Alternative asset retail investor communication: how to deliver a killer strategy

alternative asset retail investor communication choices

“My belief is that communication is the best way to create strong relationships.” – Jada Pinkett Smith

The alternative asset management sector is evolving beyond family offices and HNWIs into the realm of the direct retail investor. We consider how a manager should begin to develop an alternative asset retail investor communication strategy.

There are sign that the trend to alternatives is driven in many cases by retail investors’ tactical asset allocation preferences rather than strategic diversification. Such an approach is unlikely to deliver sustainable out-performance to most investors.

However investment managers have the opportunity to engage directly with retail investors when they are willing to share their insight on what can be a daunting subject.

Through educating investors about the diversification benefits, investment opportunities, market risks and liquidity constraints, managers can build direct relationships with investors.

Alternative asset retail fund investors: low correlation returns or picking winners?

alternative asset retail fund investors infrastructure

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” 
– John Bogle

Alternative asset retail fund investors are becoming a more interesting market for the growing universe of managers active in this field.

Family offices have traditionally dominated the market; seeking the less volatile investment returns that portfolio diversification can deliver.

We investigate whether this still small but growing number of retail investors approaches the market in a similar manner.

We ask whether direct retail fund investors are genuinely looking for lower portfolio volatility through exposure to investments with low correlation to major asset classes. Or are they trying to pick winners when they invest in alternative assets?

Delivering the free lunch – four ways fund managers can help investors avoid behavioural finance pitfalls

avoid behavioural finance pitfalls free lunch

“The beauty of diversification is that it’s about as close as you can get to a free lunch in investing.” – Barry Ritholtz

Investor biases lead to poorly diversified portfolios and unwise market timing decisions when investors fail to avoid behavioural finance pitfalls.

This negatively impacts their long-term investment outcomes.

However investment managers who engage with direct retail investors have the opportunity to create value by showing how they can avoid these common mistakes.

Through sharing valuable insight, managers can establish themselves as the direct retail investor’s candid friend. This leaves them well positioned to offer their investment solutions that help investors reach their financial goals.

Ten ways behavioural finance impacts retail investors in Australia

behavioural finance impacts retail investors in Australia

“It is true that from a behavioural economics perspective we are fallible, easily confused, not that smart, and often irrational. We are more like Homer Simpson than Superman. So from this perspective it is rather depressing. But at the same time there is also a silver lining. There are free lunches!” – Dan Ariely

We investigate ten ways in which behavioural finance impacts retail investors due to their irrational biases when making investment decisions.

We take a look at how these factors lead to the establishment of sub-optimal investment portfolios.

We also analyse how this detrimental effect on long-term returns is compounded by frequently poor market timing decisions, based upon irrational factors.

Behavioural finance helps explain why Australian direct retail investors are under-exposed to certain asset classes and worryingly over-exposed to others that offer poor risk-return trade-offs.

How can fund managers market innovative funds?

market innovative funds innovation

Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.” – Steve Jobs

Investment managers are taking advantage of a changing macro economic environment, disillusionment with old investment industry order and new technology in order to market innovative funds.

These opportunities weaken the power of large institutional gatekeepers to act as a brake on disruptive innovation from managers developing new funds.

How can emerging fund managers get their message across?

Australian direct ETF investors – six trends driving growth

Australian direct ETF investors savings
“If the investor doesn’t have enough time and skill to investigate individual stocks or enough money to diversify a portfolio, the right thing to do is to invest in exchange-traded funds that give you exposure to asset classes. It does make sense for the individual investor to think in terms of holding individual asset classes.” – Harry Markowitz

The ETF market in Australia has grown rapidly from a slow start, doubling to some A$21bn over the last two years.

This is largely due to greater interest from retail investors, both advised and especially from self-directed.  

We identify six trends that are driving the growth of Australian direct ETF investors and look at how fund providers should position in order to capitalise on the future growth opportunities.

Investment content topics that grow an engaged audience

investment content topics news tablet“A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.” – Warren Buffett

Fund managers choose investment content topics that frequently fail to resonate with direct investors searching for an investment solution.

Managers only succeed when they are willing and able to address investors’ pain points and help them find their own investment solutions.

Through sharing unique insights they can build brand awareness and establish direct relationships as the engaged investor’s candid friend.

Investment funds content strategy – five paths to success

Investment funds content strategy five paths to success

“Strive not to be a success, but rather to be of value.” Albert Einstein

Asset managers can connect and build valued relationships with direct retail fund clients when they use content to support their business goals. These five steps can help design an investment funds content strategy that delivers engaged investors.

Content should deliver value beyond the core investment product and contribute to a valued customer experience that addresses the investor’s unique pain points.

Fund managers who successfully engage directly with investors enjoy the opportunity to capture a more lucrative share of the investment value chain.

How product differentiation delivers premium fund pricing and sustains margins

premium fund pricing falling price
“Branding is not merely about differentiating products; it is about striking emotional chords with consumers. It is about cultivating identity, attachment and trust to inspire customer loyalty.” – Nirmalaya Kumar

Investors are no longer willing to accept premium fund pricing for commoditised products. This is leading to falling management fees and shrinking margins for many asset managers.

Investment managers should address direct investors’ unique pain points, create value outside of the fund product and deliver a superb customer experience that is not easy to replicate.

Only through such product differentiation can the manager erect a barrier around its business that will sustain premium fund pricing.

First digital steps to direct fund investors

first digital steps to direct fund investors

“Faith is taking the first step even when you don’t see the whole staircase.” – Martin Luther King, Jr.

Boutique investment managers can take their first digital steps to connect with direct retail fund investors at surprisingly low cost using simple tools.

The investment management value chain faces disruption for which many investment managers are poorly positioned.

The retail funds market offers attractive growth, but asset managers have struggled to access this market directly.

However a direct funds strategy based upon engaging a targeted audience over a period of time presents boutique managers with an opportunity to grow funds whilst containing their initial marketing spend.

Direct super plan investors – Can fund managers connect with them?

direct super plan investors connect

“You can be young without money but you can’t be old without it.” – Tennessee Williams

Investment managers have the opportunity to connect with direct super plan investors as the cost and flexibility advantages of SMSF investing diminish.

Many Australian direct investors have established a Self-Managed Super Funds (SMSF) in order to gain more control in the management of their retirement funds.

However more flexible super plans and high SMSF fixed costs that particularly impact smaller funds, often held by younger investors, have called this into question for some SMSF trustees.

Wealth management customer experience – five trends that will decide winners and losers in digital disruption

wealth management customer experience service

“The single most important thing is to make people happy. If you are making people happy, as a side effect, they will be happy to open up their wallets and pay you.” – Derek Sivers, Founder – CD Baby

Disruptive digital opportunities shift the focus from product quality to the wealth management customer experience.

Fund managers and planners traditionally focus on investment product quality and internal industry metrics. However it is the customer experience that drives investor behavioural change, which in turn will determine the success of funds management businesses.

The direct retail investor approaches investing from the perspective of “how can my life be made easier?” Product quality is (a very important) hygiene factor.

Fund managers who wish to succeed in a dis-intermediated digital future should re-align their business strategy from a product focus to a client focus in order to capitalise on five macro-trends that will shape the future of the industry:

Engaging retired investors using digital techniques

engaging retired investors digital
“The question isn’t at what age I retire, it’s at what income.” – George Foreman

Direct investing in equity funds designed for the retiree market raises issues.  How can fund managers build trust when engaging retired investors online?

Direct investors are interested in equity funds that have objectives that align with their own need for income and capital preservation.

In order to build trust and engage with these investors fund managers can take advantage of this investor group’s increasing online presence.

Retired equity investors and objective based funds

retired equity investors objective based funds

“It’s great that you are worth $2 million, but ultimately, it’s your cash flow that will determine your quality of life in retirement, not your net worth.” – Jason R. Parker

Retired equity investors fear the erosion of spending power, permanent capital loss and out-living savings. How can equity fund managers balance these risks?

Direct investors in retirement phase have both an income and capital preservation requirement, but are disinterested in market benchmarks.

Equity funds can play a key role in managing inflation and longevity risks during retirement, but retirees depend upon a reliable dividend income.

Fund managers who wish to develop an enduring and profitable relationship with retired direct investors must share insight and engage with them directly as they progress along their investment journey.

Asset allocation function shifts to managers of multi asset diversification funds

asset allocation process shifts to managers of multi asset diversification funds

“Wide diversification is only required when investors do not understand what they are doing” – Warren Buffett

The asset allocation function is shifting along the value chain from planners to investment managers. Will this shift and the increased use of multi asset diversification funds deliver the investment objectives of direct investors?

Direct investors are searching for solutions that meet their personal investment goals rather than market indices.

However the benchmark-orientation of traditional multi-asset managers has misaligned the asset allocation of funds away from the optimum choice of the outcome-focussed investor, leading to disappointing returns.

Investor pain points or beating the benchmark?

investor pain points“A business that makes nothing but money is a poor business” – Henry Ford

Investment managers should stop chasing benchmarks and start to create solutions that ease investor pain points in order to build a direct funds business.

Funds with good track records, managed by reputable fund managers and supported by substantial marketing resources nonetheless often encounter distribution failure, especially when targeting direct clients.

One reason is simply that often they aren’t well positioned to solve an investor’s problem.

However if a manager can demonstrate that a fund aligns well with a direct client’s investment goals then it can build credibility, connect directly with them and in time develop a profitable relationship.

Alpha or beta investing – what excites the direct retail fund investor?

alpha or beta investing“An investor doesn’t have a prayer of picking a manager that can deliver true alpha” – Eugene Fama, Economics Nobel prize laureate

In order to build a direct funds business it is necessary for an investment manager to understand to what extent its target investors’ are focussing on alpha or beta investing.

Understanding this key issue helps the fund manager to deliver a valuable and relevant content mix to the market segment whose pain points are addressed by the manager’s products.

Fund channel conflict in direct retail sales – and how to manage it

fund-channel-conflict“Brands will increasingly handle their own e-commerce and rely less and less on local distribution partners. Why should they give away their profit margins?” – Natalie Massenet MBE, Founder, Net-a-Porter

Fund channel conflict is often highlighted as a reason why asset management businesses hesitate to take advantage of the opportunity to connect with direct investors.

But how reasonable is the implicit assumption that direct and advised strategies are competing in the same market? And can fund channel conflict be managed so that a fund manager can operate profitable direct and intermediated distribution channels simultaneously?

Investment videos and why they fail to sell funds

investment-videos“Don’t create videos just for the sake of creating them or because everyone else is. They won’t be successful and you’ll only feel frustrated. Instead, develop a strategy, just as you would an integrated marketing strategy.” – Jesse Noyes

Investment videos found on asset managers’ websites usually fail to resonate strongly with their audience and thus to positively influence investor behaviour.

This is largely because they fail to drive an emotional connection to the brand, focussing instead on promoting short-term sales. Therefore an investment manager that wishes to connect with direct investors should design its programme of investment videos in a way that contributes to its content and business goals.

How engaged audience strategy eats product sales tactics

engaged-audience-strategy“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tsu, c500 BC

Investment management businesses are challenged on two fronts; by a gradually shrinking advised market and a growing self-directed market that has so far largely looked to low-cost tracker funds to meet its needs.

Fund managers are failing to reach such investors by capitalising on the digital opportunity that is transforming other sectors.

ETFs in Australia – How can providers engage direct investors?

ETFs in Australia

“I just don’t like mutual funds. I think they’re a rip-off” – Robert Kiyosaki

ETFs in Australia are becoming increasingly popular as retail investors increasingly look to widen their investment universe beyond cash, property and Australian large-cap shares. Many are also focussing more closely on the cost of gaining market exposure.

We analyse direct investors’ use of ETFs in Australia and consider how providers can better connect with SMSF and other direct retail investors in order to deliver ETF solutions.

Fund ratings – Do they play a role with direct investors?

Fund Ratings

“Ratings don’t last. Good journalism does” – Dan Rather

 

Fund ratings businesses in Australia such as Morningstar, Lonsec, Zenith and Mercer have traditionally acted as the gatekeepers of the retail funds business through their relationships with advisor groups.

We investigate what role fund ratings might play in the growing market for direct investors. This is a segment that is more sensitive than advised investors to the costs and conflicts of interests that sometimes accompany intermediaries.

Why are Australian direct retail investors increasing international equities?

ID-100297081 - Diversification“If you are diversified among different forms of wealth, nations and industries, you’ll be safe in the long-run.” – Sir John Templeton

Australian investors have traditionally focussed on domestic assets, especially blue chip equities, residential property and term deposits.

Exposure to global equities is very low, around 1% of SMSF assets. However this level is now trending upwards as more Australian retail investors are willing to explore investment opportunities offshore.

What is driving this shift?
 

Direct retail investor time horizons – longer than others?

ID-10023216 - HorizonOnly buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

– Warren Buffet

This quote by the famous investor may be seen as a rejection of the increasingly short-term thinking of the investment management industry. Should the investor be concerned about such thinking and does this create an opportunity for those investment managers that are seeking to access the direct retail funds market?

How can fund managers benefit from the shift to customised investment strategies?

ID-100192805 3D Growing Business Graph

Investors are increasingly switching their focus from seeking to maximise their accumulation of investment assets to ensuring that they can meet a future financial liability. This most frequently targets a retirement income, but may also be a house purchase, child’s education or charitable donation. Developing a customised solution to a client’s unique cash-flow liability requires a different approach to investing. How should investment managers adapt to take advantage of this growing trend?

Will mFunds help disrupt the Australian Retail Funds Market?

ID-10032681 - Global SharesThe mFunds platform offers Australian retail investors an opportunity to invest in a wide range of managed funds without the cost and hassle of engaging with the banking platforms.
Simultaneously, fund managers see an opportunity to develop a direct funds business.
Exactly 12 months after launch we review the development of this new market.

Fund Inflows, Equity Valuations and Global Growth

ID-10015913 - $ on GlobeAustralian investors are increasingly focussing their attention on global equity markets as their search for return steers them away from domestic shares held back by a slowing economy, elevated property valuations and depressed cash and bond yields.
Global equities have out-performed Australian equities in recent times due to superior growth prospects and the falling AUD. Leaving aside the currency issue we will consider whether global growth is likely to support future equity returns and attract in-flows to global equity funds.

Part 4 of 4: How Can Fund Managers Develop a Direct SMSF Distribution Strategy?

ID-100129052 - Target MarketInvestment management businesses that wish to access direct investors can now use new media techniques to create an engaged audience. How can fund managers deliver high quality, relevant and targeted content that guides a defined investor segment through the different stages of the buyer journey?

This is the fourth and final blog in a mini-series that takes a very high-level look at how investment management businesses can think about the SMSF market in new ways to overcome the historic difficulties of entering the market directly.

Part 3 of 4: How Can Fund Managers Communicate with Direct SMSF Investors?

ID-100123059 Green Arrow Over WallVertically integrated planning groups have traditionally closely controlled access to the SMSF market. How can an investment manager with a compelling market proposition build relationships with direct investors and avoid being relegated to a commoditised supplier?
This is the third of a four-part mini-series of blogs that looks at how investment management businesses can apply new thinking to the traditionally hard-to-access SMSF market.

Part 1 of 4: Is there now an opportunity for investment managers in Australia to access SMSF clients directly?

access smsf clients directlyFund Managers in Australia and overseas are intrigued by its Self-Managed Super Fund (SMSF) market. Over a million trustees invest in 530,000 SMSF funds, managing in excess of A$550bn of investment assets.
This pool of assets is huge and will grow at a rate in excess of Australian GDP for many years to come.
Those fund managers who establish a market share to access SMSF clients directly and do no more than maintain it are creating a growth business that will enhance their corporate valuations.