With almost 20 years in the third party marketing (3PM) business, we thought we had seen and experienced it all.
It was in the fourth quarter of 2013. Within a 10 day period, two of our three long-standing manager- client relationships unwound; one was planned, one was unexpected. While that point may be foreign to salespeople that are directly employed by an investment manager, one of the foundations of the 3PM business model is to represent multiple managers (typically 3-6) in non-competing asset classes.
So, for the first time in several years, Arrow Partners found itself with some unanticipated “extra time” on our hands. While many of our colleagues and industry friends strongly encouraged us to immediately “swap in” replacement managers from the same asset classes (presumably to capitalize and leverage the prospect pipeline we had built), we thought a more measured, less impulsive approach might be called for.
In the past, some of our biggest mistakes as a firm occurred when we jumped into poorly vetted client relationships. Instead, we decided to take a deep breath and carefully reflect on past accomplishments and setbacks. By looking for ways to improve our efficiency and better serve our clients, we are now pursuing new manager relationships with a fresh perspective.
As we started reaching out to a wide range of asset managers, initiating dialogue about third party marketing, our conversations have been…..revealing. To put it mildly, it has been an eye opener.
It was frustrating to hear the same comments and questions rooted in a fundamental (and puzzling) misunderstanding about how the sales and marketing roles should function, and specifically what 3PMs do.
It was also surprising the degree to which, in 2014, many asset managers still underestimate what it takes to be successful. We were reminded repeatedly that, although everybody says they want to grow their business, the manner in which they approach and execute their sales and marketing efforts suggests otherwise.
As such, we thought some may find it helpful for us to share some of our core beliefs and philosophies for successfully marketing asset management services.
• Bringing a knife to a gunfight. To put it bluntly, the sales and marketing playbook created and successfully used in the 1980s and 1990s is now outdated and ineffective. Consultants and institutions have evolved into ever-stronger gatekeepers, so it is almost impossible for an investment manager to penetrate these barriers using an obsolete sales and marketing plan. Performance, while still an important benchmark, is just that: one benchmark, and is one that consultants and institutions are besieged by daily. So, how can an investment manager, not focused on the day-to-day realities of the sales and marketing function, effectively anticipate and provide the relevant information, presented in a format that reflects what potential prospects want, need, and/or expect? Simply put, they can’t. This is where 3PM firms become the golden ticket to this fortified gate: we know what consultants and investment committees like to see and hear. Because our business depends upon it, the playbook we use is continually revised and improved, and we employ an ever-evolving group of strategies that will get our investment manager client’s foot in the door.
• Dress rehearsals don’t exist in this industry. Fair or not, managers are given one chance to make a favorable first impression to a consultant or investment committee. With the intensity of the competition, buyers are not looking for a reason to work with you – they are looking for a reason to exclude you. Therefore, the manager must have a professional and comprehensive presentation and sales kit ready before approaching the marketplace. Our experience has taught us that there are rarely any new questions to be asked. And because everyone asks the same ones, asset managers must have all answers prepared, posted to manager’s website, and be current in industry databases.
• Differentiation is not a cliché. It is easy to roll your eyes when some marketer discusses the virtues of differentiating yourself. Dismiss such talk at your own peril. For example, when Arrow Partners started as a 3PM in 1995, there were fewer than 90 small cap value managers. Today, there are more than 230! (Look it up in eVestment). Greater competition is but one small piece of evidence of the increasing maturity of the investment management business. There are countless new investment options and the changing landscape requires managers to be flexible in terms of fees, client servicing and new platform opportunities. It also requires telling your story in a more active, three-dimensional way. Relying on industry finance-speak and jargon does not help your cause one iota.
• Past performance does not guarantee future results. Arrow Partners knows it is facing an uphill battle when a portfolio manager begins a conversation by asking “How much money will you raise in the next 12 months for us?” While we understand where that question is coming from, it reveals the fundamental misunderstanding most managers have about the 3PM industry. It’s akin to a consultant asking a portfolio manager, “What will your portfolio return be for the next 12 months?” It is an unfair question whose answer is dependent upon numerous factors, many of which are beyond their control. A better conversation starts with a manager expressing their growth goals and asking about how our approach helps to meet that goal: how long should it take? What are the key milestones and metrics? What’s our role in the process?”
• Third party marketers are not magicians. Many investment managers with whom we meet have the incorrect impression that our value lies in the clout we hold over investment committees, like some urban boss in 19th century New York. The reality is that consultants and investment committees are independent, objective groups with decision-making procedures we cannot affect. Their response time to an inquiry or meeting is always relative to their own agenda – not ours. The role of a 3PM is to augment or replace a firm’s existing sales and marketing team, then leverage our existing industry knowledge, experience and relationships to help get our clients short-listed or pre-approved with as many consultants and institutions as possible. Our goal is to ensure that if and when institutions decide to make a change; our clients are best positioned to take advantage.
• Responsiveness is relative. Many investment managers give up too easily when faced with an uninterested prospect. Managers should ask themselves: Do I return the call of every vendor with whom I may have a future interest in working? Of course not, and the same goes for institutional buyers. The flow of information from many of these buyers is asymmetric, and timed irregularly. Things don’t always happen in a straight line. The new business effort is rarely linear (people change jobs, they network and sometimes things don’t happen sequentially). Embrace the unpredictability when it occurs. Really. In the end, no one should ever obsess about a prospect that has not returned a call or email. Some consultants and institutions are responsive and some are not; some are open-minded while others are not; some tell you they have a strong preference for boutique firms, others are bias towards global, multi-product firms. Remember that it is a marathon, not a sprint.
• Hope is not a strategy. Show us a manager who believes that because they have good performance numbers, investors will find them, and we’ll show you a firm with underwhelming AUM. Stories of the small manager with great numbers who landed a billion dollar account are just that – stories. People win the lottery every day – that doesn’t make it a viable retirement plan.
• Act with a sense of urgency. If Arrow Partners (or another 3PM firm) has been hired, our assumption is that the investment manager is highly motivated to grow assets, and realizes the current sales effort is not effective. We are highly experienced professionals with a long track record of success, meaning that we view our time as extremely valuable. We will never be content to simply sit around and wait for our client to “get back to us.” (It’s one of the most valuable lessons we learned early in our careers.) And because one of the foundations of our business is to efficiently guide prospects through the new business pipeline, we need our clients to be responsive and to hold up their end of the bargain. If we are not on the same page, it reveals a fundamental and possibly fatal weakness in the relationship. Clients must embrace their role as a full partner in the new sales and marketing effort. Just because it has been outsourced does not mean that it can be “out-of-sight, out-of-mind.”
• Lead, follow, or get out of the way. One area where many investment managers push back the hardest is in the creation of sales and marketing materials. Understandably, they are reluctant to cede control over “their” message and story. Unfortunately, allowing too many chefs into the kitchen is a recipe for mediocrity and will lead to disappointing results. Do we require client input? Absolutely. But when the time comes for final decisions about form and function, one vision and one voice must prevail.
• Where nobody knows your name. Generally (and unfortunately), we have found conferences, symposia, and other industry events to be an inefficient use of our time and money. Typically, the attendees are there to network, so the real decision makers generally avoid these gatherings; and the ones that do attend appear to be unapproachable. If your experience has been better than ours, then consider yourself lucky.
• Don’t hire vendors, hire partners. Don’t ever “settle” when choosing an attorney, accountant, graphic designer or copywriter. The value of good resources pays for itself in years to come, as freelancers and consultants will reward your loyalty to them as well. Arrow Partners considers these partners as highly trusted and valuable contributors to our success.
• The golden rules. Maybe we should have begun with this. Since entering the investment business, we are periodically reminded of the three timeless rules that truly matter in the sales and marketing world. 1) Sooner is better than later, 2) more is better than less, and 3) pick your clients carefully.
And finally…
• To paraphrase Joe Gandolfo. A wise man once observed, “You have two ears and one mouth; therefore you should plan to spend twice as much time listening than you do talking.” That’s wisdom.
Guess it’s time to find that new manager. Back to work…
(c) Arrow Partners
