Unfolding the Investor Mindset from SakicScarfe

Beware the stories in our heads

Tyler Cowen at TED X Mid-Atlantic: Be suspicious of storiesLong time, no write. Sorry folks… busy marketing season & lots of changes going on in the business.

Today’s post is about stories. Marketing is all about stories, or at least narrative. When done well, we organize the truth into a meaningful and impactful narrative… when done without integrity – or we’re not in touch with our value – we don’t really start with the truth… and that’s when marketing gives itself a bad name.

But today’s post is about the stories we have about ourselves. Ironically, it’s the topic we know best: no one thinks about you as much as you do. But it’s also the topic we have the least chance of being objective about. So, two very simple, very human links for you today:
Marketer Donald Miller: http://storylineblog.com/2013/11/11/the-story-youre-believing-is-a-lie/
and economist Tyler Cowen weaves an excellent cautionary TED Talk:

Has this got anything to do with investment marketing? Heck, yeah.
Do you think being a portfolio manager/stock picker is a psychologically easy vocation? No, PMs both have to both believe and let-go of stories about the economy, the market, and individual securities, almost daily. But more importantly, when they’re in a rut, they need to be accountable and objective about why without developing stories about themselves. Can’t be easy. Makes me glad I’m only in marketing 😉

Investing is the least engaging major activity in your clients’ lives

As a marketing guy, we’re usually trying to make an emotional connection. The common wisdom about investing, of course, is that one should leave their emotions at the door. And although we often see evidence that people react emotionally with their investments, we’ve perhaps lost perspective on the backdrop of disengagement most people have towards their investments. A recent Schwab-commissioned study revealed just how uninterested even well-to-do investors are, compared to the other major activities in their life. We research our car purchases, our healthcare decisions, our kids’ schools, our vacations way more than we research our investments. And for all the noise about fees, most investors seem quite disinterested. Have a look, it’s eye-opening: http://bit.ly/13BVQBA

Crowdsourcing has come to the investment world

I have to admit it, I’ve got a soft spot for First Asset’s newest ETF: the DEX 1-5 year Laddered Government Strip Bond ETF (ain’t that a mouthful). To be honest, I haven’t slightest interest in it from a financial point of view, but I’m fascinated by how it came to be: a public, crowdsourced contest for dreaming up the company’s next ETF.  Yes, crowdsourcing has come to the investment world.

It was a contest for Canadian advisors – submit 50 words pitching an idea for an ETF not yet available. @Justin_Bender won (he’s not the baby-faced advisor with the hair, is he? Oh wait, I’m thinking of Justin Bieber). $10k prize to a charity of the winner’s choice. $5k each – to charity – for second & third prizes. Nice. And pretty cheap to get advisors to express what they need (they could have gone further with an American Idol voting system). The First Asset PMs got the final say, after being ‘screened against viability criteria’ (with the costs of launching a fund, I’d have done a little market research, too… maybe they did).

crowdsource flashmobSo, was it gimmicky? Maybe a little. I wouldn’t want to be the second or third company to try it – that would be gimmicky.

More importantly, fund product development isn’t exactly done right most of the time anyhow. At least from a marketing point-of-view. The industry is generally behind the times (compared to automotive or other major consumer purchases) in building the marketing in to new products right at the drawing board. The crowdsource approach might be a bit far in the opposite direction, but it’s a welcome change.

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Women and financial advisors: Listen!

Great article on the shifting gender tides in wealth management, and the industry’s struggle to keep up: http://bit.ly/10g3IbV

  • women need more education and validation than men to make financial decisions
  • women can easily detect whether an advisor is really listening to them
  • women aren’t as open (thank god!) to the usual advisor-coaching strategy of trying to completely squash emotion
  • at least two-thirds of the nation’s wealth will be in the hands of women by 2030
  • an increasingly significant portion of generational wealth transfer now goes to daughters
  • women who had never worked outside the home preferred male advisors over women
  • More than 90% of working women said they wanted to work with a fiduciary, yet they were least likely to actually use a fiduciary

You is Kind, You is smart, You is High Net Worth

As we think about marketing opportunities in the investor world, this is a pretty big – and largely overlooked – one: http://reut.rs/14XHKXo

Take aways: $30 trillion in the next 30 years will be passed from one generation to the next. And advisors usually lose half as money flows from one generation to the next. That’s a lot of assets-under-management (AUM) on the table.

From a marketing point of view, those assets are tied to four of the five most important, universal emotional motivators: family, money, health and safety (the fifth is community).

Asset InheritanceSo how can your business engage the inheritance opportunity?
One thing the Reuters article didn’t cover: embrace change. The next generation will want to put their thumbprint on the portfolio pretty quickly in most cases. “Stay the course” may need to be a theme, but it should be a secondary one at most.

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Can ETF flows serve as a weather vane?

The best advisors and fund companies try to read two distinct (and often contradictory) “winds,” judging where their investing business is going.

The first is the technical side of investing, the one every financial news outlet spends every moment of every trading day dissecting. What sectors, stocks, instruments are heading towards outperformance? or underperformance? How can I actually maximize returns, minimize risk, etc.?

Are ETF flows a weather vane?The second wind is the un-technical side of investor (client) sentiment. While individual investors may act deliberately and with intelligence, taken en masse, as we know, behaviours trail behind technical reality, and the timing is wrong more often than right. But if clients – today, for example – are willing to overpay for safety, or will blindly chase the almighty dividend, the industry needs to have their fingers on the pulse of those trends. Some will simply “sell them what they want”, but others will use the knowledge to coach, to shift, to educate, to re-adjust offerings, etc.

If you’re a sailor – or an investment analyst of any kind – you know the ‘window’ is important. Fixating on each random gust may not be of much importance or even cause the novice sailor confusion; but taken together, over time, the astute sailor notices the wind direction is changing. As many in the investment business will tell you, watching CNBC or BNN all day – getting caught up in their “micro-focus” – can actually hurt your ability to see the bigger trends, both on the technical side of investing, and especially, on the client-sentiment side.

So in reading about the ETF flows for Q1, I can’t help but wonder if ETF flows might arise as a new middle-ground bellwether, a helpful window for getting an insight into the two winds. Less noisy and to-the-minute than analyzing raw equity trading; but a bit ahead of the mutual fund-flows (usually lagging behind due to the extra friction of commissions, load-structures, and the reflective nature of the advisor-client relationship). I’d love to see a “big data” analyst break down the relationship & time lags (if any) between ETF flows and mutual fund flows. Please let me know if you become aware of any such research.

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The most important pattern investors need to watch for

Carl Richards is someone I admire – someone who has brought wise behavioural coaching to individual investors under the guise of money management. His latest article in the New York Times belittles technical indicators a little too much for my liking, but his core point is spot on:

Oddly enough, the only pattern that will influence your investing success is your behavior

Interestingly, Vanguard is heavily pushing the idea that the (new) role of the advisor should really be coaching the client… look for more on that touchy topic in a future post.

SPDR ETFs: branding with stock symbols can’t be good in the long run

Way back before ETFs were cool, State Street launched the definitive S&P 500 Index-based ETF, which they named the SPDR S&P 500, from Standard & Poor’s Depositary Receipts. Unless you’re a trader (even if?), you probably didn’t know where the SPDR acronym came from. More importantly, if you are a trader, you have no trouble remembering the name, because everybody talked about trading the spiders. Within the trading world, it had a kind of clever caché, a memorable code-name. For those not in the trading world, the best analogue is a radio station that managed to grab catchy call letters. If you’re old enough to have watched a lot of WKRP in Cincinnati reruns, you may recall that the radio station’s sad mascot was a Carp (a fairly boring fish), the best they could do with W-KRP. Are SPiDeRs much better?  Is the spider an animal-symbol that you’d want representing your brand?

More questionable, perhaps, was the decision to build on the idea; presumably buoyed on the “household” familiarity of the SPiDeRs, as they released new ETFs, they  shifted the SPDR designation to the ETF brand as whole. Now we have  a family of SPDR ETFs. But there’s the rub: the spiders aren’t really a household name; it’s an industry-insider’s meme, built out of a stock symbol.

I’ve been doing a lot of brand-naming reading & research in the last few months, and the consensus is that acronyms are a pretty dumb idea for a brand name. A little better when they can be turned into a memorable meme or associated with a memorable word, so at least SPDR has got that going for it. Which they’ve augmented by adding a spider to the logo. And it’s hard to criticize the branding of a hugely successful, gazillion dollar business.

But as ETFs go mainstream and SPDRs continue their shift from a trader’s tool to (potentially) something that could be in any investor’s portfolio, I can’t help but wonder if they could do it over, would they change things a little? If I imagine an advisor in conversation with worried clients, is SPDR an easy sell? If they don’t make the connection, the name is four meaningless letters, hard to remember, impossible to feel one-way-or-the-other about; if they do make the connection, a spider is a pretty emotive animal-symbol – consequently, pretty memorable – but the emotions generally aren’t positive or worry-free ones.

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