How to increase sales and protect AUM with better commentary…...and save up to 25% on your budget

How to increase sales and protect AUM with better commentaryTo state the obvious, asset management firms have only one business imperative: cultivating assets under management (AUM). Through retention and sales efforts, the ways in which these firms communicate with clients are at the core of their business.

Yet oddly, the most regular form of communications asset managers direct to clients is often perceived as little more than a regulatory burden. In fact, effective fund reporting offers a range of clear benefits, including:

Brand reputation: at a basic level, accurate and well-written client reports ensure your company is seen as professional. A greater commitment of time and effort can elevate your brand and position it distinctively.

The chance to connect: a report may be the only communication a client gets from you each year.

Being front of mind: regular communication from you and your fund managers supports brand awareness – a useful tool when it comes to an adviser recommending your fund instead of a rival’s.

Competitive position: some companies treat client reporting as a cost of doing business. Others consider reporting a vital part of their marketing communications and a way of differentiating themselves from their peers.

Indeed, by providing such a regular channel for communication, fund commentaries can play a crucial role both in the retention of existing clients AND the acquisition of new ones.

Client retention: when markets are going up, the performance figures are all that matters. But when times are tough, a manager’s soothing words can be the difference between keeping and losing a client (“Why did the S&P fall 5% in quarter two, and should I sell out?”). And academic research like this piece from the Harvard Business Review proves that the cost of acquiring new clients can be as much as 25 times higher than the cost of retention.

Client acquisition: we see many examples of our asset management clients’ sales teams using fund factsheets and reports as their primary sales tools with advisers and fund selectors – over and above the glossy brochures produced by marketing departments. Advisers see fund commentary as their way into the mind of the manager – giving a feel for the thinking that powers performance.

Despite the critical role fund commentaries play in the growth of your business, they may also be the one thing you’re getting wrong. Let us explain further.

Over the month, the fund topped up its position in consumer goods giant BigBob. Following a two-year review process the company launched its cost-cutting initiative, which includes an asset-disposal programme. With a strong management team in place and a dominant market share, the company is likely to improve profitability. Amid the continued cyclical recovery, and in light of its strong track record of dividend growth, we believe the company is set to provide strong returns.

STRATEGY A

Over the month, the fund topped up its position in technology giant BigWiz. Following a two-year review process the company launched its cost-cutting initiative, which includes an asset-disposal programme. With a strong management team in place and a dominant market share, the company is likely to improve profitability. The company benefits from a strong cash position and, within the booming Asian tech market, it has been securing double-digit growth rates.

STRATEGY B

For discretionary investors, the investment philosophy and process are pivotal. As asset management and distribution analytics firm Cerulli Associates says,

“[Clients] want tenacity and transparency from fund managers, visibility even when times are tough, and high-calibre and very timely reporting of key data… they did not even rate fund performance very highly. Their number one selection criterion is investment philosophy, followed by transparency.”

When meeting with fund selectors, asset managers are quizzed on their alpha edge: the particular anomaly in the market they seek to exploit to derive excess returns. Clients want to understand the process through which fund managers seek suitable investment targets, and are looking at the fund’s holdings to evidence the philosophy, process and style. Sophisticated investors understand that no strategy wins all the time, and they want to be informed about the market conditions in which a given strategy is expected to outperform.

Yet even after a successful pitch, many discretionary investors will not rush to suggest a new fund to their investment committee. Instead, they express an interest in following the fund for some time, requesting to be sent – you’ve guessed it – regular fund commentary.

Consider the contrast: on the one hand, a fund’s pitch book, which has been worked on for months, carefully tweaked and updated. On the other, the commentary, often perceived by the fund manager as little more than a time sink.

Explaining an investment philosophy and style to clients is about creating a narrative. When trying to drum up inflows, it makes perfect sense to carry that story into fund reporting. By keeping this in mind, a smarter commentary writer can embed a fund’s strategy into each of the commentary sections. Below is an example, using the following two equity income strategies:

Strategy A is a Dividend Aristocrats Fund, investing in stocks that have increased dividends every year for at least 25 consecutive years. Note that this strategy will be heavily underweight the technology sector because most successful tech companies don’t meet this criterion. For Strategy B, let’s pick a Dividend Growth Fund, which invests in companies likely to grow their dividends. In our current environment, where tech companies are flush with cash, this fund is likely to be overweight the tech sector.

With this in mind, here’s what a sales-oriented ACTIVITY section of the commentaries could look like. As you can see, a smarter approach that tailors the content toward each strategy’s style gives the investor a better sense of what the fund manager is trying to achieve for them.

Poor fund commentaries can stifle inflows

Every strategy is bound to hit a patch of weak performance. And discretionary clients are happy to maintain faith in a strategy, provided asset managers can demonstrate they are sticking to a rigorous investment process – one that is likely to bear fruit when the market turns again.

However, retaining clients through a stretch of underperformance is by no means guaranteed. In a fiercely competitive market, defending AUM within a lagging portfolio requires the provision of sustained support to clients.

One straightforward way to do this in commentary writing is by avoiding extreme language. This is because terms such as: “the fund significantly outpaced the benchmark” and “security selection detracted heavily from relative performance” may inadvertently lead clients to perceive a fund as being more volatile than it really is. Plus, it could also lead to an unpleasant conversation with the compliance group.

A subtler way to reassure investors is by referring to the strategy within the PERFORMANCE section. Returning to our earlier example, let’s say prices of tech stocks have been rising; assume Strategy A (Dividend Aristocrats), which is underweight tech, is suffering. Rather than duly reporting bad performance, the fund’s commentary could say:

“Detraction was driven by our relative underweight to technology, as asset prices in the sector continued to inflate. Our research suggests that, with multiples-based valuations nearing historical highs, the sector is headed for a correction. Consequently, we maintain our conviction in companies that have successfully demonstrated consistent dividend growth in fluctuating market conditions.”

Poor fund commentaries can accelerate outflowsAt the very least, this text emanates confidence. Having read it, your client may also glance at their tech holdings and wonder whether smart money should be running elsewhere.

Writing commentaries this way is NEVER about misrepresenting a fund’s performance. If anything, it offers BETTER SERVICE to clients, because it provides important context for the fund manager’s thinking. This demonstrates a commitment not only to the process, but also reinforces the manager’s commitment to transparency and the client’s right to remain informed.

Of course, big asset management firms commonly house dozens of strategies, most of which are either star funds (unlikely to be at risk of outflows) or are low on the sales team’s focus list. Commentary for those may not need to go into such detail every time (it takes a little longer to produce, and therefore costs more).

But for strategies that benefit from an attractive story OR ones at particular risk of outflows, commentaries are a pivotal marketing tool. In such an aggressively competitive market, neglecting to ensure they communicate the right message can end up costing more than you bargained for.

One solution could save you 25% on your commentary budgetOn average, Copylab’s fund commentary programmes save asset managers between 15% and 25% on their commentary budget. What’s the real cost of your investment writers? How do their day rates stack up against ours?

What’s Your Employee’s Day Rate?Outsourced investment writing services such as Copylab’s tend to work from day rates. For some marketing directors, these may seem high. But how much does a salaried investment writer actually cost? Let’s crunch some numbers.

According to recruiters Morgan McKinley, the base annual salary of a senior (10 years plus) investment writer working in London is approximately £80,000, with some senior individuals exceeding £100,000.

But, of course, there are a number of other costs that companies incur when they take on a full-time employee – costs they do not face when they choose an outsourced solution.

Bonus: although it varies between firms, on-staff employees typically receive a 20% bonus.

Pension contributions: research from Deloitte shows that FTSE 100 employer contributions into defined contribution pension plans average 9.9% of basic salary.

Ancillary benefits: financial services employees tend to benefit from a number of additional benefits, such as employer-funded charity days, private medical insurance, life insurance and other valuable items.

Holidays: staff holidays total approximately 30 days per year.

Sick pay: the ONS found the average number of sick days in the UK is four per year.

Office costs: office space, support systems, IT hardware and software, IT servicing, other supplies & equipment, general & administrative services, cleaning, security, etc. have a cost (let’s assume it’s 5% of base salary for the sake of argument).

Employment costs: agency fees of typically 25% of year-one salary upfront make recruiting expensive. Redundancy costs can also be high for long-serving employees.

We estimate the total cost of an £80,000 a year investment writer equates to a rate of £530 per business day and sometimes a lot more. Our day rates are designed to save you money.

The Copylab Model“After staff compensation, marketing and distribution is the single-largest cost category in most fund managers’ profit and loss accounts. Outsourcers can release onshore staff time that is currently devoted to repetitive tasks and use this time to focus on identifying specific factors that will make the firm’s products a compelling solution for each prospective client.” – Amba Research

At Copylab, we handle hundreds of reports every month for our 60-plus asset management clients around the world, which include BlackRock, Columbia Threadneedle, BNY Mellon Asset Management, Aviva Investors, HSBC Global Asset Management and many more. We support them with their fund commentary requirements in different ways, freeing them to focus on their core competencies while simultaneously creating cost efficiencies.

40%

60%

80%

20%

Current model With outsourcing support

Almost 2x more time

Management meetings, idea generation, deeper analysis

Screening, background research, first cut analysis, modelling*

*Outsourcing support

Doubled flow of quality ideas

Depth of evaluation improved

Accelerated pace of conveying broad themes into actionable ideas

VALUE OF OUTSOURCING

Source: Houston, Andrew, CFA. “Outsourcing as a Profitability Driver in the Asset Management Industry.” Amba Research, Oct. 2009. Web. 20 July 2017. <http://docplayer.net/14975343-Outsourcing-as-a-profitability-driver-in-the-asset-management-industry.html>.

1. Access to an expert, multi-skilled team. It’s hard to find writers who can do it all. Copylab gives you access to a large pool of experienced investment writers – more than 60 globally – with a range of skills. Our writing team includes former portfolio managers, CFAs, MBAs, etc., all of whom are subjected to a rigorous screening process. All understand the language of investments, so you always have the perfect, expert writer for your task.

2. Experienced writing for all types of mediums and channels. You have access to: marketing-communications writing specialists; advertising and web/digital specialists; those with experience in institutional, wholesale and retail channels – just to name a few.

3. A global team. With writing staff in the UK, Europe, North America and Asia, we can ‘globalise’ your communication activities and harness all content produced across your business.

4. The right writer at the right cost. You pay less for editing and fund reporting than you do for deeper white papers and creative marketing communications.

5. Backup for holidays and sick days. We assign at least one backup writer to each client to ensure uninterrupted support.

6. Turn the dial up and down. Workloads for an investment writing team vary greatly, especially at quarter end and year end. Outsourcing means you can match your resources more effectively to your writing needs by leaning on us more at busy times.

7. It’s simple and transparent. With no extra costs for recruitment, health insurance, training, holidays, sick days, redundancy or people management, the value of our service is unparalleled.

8. We’re flexible. Whether onsite or offsite, for a big project or short contract, a fund reporting machine or an editorial expert, we give you immediate responsiveness and scalability.

9. Single point of contact. No need to spend half the day seeking a freelancer to take on that extra project just dumped on your desk. We give you a single contact – an investment writer, not an account manager – who coordinates your entire outsourced solution.

Beyond cost efficiency and time saving, Copylab’s outsourced investment writing solution also provides you several key benefits, including:

Contact UsAsk us to audit your commentary programme and find out how much we could save you. Contact Stuart or Ross today to find out more.

Glasgow

Ross Hunter Founder & CEOt: +44 (0) 7764 984374e: ross.hunter@copylab.co.ukStudio 102 South Block60-64 Osborne StreetGlasgow, G1 5QH

London

Stuart Grant Commercial Director t: +44 (0) 7979 590797e: stuart@copylab.co.ukScotland House58 Victoria EmbankmentLondon, EC4Y 0DS