In the baseball world, there’s a long-standing argument over whether singles hitters with high batting averages are more valuable in delivering runs (and thus wins) than hitters with low batting averages who hit 30 or more home runs per year.
It’s a debate that has pitted old guard managers and scouts against the new wave of quantitative baseball analysts featured most prominently in the 2011 film Moneyball.
This same kind of debate often occurs among boutique asset managers when their sales teams are trying to decide which client segments offer the best potential Asset Win Percentage, or AWP.
Too often, these firms try to increase AWP by being home run hitters, focusing all of their time (and expenses) on landing a single $100 million mandate from an institutional consultant. But there are also advantages in gaining AWP by generating the same $100 million in smaller accounts from a large number of independent registered investment advisers and wealth managers.
While asset managers should be open to using both sales approaches to increase AWP, it’s worth considering the potential pros and cons of targeting these very different market segments.
Institutional Engagements: Big Hits, More Work
Few things are most satisfying to a salesperson than landing a nine-figure mandate with a pension fund or endowment. But these wins require a huge amount of prep work and patience.
Getting on Consultants’ Rosters
Most larger pension funds and endowments use institutional consultants to vet and recommend investment options. And each consultant has their own due diligence processes, requiring you to potentially repackage and present your information differently for each consultant and institutional client you’re trying to woo.
Should you get in the door, you’ll need to follow the consultant’s rules of engagement when making your sales pitches. You may need to bring your key investment managers to one or more rounds of presentations. And even if you make it to the final round, you may not know who your opponents are or whether your firm is even a legitimate contender. You may be there just to prove that the consultant and the client have gone through their required due diligence motions.
Staying on Top Isn’t Easy
If you win the mandate, you’ll be fighting an ongoing battle not to lose it. You’ll need to deliver stellar returns every quarter. Your client and the consultant will expect white glove client service and attention from you and your investment team. And even if you’re scrupulously dotting the i’s and crossing the t’s you still may be dropped from the lineup for reasons other than performance, such as changes in the client’s investment committee or revisions of their investment policy statements that put your strategy out of favor.
Adding Independent Advisors to Your Game Plan
Should these challenges discourage you from targeting institutions? Of course not.
But rather than devote 100% of your efforts to big ticket institutional sales plays, consider devoting some of your AWP efforts to gaining smaller inflows from independent advisers. Here’s why.
More Open to Winning Ideas
In this era where passive investing and robo-advisors are forcing investment advisers to demonstrate where they add value, many are looking for different actively managed investment options for their clients. If your strategies have a strong track record, particularly in specialized asset classes, advisers will be more willing to listen to your story.
More Away Time, But Fewer Travelers
Meeting with many advisory firms may require more travel than pitching to the much smaller number of institutional consultants. On the other hand, you generally won’t need to bring your investment team with you. Most independent firms are receptive to using conference calls or Skype to speak directly to your investment team.
A Receptive Audience
Most advisers, particularly those in smaller firms, don’t want to waste time interviewing asset managers they’re unlikely to use. And they’re sensitive to wasting your time as well. While you still will need to be working your sales and marketing “A game,” you’ll at least be presenting to a more receptive audience.
And most advisers won’t keep you hanging once you’ve made your pitch. They’ll let you know pretty quickly whether they want to add your firm to their investment lineups or not.
Build Your Fanbase with Two Options
You can make advisers’ lives easier by offering your strategies as mutual funds and separately managed accounts. Instead of leading with your mutual funds, emphasize why your fund is important now, your strategy and process and performance. If interested, the advisor can buy it however he wants.
During these challenging times you’ll earn extra favor with advisers by proactively communicating the reasons for these results in ways they can explain to their clients.
Building Brand Equity
The most intangible benefit of selling to independent firms is the brand equity you’ll build. As advisers start using your funds or strategies with their clients, it will build awareness and favorability for your firm, which will only increase if your strategies continue to deliver winning results. Over time, advisers and investors may become your brand ambassadors. And who knows-some of them may be members of one or more institutional investment committees, which could eventually give you an “in” to pitch larger mandates.
A Matter of Balance
Unless your firm is a household name among institutional investors and consultants, you probably can’t afford to focus all of your sales efforts on hitting home runs in this market. That’s why it makes sense to also target independent RIAs. Because while the big victories will always be the most satisfying, employing a diversified mix of sales pitches is the best way to increase your AWP and boost your winning brand.
Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs. Click to read Dan’s latest Insight articles and to schedule a complimentary consultation.