how managers market their firms, build their brands and communicate with

their investors. Yet, much of the discussion in the trades and on the hedge

fund industry speaking circuit has downplayed the potential impact of this

provision as being only meaningful to the smaller funds. Large funds—as the

typical explanation goes—believe they do not need to proactively market,

as they commonly market off their mystique of exclusivity and will prefer to

remain “under the radar” to protect their proprietary investment strategies.

Furthermore, the larger funds are already staffed for one-on-one sales, and

many in the hedge fund industry are under the false impression that sales

are only based on individual contacts or “having the Rolodex.”

The fact is, change is coming to the hedge fund industry, and many

managers will continue to adapt to the ongoing evolution as they always

have. Most likely, this change will accelerate the trend towards resembling

traditional managers—for hedge funds can now adopt advertising and

marketing techniques, as well.

Consider the trends we have observed in the hedge fund and institutional

asset management space, especially since the market declines of ’07-’08.

New regulations have increased the demand for information on leverage

and counterparty risk; the migration from single to multi-prime brokers has

occurred, and institutional investors are demanding more transparency in

investment operations, risk and administration. Perhaps, most significantly—

the largest institutional investors have been allocating funds almost

exclusively to the largest hedge funds.

According to “The Evolution of the Industry: 2012,” an annual KPMG/AIMA

hedge fund survey, institutional investors now represent a clear majority

of all assets under management by the global hedge fund industry, with 57

percent of the industry’s AUM residing in this category. And, the proportion of

hedge fund industry assets originating from institutional investors has grown

significantly since the financial crisis.

3 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


As a result, we are seeing a continuation of the institutionalization of hedge

funds. The KPMG study confirmed this with survey data indicating that

investors demand hedge funds look and act more like traditional institutional

managers from an operational standpoint. In addition, 82 percent of

respondents reported an increase in demand for transparency from investors,

while 88 percent said investors are demanding greater due diligence.

Not only do many

hedge funds lack

a strategic

communications

infrastructure,

but the concept

of such openness

still runs contrary

to the DNA of

most firms.

Our own experience consulting with hedge funds and traditional managers

has confirmed other indications of this trend, as well as with all investors—

large and small—demanding greater operational efficiency; cost reduction;

and models that enhance overall risk management, such as the move

from single to multi-prime relationships; all delivered in an open and

transparent way.

For hedge fund managers to attract large pools of money, they will

increasingly need to be more institutional and transparent with all investors.

This is a significant cultural shift for these firms. Not only do many hedge

funds lack a strategic communications infrastructure, but the concept of such

openness still runs contrary to the DNA of most firms.

The question then becomes: how should hedge funds that embrace a more

open and inclusive communications strategy implement programs that will

help them achieve this goal The answer is they will need to develop an

approach to communications that is similar to traditional institutional asset

managers.

Building World Class Strategic Communications

Strategic communications (in this context) refers to taking a systematic

and thoughtful approach to articulating a firm’s brand attributes or value

proposition for a variety of purposes, including managing a firm’s reputation

through crisis, building awareness to drive fundraising or communicating

a significant change, such as a launch, acquisition or merger. Strategic

communications also refers to a broad range of activities for touching all of

a firm’s audiences, including: employees; investors; consultants; media;

counterparties/vendors and other industry participants.

Done well, communications adds significant value to an organization, either

by mitigating negative perceptions or establishing a powerful brand that

becomes a tangible asset within itself. Choosing not to actively manage a

firm’s brand means giving up control and allowing the marketplace to fill the

4 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


void and define a firm’s brand. This should be cause for concern. Where a

manager’s relative anonymity once carried a certain cachet, such secrecy

may be cause for concern in the future, especially in a “post-Madoff” world.

When developing a strategic communications program, it is crucial to begin

with the development of, or synchronization with, an overall strategic

plan. This means affirming the firm’s overall goals and determining how

communications can support and achieve those goals. It also requires

performing a general SWOT analysis, possibly broken down by audience

segment. Not only will this information inform the team of potential

challenges ahead, but it will provide a reality check when defining brand

attributes and messaging.

From a management standpoint, the goal is to create a unified and

compelling story, theme and messaging, all of which will be woven into firm

communications, such as websites, pitch books and collateral, as well as all

interactions with investors and employees.

THE VALUE PROPOSITION

Central to this exercise is the development of a well thought-out and wellarticulated

value proposition: a business statement that differentiates and

optimally positions your firm by describing why your target audiences should

engage with you and how your offering adds more compelling value than

your competitors.

Effectual value statements and firm positioning answer four key questions:

} Who you are (Expertise, Credibility)

} What you do (Performance)

} Whom you do it for (Audiences)

} How you do it (Investment Process)

While these questions might look simple on the surface, answering them

in a clear, concise, consistent and compelling manner requires an honest

assessment of a firm’s strategy, capabilities and differentiators. They also

need to carefully incorporate the firm’s mission, vision and values. And, they

need to resonate with all of a firm’s key audiences.

For hedge fund managers, perhaps the most critical aspect of their value

proposition is the investment process. It is the foundation of a manager’s

5 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


story and should be the vehicle to create differentiation. This is more

important than ever since a solid and consistent process is the key basis

upon which institutional investors make their manager selection decisions.

Best practices include step-by-step descriptions; incorporating the manager’s

perspective on which elements provide the value-added performance; and

long-term sustainable edge.

Strategic Communications: Opening the Playbook

The lifting of

the ‘advertising

ban’ dramatically

opens the

playbook and will

potentially allow

hedge funds to

take much greater

control of their

messaging and

branding with all

of their audiences.

While the SEC has said it will not provide its guidance until later this year,

hedge funds will almost certainly have a wider range of tactics at their

disposal. The lifting of the “advertising ban” actually includes most forms

of marketing communications, including: media relations; web strategy;

marketing collateral; advertising; event marketing and event speaking.

This dramatically opens the playbook and will potentially allow hedge funds

to take much greater control of their messaging and branding with all

of their audiences.

Some examples of this broader playbook include:

} Branding: A strong brand increases market awareness, placing

firms in more searches. A well-managed brand enables firms to

more effectively communicate their value proposition, eliminates

common objections and enhances client loyalty and retention.

} Websites: Almost certainly, hedge funds can now move beyond

the industry standard “client log in” page to provide some basic

information on a firm’s pedigree and general area of investment

focus and begin to communicate points of differentiation. This is

critical today when many investors do their initial research via

computer or mobile devices.

} Public Relations: It is doubtful the SEC will offer hedge funds

carte blanche to discuss performance, but it is very likely that

hedge funds will be freer to discuss their investment philosophies

in general and create visibility through media relation staples,

such as thought leadership and investment commentary. This

freedom offers hedge funds a greater ability to form relationships

and educate the media. This is particularly important for a long

term crisis/reputation management strategy.

} Advertising: Flip through the major institutional trade magazines,

and you will see traditional managers promoting their brands and

their range of investment strategies. Few rarely tout performance

6 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


or reveal trading secrets, but the advertising is effective at

establishing awareness, credibility and relevance. Hedge funds will

now likely employ similar strategies.

} Direct Communications: Similar to the advertising approach of

traditional managers, hedge funds can be more aggressive while

communicating with target audiences. It is difficult to predict what

will be permitted, since the scope of direct communications is

almost certainly an area the SEC will address with granularity due

to the range of suitability issues.

} Events: Hedge fund managers can likely move beyond the narrow

range of hedge fund-specific events to participate in broader

institutional events in a more meaningful way.

conclusion

As firms continue to adapt to a newly competitive investment, technology

and regulatory landscape, they must recognize their communications

strategy as an equally critical component for success. Effective

communication of a firm’s value will become almost as critical to the

investor’s decision-making process as a firm’s investment, operational and

risk management.

There are certainly some unknowns as we await the SEC’s response. But,

make no mistake—change is coming to the hedge fund community. Winning

firms will embrace this change, not resist it. Firms that take a strategic and

proactive approach to managing their marketing communications will be

better positioned to compete against their peers and traditional managers.

7 September 2012 The JOBS Act Will Accelerate the Institutionalization of Hedge Funds


Executive Summary

SEPTEMBER 2012

Vol. 4 • Issue 1

The “new normal” environment, marked by increased competition and leaner

The JOBS Act

profit margins, has redefined the key drivers of lasting success for investment

managers. In the past, managers could survive—and even thrive—primarily

on solid investment capabilities, with little concerted marketing effort.

The JOBS Act Will Accelerate the

Institutionalization of Hedge Funds

No doubt, times have changed.

A firm’s success is often dependent on its willingness and ability to adapt to

About Margolis Advisory Group

change. This new landscape calls for a strong marketing team, strategy and

plan. Managers that respond to the need for focused attention to marketing,

and are We committed work exclusively to do the with work the investment necessary management to develop a industry marketing to team,

strategy enhance and plan sales are growth more and likely retention to enjoy through lasting people, success. product and

process improvements and practical solutions.

Inside a Successful Investment Management Firm is a three-paper series

that presents

With extensive

the process

industry

to build

experience

a premier

raising

marketing,

billions of

sales

dollars

and

for

client

relations investment team (“marketing firms, from team”), start-ups and to large its role organizations, and importance we work to a

manager’s with executive long-term management success. teams, and sales and marketing staff

to achieve desired results.

The initial paper provides a macro-view of the process to build a team—

a foundation—from which to delve deeper into the individual steps of the

While our expertise assists investment managers in thinking

process. through The second problems paper and details analyzing the the first marketplace, two steps of our the clients process: define

capabilities benefit and most offerings, when we and help develop them in marketing translating strategy. that thinking and

analysis into execution.

This third and final paper in the series offers an in-depth look into the final

steps in the process:

For more information, please contact:

} Jeffrey Determine Margolis: Product T 516.277.1050 and Distribution • E jeff@margolisadvisory.com

Model

} Janie Build Kass, Marketing, CFA: T 415.990.7356 Sales and Client • E janie@margolisadvisory.com

Relations Team

The process is a blend of discipline to provide logic and structure, and

sufficient flexibility to accommodate both new and established firms.

Whether a firm is seeking to build a team or evaluate an existing one,

or develop a marketing strategy or ensure the veracity of a current one,

the process is proven effective.

About River Communications

River Communications is a boutique public relations and marketing

communications consulting firm specializing in financial and professional

services. Since our founding in 1989, River has developed and implemented

strategic public relations and marketing communications programs for an

array of extraordinary clients, ranging hedge funds, private equity and

financial technology firms to the world’s largest asset managers, custodians

and best-known brands. View our full capabilities and client history at

www.riverinc.com.

For more information, please contact:

Justin Meise: T 845-226-8970 • E jmeise@riverinc.com

Ted Jablonski: T 617-721-1317 • E tjablonski@riverinc.com


NOVEMBER 2010

Vol. 2 • Issue 2

Margolis Advisory Group

Margolis Advisory Group

Inside a Successful Investment Management Firm

Tackling Investment Firm Challenges

Building a Premier Marketing, Sales and Client

Relations Organization

Successful Execution of Strategies and Plans

Paper 3: Determine Product and Distribution Model, and

Build Marketing, Sales and Client Relations Organization

• Willingness to understand the role and importance

of marketing is critical.

• A solid core competency drives the product design and

management process.

• Institutions now expect tailored solutions rather than

standard offerings.

• An investment in a strong marketing team ultimately will

yield large dividends.

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com


Executive Summary

The “new normal” environment, marked by increased competition and leaner

profit margins, has redefined the key drivers of lasting success for investment

managers. In the past, managers could survive—and even thrive—primarily

on solid investment capabilities, with little concerted marketing effort.

No doubt, times have changed.

A firm’s success is often dependent on its willingness and ability to adapt to

change. This new landscape calls for a strong marketing team, strategy and

plan. Managers that respond to the need for focused attention to marketing,

and are committed to do the work necessary to develop a marketing team,

strategy and plan are more likely to enjoy lasting success.

Inside a Successful Investment Management Firm is a three-paper series

that presents the process to build a premier marketing, sales and client

relations team (“marketing team”), and its role and importance to a

manager’s long-term success.

The initial paper provides a macro-view of the process to build a team—

a foundation—from which to delve deeper into the individual steps of the

process. The second paper details the first two steps of the process: define

capabilities and offerings, and develop marketing strategy.

This third and final paper in the series offers an in-depth look into the final

steps in the process:

} Determine Product and Distribution Model

} Build Marketing, Sales and Client Relations Team

The process is a blend of discipline to provide logic and structure, and

sufficient flexibility to accommodate both new and established firms.

Whether a firm is seeking to build a team or evaluate an existing one,

or develop a marketing strategy or ensure the veracity of a current one,

the process is proven effective.

2 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


Contents

Process.................... 3

Determine Product and

Distribution Model..... 4

Build Marketing, Sales

and Client Relations

Function................. 10

Evaluate Marketing

Strategy and Team... 16

Conclusion.............. 17

process

Disciplined and Systematic

Recovery from the financial crisis that began in 2007 has started to take hold,

albeit sluggish, challenging firms whose business models were successful in the

robust pre-crisis environment. Against this “new normal” backdrop, managers—

even those with a long history of success—are forced to examine and prepare

their investment, marketing and client service functions to respond to increased

and different demands from their clients.

The crisis exposed financial risks that were once—and often long—hidden,

pressing managers to respond with solutions to investment risks, while

generating adequate returns. Increasingly, firms are adopting a solutionbased

business model over the more popular product-based model. To achieve

lasting success, investment management firms and their marketing teams,

need to develop a fresh approach to address clients’ needs, and client-facing

professionals must be able to articulate innovative solutions.

Managers must understand the necessity of a premier marketing team, strategy

and plan to their success. Then, armed with this knowledge, they must follow

the process to position the organization to thrive.

The process to build a new team or evaluate an existing one is designed to

accommodate firms in all phases of maturity from start-up to expansion.

Disciplined yet flexible, the process serves as a logical guide driven by the

firm’s skills, resources, and stated goals and objectives.

This paper offers detail and direction on the final two steps of the process.

Define

Capabilities

and Offerings

Develop

Marketing

Strategy

Determine

Product and

Distribution

Model

Build Marketing,

Sales and Client

Relations Team

Create Growth

Plans and Budgets

Evaluate

Marketing Strategy

and Team

3 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


DETERMINE PRODUCT and DISTRIBUTION MODEL

Start Narrow then Expand

Investment firms focused on a specific product and distribution strategy tend to be

more profitable than managers with a broad focus. While firms can be tempted to

cast a wide net across product and distribution channels in the hopes of capturing

market share, an intentional strategy is most advisable. Managers that hone in on

a specific market or investment discipline before considering expansion are more

likely to achieve both short- and long-term success.

“Managers that

hone in on a

specific market

or investment

discipline before

considering

expansion are

more likely to

achieve both

short- and

long-term

success.”

Firms should define core investment competencies and stay committed to those

strengths in the product design and management process to establish a sound

reputation and track record.

Distribution channels should be selected carefully for a natural, easy fit. For

instance, the firm should focus on distribution channels that are best suited

to its culture and investing style, or are aligned with leadership’s industry

connections and expertise.

While expansion into other investment disciplines or distribution channels is not

discouraged—and can even be both encouraged and effective if executed logically

and carefully—timing is critical. Expansion should only be considered after the

firm has established and proven its core competencies. Importantly, an expansion

should be understood in the marketplace, such as the addition of a complementary

investment discipline or a move into a similar distribution channel.

Generally speaking, firms are driven by:

} a specific investment expertise, in which case it will likely stay narrowly

focused on that particular investment capability, or

} sales strength in a specific channel, in which case it will typically remain

narrowly focused in that channel

In the first case, it may make sense to broaden distribution of investment capability

into as many channels as possible. Whereas, in the second scenario,

it may be logical to thoughtfully expand the product menu.

Firms often expand by broadening their product menu and/or distribution,

reasoning that diversification can be particularly beneficial as asset classes and

distribution channels cycle in and out of favor. However, this approach can be faulty

in that developing a favorable reputation and brand can be more challenging when

a firm’s focus is diluted.

In the diagram on page 5, the innermost circle is a firm’s core competencies. Each

successive circle advancing further from the core represents an expansion beyond

the stated competencies. The outermost circles illustrate capabilities that are not

4 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


correlated closely to their core competencies. When considering expansion away

from the core, investment firms should move gradually rather than leap to outer

circles in which they are unlikely to have competitive experience.

PRODUCT DISTRIBUTION AND CHANNEL EXPANSION

Example: U.S. Small Cap Value managers should expand logically to similar strategies (inner circles)

rather than stretching too quickly—if at all—to notably different strategies (outer circles).

Core

Competency

U.S. Small

Cap Value

U.S.

Mid Cap

Value

U.S.

Large Cap

Growth

U.S.

Fixed

Income

Global

Fixed

Income

Expansion Moving Outward

from Core Competency

A manager must demonstrate an advantage, in terms of investment capabilities,

over a period of time to make a solid footprint in the marketplace. By targeting

specific products and distribution channels, a manager is better positioned to

penetrate the crowded marketplace and accomplish objectives. A firm’s product

and distribution model must also align with its resources, both availability and the

nature of its expertise.

In terms of size, start-up firms often have limited resources for distribution,

underscoring the need to be focused. More mature firms, with the ability to add

resources, have the option to:

} add resources to existing distribution channels for greater penetration, or

} allocate resources to other distribution channels to expand beyond their

original target client base

In all cases, expansion should be sensible, considering the concentric circle

concept, correlated with investment and distribution capabilities. Ultimately, a

natural extension of capabilities will be better understood—and accepted—by the

marketplace than a radical change or addition.

As illustrated in the graphic above, an established small-cap value manager

may, at some point, consider expanding its product lineup. The most logical

expansions, and the ones closest to the core of the concentric circles, would be to

stay within the value style: micro cap, mid cap, or smid. Expanding into large cap

5 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


would be a reach, and moving into a growth strategy would be an even greater

stretch. Clearly, a move into fixed income or other asset classes beyond public

equity would be a distinct departure from its core. Bottom line: the further the

firm moves from its core, the more difficulty the marketplace will have accepting

the firm’s competency in new areas.

Likewise, an attempt to expand into new distribution channels without expertise can

be difficult. Consider a firm that has been successful on a platform distributing to

high net worth individuals. Charging the same personnel to also service institutions

is an unrealistic expectation. However, a firm focused on a segment of the

institutional marketplace, such as endowments, can rely on its existing personnel to

service foundations.

Expansion of investment products or distribution channels can also be accomplished

through the addition of experienced talent. In the case of investment products,

a team can be lifted-out from another firm, although team lift-outs can cause

organizational disruptions. Adding experienced sales personnel to expand into a

new channel is often logical and less susceptible to marketplace objection.

In both scenarios, the firm must be careful to ensure seamless integration, without

disrupting culture or collegiality.

define distribution model

A firm’s distribution model is a platform from which to operate and expand, when

and if desired, and as appropriate. The typical distribution channel consists of three

components: channel, segment and focus. Two major channels in the industry are

institutions and intermediaries, which are characterized by distinct segments. In

terms of focus, firms typically organize staff by geography or specialty.

Following is the framework on which to establish a distribution model for the

institutional and intermediary marketplaces.

CHANNEL Institutional Intermediary

SEGMENT Such as Defined Benefit, Such as Defined Contribution,

Defined Contribution,

Variable Annuity, Bank Trust,

Endowments, Foundations, Subadvisory

Taft-Hartley

FOCUS Geography vs. Specialty Geography vs. Specialty

channel and segment

To determine target channels and segments, a firm should identify those markets

in which its products are a rational fit. Managers often target one channel, and

one or more segments. However, larger firms may choose to service both the

institutional and intermediary channels—a practice that has become common in

recent years, as the due diligence and selection processes of the two channels

have increased in similarity.

6 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


It’s important to note, however, that there are significant differences between the

channels, so managers should be thoughtful in deciding to target both.

The institutional and intermediary channels are defined by distinct product needs,

buying behavior and client service requirements. To successfully cater to both

channels, firms need to understand the nuances of the different clients, and be

staffed to offer tailored investment and business skills, and services.

“The institutional

and intermediary

channels are

defined by

distinct product

needs, buying

behavior and

client service

requirements.”

For instance, when an institutional firm expands into the intermediary channel,

it must provide not only investment services directly to a client, but also arrive

at a business arrangement with an intermediary that will then market the firm’s

investment capabilities to its client base. This arrangement involves compensation

to the investment manager, an agreement on potential distribution support for the

intermediary, and perhaps, marketing and branding considerations.

Defined contribution is an area that spans both institutional and intermediary. In

this space, the institutional plan sponsor selects managers to be included in its

plan; however, only the manager’s products on the intermediary recordkeeping

platforms can be considered for the plan. Large plan sponsors, in particular,

benefit when the investment manager markets its capabilities to both the platform

(intermediary) and the plan sponsor (institution).

Institutions

Institutional clients can be categorized as corporate pension funds, public

pension funds, endowments, foundations, Taft-Hartley and insurance

companies. Each of these is a distinct segment, although endowments and

foundations are often combined. Insurance companies represent a relatively

new and growing area, commonly accepted as a distinct institutional segment.

Overall, growing an institutional client base requires patience to cultivate

relationships with, and gain the confidence of, potential clients over time.

Investment consultants influence the asset management decisions of a

large number of institutional clients. Institutional clients, with the possible

exception of insurance companies, use consultants extensively. Therefore,

a consultant relations team can leverage long-term business growth.

To ensure the credibility of a manager’s capabilities, consultants conduct

in-depth due diligence for an extended period of time. Among the most

important factors in the due diligence process are:

} successful management of one or more products

} consistent performance

} adherence to stated investment strategy, which is derived from

a reasonable investment philosophy

} clear description of investment process

} a stable team

7 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


Earning a solid reputation with consultants is necessary to be considered

for the numerous new client mandates awarded each year. These same

criteria are also used for evaluation by sophisticated institutions directly, and

increasingly, intermediaries.

It’s often most effective to market to both institutions and their consultants.

While consultants augment the direct plan sponsor connections, marketing

directly to the plan sponsors is still necessary since a number of large sponsors

don’t use consultants, making decisions on their proprietary research or

knowledge of the asset management universe. Also, a sponsor that uses

a consultant may still be inclined to select a manager based on a personal

relationship, and they often introduce their consultants to new managers.

Intermediaries

Intermediaries hire investment managers for further distribution of products to

their clients. In the past several years, intermediaries began conducting due

diligence comparable to that of consultants and institutions. At the same time,

intermediaries are emphasizing the importance of business partnerships with

managers, placing a premium on growing assets at a mutually beneficial price

point. Distribution strength is also an important element in the hiring decision.

In fact, intermediaries often require distribution support from managers.

Intermediaries prefer to partner with managers that enhance their reputations

as financial service providers because brand recognition and compatibility can

significantly impact the success of manager/intermediary partnerships.

focus

A firm’s focus informs the final step in the process, which is to actually staff

the team. Establishing a distribution organization typically requires a trade-off

between effectiveness gained through specialization and efficiency gained through

geographic focus. Both are viable approaches when the realities of a firm’s product

menu and staff are considered. The structure of a distribution model is based

on a variety of factors including:

} Business goals

} Resource availability

} Quality and strength of existing personnel

} Supporting Infrastructure

Specialization

A firm’s ability to specialize in a segment depends primarily on the size of

the firm and staff, with larger firms generally better equipped to specialize.

Understandably, a small or start-up firm with only a couple of sales people

does not have the capacity to specialize.

While a firm does not necessarily have to move to a specialization strategy

as it grows, it can facilitate greater distribution expertise and credibility to

8 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


the marketplace. Specifically, client-facing professionals will appear more

knowledgeable about a particular segment’s investment needs, therefore,

garnering more credibility with prospects in that segment.

“Sales

professionals

must

understand

specific

objectives of

each client

then marry

their firms’

investment

capabilities

to those

objectives.”

Institutions in the current marketplace are increasingly expecting investment

managers to provide tailored solutions to their needs rather than simply

offer a standard product. To be effective in this new environment, sales

professionals must understand specific objectives of each client then marry

their firms’ investment capabilities to those objectives. This means that sales

professionals will need greater expertise about their clients’ businesses than

in the past, therefore, influencing firms to be specialized.

Specialization often begins with positioning products in the consultant

community. In fact, many firms with limited distribution capacity that want to

target institutions choose to cover consultants before they call on institutions

directly. Since consultants track managers and their products for an extended

period of time to determine suitability for client mandates, it’s important to

gain exposure in the consultant community as early as possible.

The strongest strategies are not necessarily in the highest demand within the

consultant community. For instance, the market is typically saturated with

large-cap domestic strategies, while small-cap offerings are in short supply.

With this in mind, firms should consider the supply/demand balance in the

marketplace when positioning strategies with consultants. This analysis should

extend to the entire target market.

Distribution can also be organized by strategy, although this structure should

be considered only with highly specialized products in which expertise is

necessary to be effective. This is most often the case with alternative offerings

such as hedge funds, private equity funds and real estate. However, in a

multi-product firm with generalists covering traditional offerings, coordinating

client and consultant relationships with product-focused sales personnel

can be challenging. In all situations, client communications is important,

particularly in describing the client relationship model; specifically, clients

should have one primary contact.

Geography

Firms focused on either the institutional marketplace or the intermediary

channel can consider organizing a sales team entirely by geography, in

which case each individual covers all segments within a specific region.

Generally, firms that choose this model have small sales teams that prohibit

specialization. However, some larger teams are organized in this manner,

especially if the firm does not target many different segments.

While organizing by geography—within the U.S.—is considered an efficiency

strategy, when targeting clients on a global basis, this strategy becomes a

specialization. Clients around the world are characterized by different cultures,

languages, investment objectives, regulatory environments, and buying

9 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


ehavior. A local presence to focus on clients within a particular country or

region may provide tremendous advantage. In this sense, when constructing

a global distribution model, organizing by region or country may be considered

a specialization strategy.

The key to a successful specialization strategy is both the local presence and

the external awareness of specialized expertise. With notable differences in

investment needs around the globe, country or regional specialization can be

a smart team structure.

BUILD MARKETING, SALES and CLIENT RELATIONS FUNCTION

A strategic, thoughtful process

Firms should carefully staff the marketing, sales and client relations organization

for maximum effectiveness and efficiency.

While marketing teams across the gamut of firms will perform the same function,

they vary in size and structure. A firm may have a one-person department, with the

one individual performing all functions, while another firm may have a 50-person

staff organized by distinct divisions and sub-divisions. Still another firm may have

a large, functionally integrated staff. Regardless of structure, the firm must clearly

define the responsibilities of each individual. Perhaps most importantly, the team

should be organized and encouraged to operate as a cohesive, collaborative group.

Following are the three primary functions in the overall marketing area, as well as

the hiring process:

} Marketing: Execute the firm’s marketing strategy and supports sales.

} Sales: Distribute the products and solutions according to the marketing

strategy.

} Client relations: Manages the relationships with clients gathered by the

sales team.

MARKETING TEAM HIRING PROCESS

MARKETING

} Productionoriented

} Strategic

CLient relations

} Client relationship

managers

} Client

administrators

} Product/Portfolio

Functions

and

responsibilities

may overlap

SALES

} Geography

} Specialization

10 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


In the initial building stages, it’s wise not to build out all three functions in

advance of bringing in clients. After all, a client relations function is not necessary

until there are clients to service. However, a firm must balance this reality with

preparedness to service clients as soon as they come on board. Therefore, at

inception, a firm may have an integrated team in which sales personnel are also

prepared to service clients. It’s likely that a firm may have staffed marketing

personnel at this point; however, small firms may charge sales people with the

marketing function.

Generally speaking, multi-functional individuals are more sensible from a financial

and operational perspective. Then, as the business grows, the functions can

become more distinct, with specialized individuals.

marketing

“Marketing is

the process

of creating,

communicating,

delivering and

exchanging

offerings that

have value for

a firm’s clients.”

What is marketing Firms across the industry are challenged by this question.

Simply stated: marketing is the process of creating, communicating, delivering

and exchanging offerings that have value for a firm’s clients.

A well-designed marketing group within an investment firm will perform two

primary functions: production-oriented and strategic. Most individuals are best

suited for one role or the other, in terms of skills and interests, as the functions

are distinctly different.

Production Oriented

Production-oriented functions are most commonly considered marketing

support. In reality, these functions support the sales and client service

processes. These functions include: RFP production, presentation creation,

portfolio reporting, and market commentary development. A high-functioning

production team can add tremendous value to the organization through both

improved sales effectiveness and client service. This area is also a powerful

training ground from which talented staff can grow.

Production-oriented marketing functions are particularly suitable to outsourced

solutions. When building these functions, management should always evaluate

the option of hiring versus outsourcing specific positions. The financial crisis

forced most managers to downsize, leaving them to operate with lean staff

and budgets.

As managers are re-staffing, many are outsourcing the marketing function due

largely to the increase in skilled and experienced consultants combined with the

cost efficiency relative to hiring a full-time employee. Many firms also rely on

outside resources, specifically for reporting services, or graphic and web design,

for a quick ramp-up or rebuild, with less expense and long-term commitment.

Strategic

Strategic marketing looks beyond immediate circumstances, in the process

clarifying long-term goals. Again, this function is largely underdeveloped at

investment managers, often garnering only cursory attention from senior

11 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


management. Managers that thoughtfully develop and execute a strategic

plan rather than rely on spur-of-the-minute decisions are more likely to

achieve lasting success. Strategic marketing develops a sophisticated view of

the firm’s positioning, the competitive environment and marketplace trends.

Important components of a strategic marketing plan, designed to shape the

direction and growth of the firm, include promotional campaigns, Internet

marketing, advertising and public relations.

sales

A common question among managers is how to organize a sales team for

maximum effectiveness and production. Virtually all managers believe they

should be able to squeeze more out of their sales function. A firm may sense

that production is sub-optimal, without being able to pinpoint the cause. In fact,

the reasons are often outside the sales function, such as weak or inconsistent

investment performance or processes, poor leadership or culture, or unfocused

marketing. Still the sales function must operate at top form for the firm to be

productive.

While there are general guidelines for sales structure, it’s important to recognize

that a number of different structures are effective. A successful sales team is built

from the ground level, with the design and structure fitting the overall firm.

A general rule that is applicable in most cases is the practice of organizing a sales

team around the client, not the product. Organizing around the client is outward

looking and sensitive to client needs, while organizing around the product is

inward looking and focused on the firm’s own investment group rather than the

client. This is especially important in today’s environment in which institutions

expect asset managers to understand their businesses and offer thoughtful

solutions to their investment needs.

Single-product firms or those with highly technical products sometimes organize

around the product successfully, since extensive product knowledge is vital.

However, exceptions to the client-focused structure should be carefully analyzed

before implementation. Organizing by product may leave a client confused and

frustrated with multiple firm contacts, and a sense that the firm is pushing

products rather than responding to specific needs.

Firms should consider that with the increase in products comes the need for

specialized information and resources to equip the sales personnel with sufficient

knowledge in all product areas. Product specialists, discussed on page 15, can

satisfy this need.

Geography

At a small firm, or during the early stages of staffing a U.S.-based sales

team, it often makes sense to organize geographically. If the firm wants to

cover the country broadly—across one or more segments—the most sensible

12 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


way to do so, with limited resources, is to segment the country such that

each sales person covers a region for all segments. An alternate structure

is to organize professionals by segment, such as endowments or Taft-

Hartley prospects. However, charging the professionals to cover the entire

country within their respective segment is inefficient from a travel, cost and

productivity perspective. The travel required by this arrangement can be

particularly taxing on the staff, which can lead to a high turn-over rate.

“A multichannel

focused

firm–those

targeting both

institutional and

intermediary

clients–must

understand and

respond to the

unique needs of

these clients.”

The primary reason for considering this approach is a situation in which

the firm feels that its positioning is quite different between segments,

warranting specialists for ample coverage. In this scenario, the manager

may also consider a hybrid structure if there is a particular segment that

requires specialization, or if there is a sales person who is notably strong in a

specific segment. For example, one segment may be organized in a specialist

structure, while the rest of the market is be segmented by geography. Once

again, sales structure is not a one-size-fits-all solution.

The broader the target client base, the sooner the manager is likely to move

to a specialist structure. This is true because a geographically organized

team is often unprepared to service a broad range of clients, especially in the

current environment which demands deep client knowledge.

A multi-channel focused firm—those targeting both institutional and

intermediary clients—must understand and respond to the unique needs of

these clients. Representing the firm to these different types of clients requires

somewhat of a different knowledge set and sensitivity to the culture and

needs of these different client bases. Requiring the team to cover multiple

channels can exert undue strain on the staff, resulting in inadequate client

service, which may negatively impact client retention and growth. However,

if the firm is focused on one channel, or even more specifically on one or two

segments within a channel, a geography-based structure can remain effective

for some time, perhaps indefinitely.

Specialization

From a specialization standpoint, firms should maximize each employee’s

strengths and specialties. An employee who brings extensive public fund

experience to the table should focus on that area. At the same time, an

individual with established relationships with institutions or intermediaries

outside of an assigned region might stretch beyond that region to cover those

firms. Overall, the team structure should clearly define responsibility and

accountability, with flexibility for adjustments and modifications that are in the

best interest of the firm and its clients.

As mentioned previously, a firm with global reach has somewhat of a different

geographic/specialist dynamic than a firm solely focused on U.S. distribution.

In the U.S., there is little difference in buying needs and behavior across

geographic regions.

13 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


A local sales professional, or agent, who is knowledgeable of local needs,

cultures, and proper business behavior of their respective geographical

location can significantly advance the firm’s sales effectiveness. Therefore,

when operating across countries, a firm may be better served to organize

geographically to capitalize on the local knowledge. In this sense, a

geographic structure actually becomes a specialist structure when the

specialty is defined as country-specific knowledge.

Just as the firm should initially establish a narrow focus on products and

distribution and expand gradually, the sales and consultant relations teams

should be built purposefully as the business grows. Managers are often

tempted to add sales people as the firm gains even slight momentum;

however, business development in the investment industry typically takes

longer than management expects, and managers should resist the urge to

staff too early. On the other hand, managers need sufficient resources to build

a sizable product pipeline. While striking this balance can be challenging, it’s

both necessary and possible for a firm’s success.

client relations

The client relations staff is primarily responsible for ensuring a consistently

positive client experience. While the team structure varies among firms, the

bottom line is the same: when properly managed, clients can be a valuable source

of recurring revenue, through the retention of current business, cross sales and

referrals for new clients. The client relations function is generally not as high

profile as the sales function. However, if firms consider the cost of losing clients

relative to the years of effort attracting them, the value of client relations is more

understandable. Further, the cost of losing a client extends beyond the actual

revenue loss, often resulting in damage to reputation, as well.

Generally speaking, there are three roles in the client relations area:

} Client relationship managers

} Client administrators

} Portfolio/product specialists, sometimes called client portfolio managers

Client Relationship Managers

At many firms, sales personnel serve as relationship managers for clients,

functioning as the “quarterback” for the firm’s relationship with the client.

Other firms separate client relations from sales, with different personnel

serving this function. Either structure can be appropriate, based on the skills

of the staff, and the communication among the client-facing colleagues.

This role is particularly important in the case of complex relationships in which

the client may be invested in several different products. An experienced client

relationship manager can harness the various resources necessary to provide

14 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


customized client service, and coordinate streamlined client interaction.

Over time, a strong client relationship manager can pay large dividends by

providing differentiated service relative to the competition, and by gaining

insight, which is useful for retention and new product development.

“A strong client

relationship

manager can

pay large

dividends

by providing

differentiated

service

relative to the

competition,

and by gaining

insight, which

is useful for

retention and

new product

development.”

Client Administrators

Firms often add client administrators—individuals who support the

“quarterbacks” with a variety of functions, including coordination with the

client’s custodial bank, clarifying reporting and accounting issues, responding

to ad hoc questions, and leveraging the time of the sales people and client

relationship managers. A staff of competent client administrators can greatly

enhance overall client service, increasing the firm’s productivity. In terms of

staffing, both relationship managers and client administrators should be added

in tandem with the firm’s growth.

Portfolio/Product Specialists

Portfolio/Product specialists (or client portfolio managers) can be considered

when the firm is positioned to cover the additional costs. A valuable resource

to the firm, portfolio specialists are able to attend client and sales meetings

in lieu of the portfolio manager. In fact, they are often more skilled in these

meetings than the portfolio managers. An ideal portfolio specialist blends

investment knowledge and client relationship building skills.

While these specialists are closely aligned with the investment department,

they serve a client relationship role rather than a portfolio management

function. Often they play a critical role in both sales and client presentations,

demonstrating the investment expertise of the firm. Ideally, portfolio

specialists will relieve portfolio managers of responsibilities that distract from

the task of asset management. Many firms have one portfolio specialist per

strategy or group of closely related strategies; therefore, firms generally add

strategies and associated portfolio specialists in tandem.

From an organizational perspective, portfolio specialists may be part of the

overall marketing area or the investment team. In either case, it’s important

that they are viewed as tightly linked to the investment team. Multiproduct

firms often develop portfolio specialists linked to specific products

or asset classes. In some situations, these professionals take on a business

management role for their specific product or asset class.

A benefit of having both sales and client relations teams in the field is that they

can harness valuable and current feedback from the marketplace through direct

conversations with prospects, clients and consultants. This information should

be continuously incorporated into the firm’s strategic thinking and planning

through both informal and formal communications such as a client relationship

management (CRM) system.

15 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


EVALUATE MARKETING STRATEGY and TEAM

Ensure the firm, team and strategy are aligned

A firm’s success correlates directly with its ability and willingness to carefully

review and evaluate its product menu and distribution, marketing strategy, and

marketing team on a regular basis. Successful firms are nimble, making necessary

adjustments, rather than operating on autopilot. The evaluation process includes

the following exercises:

} Analyze plan and budget to make sure the firm is functioning efficiently

and effectively. A common mistake: put a plan in place then leave it, with

no formal reviews or checks and balances, assuming it’s working. Given the

dynamic nature of the markets, firms should consider current information

gathered by sales and client-facing professionals to make timely adjustments.

} Review assets and clients under management considering the rate of

growth relative to stated plans. If asset growth is below target, research the

situation to determine the possible reasons for the shortfall then develop and

implement solutions to improve growth. In the event of higher-than-expected

growth, make sure the client-to-personnel ratio is sufficient to provide high

quality service. In either case, analyze whether the trend is short-term or

likely to be sustained, and whether adjustments to the plan or even the

organization are necessary.

} Evaluate product menu and distribution to determine if expansion is an

option for the firm. Expansion should always be considered carefully before

action is taken, and should usually be incremental, moving gradually out

from the core of the concentric circles. Many successful firms remain focused;

expansion is optional.

} Monitor marketplace trends and competition to make certain the firm

is properly positioned based on the most current information. Managers

should analyze their situation relative to their competitors for an accurate

assessment.

} Implement a client relationship management system (CRM) to capture

real-time market and client feedback. Of course, the quality of the information

is only as good as the way in which it’s organized and communicated. Internal

communications is particularly important, as a way of ensuring that the entire

organization is aware of higher-level opportunities and challenges.

} Consider management structure to streamline reporting to senior

management and to ensure that all distribution people are working toward

common goals. Firms should institute a management structure within the

group, distinguished by channel then by function, to make sure the various

groups communicate regularly. For example, a firm servicing institutional

clients should ensure that sales, service and consultant relations collaborate

and share insights from the marketplace.

16 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


During the three-decade run of unprecedented profit margins, many successful

managers were lulled into a sense of contentment, and even a false sense of

belief, that its strategy and organizational structure are as efficient and effective

as possible. While the strategy and structure may be working, routine check-ups

will reveal strengths and weaknesses, allowing even the most prosperous firms to

make timely adjustments.

conclusion

The current, post-financial crisis environment presents an opportunity for

managers to evaluate their organizations, and to make adjustments necessary

to weather the inevitable ebbs and flows of the market.

First and foremost, managers need to understand both the role and importance

of marketing, which succinctly stated is the process of creating, communicating,

delivering and exchanging offerings that have value for a firm’s clients. Next,

firms that are committed to and execute on building a premier marketing, sales

and client relations organization will be best positioned to enjoy lasting success.

The evaluation, building and review process guides firms to define core

investment competencies and commit to those strengths in the product design

and management process, which will build and reinforce their brand. Importantly,

managers that exercise patience and resist the urge to expand their investment

capabilities prematurely are more likely to build a solid foundation to withstand

all market conditions.

In the process of building the team, managers should consider staff in a deliberate

manner to effectively and efficiently promote their offerings and service clients.

The up-front investment required to build a talented, skilled staff will pay healthy

dividends in the long-term.

The bottom line: firms with a strong marketing, sales and client relations

organization combined with solid investment skills—that expand gradually

(and as desired)—tend to achieve more rapid success and greater, sustainable

profitability than less focused firms. n

17 November 2010 Determine Product and Distribution Model, and Build Marketing,

Sales and Client Relations Organization


november 2010

Vol. 2 • Issue 2

Inside a Successful Investment Management Firm

Building a Premier Marketing, Sales and Client

Relations Organization

Paper 3: Determine Product and Distribution Model and

Build Marketing, Sales and Client Relations Organization

About Margolis Advisory Group

We work exclusively with the investment management industry to

enhance sales growth and retention through people, product and

process improvements and practical solutions.

With extensive industry experience raising billions of dollars for

investment firms, from start-ups to large organizations, we work

with executive management teams, and sales and marketing staff

to achieve desired results.

While our expertise assists investment managers in thinking

through problems and analyzing the marketplace, our clients

benefit most when we help them in translating that thinking and

analysis into execution.

For more information, please contact Jeffrey Margolis:

T 516.277.1050

E jeff@margolisadvisory.com

Margolis Advisory Group

T 516.277.1050

F 516.277.1052

www.margolisadvisory.com

More magazines by this user
Similar magazines