Culture: a key determinant of good client outcomes

by: Paul Bosman

Date: Mar 20, 2020

Slow and steady wins the race. —The Tortoise, The Tortoise and the Hare

 

Asset managers have much to learn from our friend the Tortoise. While it is tempting to aspire to the speed and flair of the Hare, when it comes to investing, slow and thorough is the surest route to a successful finish. To get you over the line, this thinking needs to be embedded in your culture and should permeate all levels of your business.

 

Get – and keep – the right team in place

Being slow and thorough starts with your hiring process. It means taking the time to make sure you appoint the right people, and holding out if you don’t find the perfect fit straight away. It also means more than a CV check – and it certainly doesn’t mean appointing anyone simply because you believe they can bring in assets.

 

How do you know that the team consists of the right people?

  • Team members should have compassion. Compassionate people will care about colleagues and clients.
  • You need individuals who can think independently. Differently. The right environment can develop this ability, but it also needs to be part of an individual’s DNA. The probabilities of making the right investment decisions increase exponentially if you challenge your ideas from multiple angles – because the free market eventually will.
  • The individuals shouldn’t nurture fragile egos. This means that they care more about arriving at the right answer, and less about who came up with it..

 

Take the time to make the best possible decisions

While investment team members must subscribe to the same investment philosophy, they should have the freedom to look at investment opportunities from different perspectives. This may make the research process longer, but it also makes it more robust. No team member should be allowed to act impulsively, and team-based deliberations should always weigh more than individual decision-making. In fact, investment teams should strongly agree on which dragon to slay, and then strongly disagree on the best angle of attack. This will result in an isolated and surrounded dragon.

 

Of course, regular rigorous debate could put strain on relationships. To keep the team together for the long haul, there should be a shared desire to put clients’ success ahead of their own. Furthermore, employees should align their interest with clients by investing in the same products on the same terms as their clients.

 

Configure and manage the business to favour clients 

Setting up and running your business for the benefit of clients requires discipline, frequent deliberations and ongoing vigilance. This may make operations more time intensive but will also make them more beneficial for investors.

 

Employees need to have the final say on business decisions and shareholders need to be patient. There are many incentives in businesses that could be at conflict with consistently putting clients first. These include considerations like time spent on existing clients versus finding new clients, adding expenses to the benefit of clients (like investment in the client experience and research capacity), the ability to have portfolios that look different to peers, the number of products you offer and at which product fees. To be the best custodians of clients’ money, the investment and operational teams (combined) should control these decisions.

 

How do you make sure you are always putting the client first?

A good test is to imagine a client and a shareholder sitting in every meeting. If the shareholder has a slight frown and the client a slight smile you’re probably on the right track. The irony is that in the long term, smiling clients make for smiling shareholders.

 

Knowing what to do is not hard; doing it is hard – especially when it takes longer and requires more effort than other available courses of action. That is what culture is all about.

 

About the Author

 

Paul Bosman

Investment Analyst And Portfolio Manager, Granate Asset Management

 

Paul joined Granate Asset Management in July 2019 as an Executive Director and Investment Professional. Prior to this he was a portfolio manager at PSG Asset Management, where he was responsible for the PSG Stable and PSG Balanced Funds. Before being appointed portfolio manager, he served as an equity analyst in various subsidiaries of the PSG Group.