Managing money and the art of communication


An investment manager’s role is to provide a fair risk adjusted return on their client’s invested capital.

In our experience as investment managers, a fundamental shortcoming we often see is poor ongoing communication between managers and financial advisers.

Financial advisers are the life blood of investment managers everywhere. You manage the ultimate client relationship, filter information, navigate personalities and ensure that any investment meets your client’s needs. Without this relationship, investment distribution would be highly inefficient and investment managers everywhere would be required to cross the divide and provide personal advice.

Given the importance of this symbiotic relationship, one would think that keeping advisers and their clients fully informed would be the cornerstone of all investment managers. Primarily the communication relationship focusses on distribution, that is getting the capital in the first place, but strong communication also needs to extend across the investment lifecycle.

Over the years, we have been complimented by advisers for our open and honest communication. It is policy to tell it how it is – good, bad and indifferent. It is what we would expect from anyone that was managing our money. However, this feedback also got us thinking – how (and what) exactly are others communicating (or not)?

Obviously we are making a generalisation here – there are many investment managers that are brilliant at communication – but the fact is generally communication between investment managers and advisers could be improved.

The investment management sector can at times be guilty of forgetting it is not actually our money. There can also be a conflict between what is best for the business as what is best for building the investor’s wealth. This can a very dangerous position as one can forget why they exist in the first place (that is, to build investor wealth).

Investment managers are stewards or custodians of client’s wealth. It is always their money. Our role as investment managers is to provide a fair risk adjusted return on their invested capital.

We are starting to approach a point in a cycle where investments can be highly value accretive to a business, but only marginally accretive to investors (especially when adjusting for risk). This also occurred back in 2006 and 2007. At such a point in the cycle, raising capital can be quite easy. The real issue is whether you can allocate it wisely. Unfortunately, only time yields this answer and as Warren Buffet so eloquently said “only when the tide goes out do you see who has been swimming naked”.

Everyone is in business to make a profit but when you are in investment management, there can be a fine line between what is best for the business and what is best for advisers and their client. Our guiding light has always been “What decision would we make if we were the investor”?

This brings us back to the communication point. Communication with advisers should be based upon a simple standard – what would you want to know if you were the adviser? Clearly you don’t want to be informed of day to day management, but you expect to hear about matters which go substantially to risk and value (both positive and negative).

Generally speaking, you understand that investing is about risk. You do not expect there to be “blue sky” all the time. But you expect, and rightfully so, to know about things when they are not going to plan. Good managers disclose this and then set out the manner in which they intend to rectify affairs.

Further to this point, it is imperative that investment managers take communication cues from advisers. If you are asking questions it is because you seek information or answers. By way of example a little over 12 months ago we had a number of advisers nervous about an investment position we had on their behalf. Responding to the cues, we called an EGM to vote on either selling out of the position or continuing on with the investment strategy. As manager, we put substantial future earnings at risk. Advisers could have voted to realise the asset and we would walk away with nothing. However after providing detailed information, and giving advisers full control over their clients capital, they voted to retain the investment.

The feedback we received from our advisers was unbelievably positive. They valued the open and honest communication and the fact we deferred to their clients best interests. Whilst we took a large risk in that we could have lost our mandate, by taking this risk, it probably generated a decades worth of goodwill for our business.

During the GFC, poor communication was the undoing of a number of managers. They communicated nothing to advisers, despite the fact they intuitively knew their clients investments were not performing. What resulted was a number of “protest votes” where advisers voted with their feet by either withdrawing their investments or removing the manager. Advisers knew the investments were not performing – every asset class at the time was tanking – but they resented managers not communicating the full picture.

Investment management at its heart should be a simple concept. Act as if the money was your own and communicate the messages you would expect if you were the adviser. Your business might grow a little more slowly than if you only took a strict business focus, but longer term you (and your adviser clients) will be far better off.

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