In times of economic uncertainty and market volatility, investors have a huge appetite for information that could impact their portfolios. Ratings spike for business television, as does readership of financial news sites and newspapers. But for those who have assets under management the greatest hunger is for the perspective of their money manager. This demand to be informed calls for asset management firms to craft substantive communications, well beyond the basic “Hang-in-there-we’ll-ride-through-this” message. Letters or commentaries that make sense of market chaos are critically important to investors because with understanding can come a sense of being able to navigate through uncontrollably rough waters.
Investment firms, though, often fail to deliver communications that satisfy their clientele, according to Chatham Partners which advises asset managers on attracting and retaining clients. The firm’s work shows 70% of asset managers are frustrated with the effectiveness of their external communications. “Many asset managers struggle, from the largest to the smallest, with providing thought leadership communications above standard performance reporting,” said Peter Starr, CEO of Chatham Partners.
In the era of COVID-19, investors want to know what the pandemic means for their asset manager’s approach to putting money to work, and what it could mean for their future returns. Such commentaries need not be overly complex. They should concisely and transparently articulate the manager’s thinking, encompassing big themes on the economy, the profit outlook, and equity valuations; explain performance against an appropriate benchmark; relate it to the firm’s investment strategy and brand identity; and deliver insights that help clients filter out market noise and recognize what is likely to influence performance in the future. Importantly, such communications should be as timely as possible; no client wants to read about last quarter two or three months after the fact. To ensure commentaries are timely, it’s a good practice to send them with frequency. In the current environment, quarterly letters can quickly become stale.
Outstanding communications build client trust and confidence in the asset manager’s financial stewardship and can even compensate for poor investment performance. This is because communication is the foundation of good customer service, which accounts for 40% of client satisfaction, according to Chatham Partners. Clients are happiest when they feel connected with their money manager.
“The art and science of this is for asset management firms to convey proximity to the portfolio manager,” said Starr. “Nothing speaks louder to these clients than the perception of access to the portfolio management team.”
Of course, money managers can’t spend their time providing daily client briefings; their role is to build wealth, hopefully by outperforming the market. So, delivering smart, proactive written communications is the most cost-effective approach to building a strong bond with clients while allowing money managers to do their jobs. Asset managers who fail to regularly share their best thinking with clients do so at their own peril.