Your LP is your customer, that’s important to understand
Every businessperson understands that customers want to know what their buying in a service.
Far fewer recognise that customers increasingly want to know how and why the service they’re buying came to be in the first place. That goes for limited partnerships (LPs) and funds too.
Knowing the difference will likely determine who sinks or swims in the coming years as the economy goes into recession in the wake of the coronavirus, new post-pandemic regulations, and market conditions create burdens that firms can’t easily pass on. This underscored by the ongoing trend of technology and automation replacing humans continues, perhaps with more urgency than before.
Customers want fund managers to do the work for them.
Customers have already become more cost conscious in recent years. Companies want to spend less on enterprise solutions, for instance, unless they can be sure those solutions will address their problems of the moment and ramp-up easily. The pandemic will only hasten the downward pressure as individuals curtail spending in preparation for potential future lockdowns.
In adapting to the new normal, you can only cut costs so far. The better response would be to add value that entices customers to spend more and, hopefully, remain loyal in the future and promote one’s business to others. A growing body of evidence suggests that greater transparency provides the value that convinces customers to do just that.
Traditionally, the financial services sector has been leery of transparency. Fund managers want returns to speak for themselves. Now, however, clients can conduct enormous amounts of research on their own online. And they can hire firms that unabashedly harness the power of artificial intelligence to manage funds. Consequently, customers can shop around and demand far more from fund managers.
Success in the new normal will stem from giving customers what they want: information. Specifically, they want information on how and why fund managers are reaching their conclusions. They want to be privy to more goings on in their fund managers’ decision-making process.
I’m not talking about revealing information that should be confidential. I’m talking about customer engagement using data, specifically customers who have the capacity to be better informed than ever before in human history and have plenty of opportunities to put information to work, sometimes to their detriment if they invest without professional advice.
This engagement requires more than sharing. It requires that managers reach out to customers, identify what they’re curious or confused about, solicit input and respond in a manner that satisfies them and serves their interests. That’s transparency, and it doesn’t necessarily require a lot of overhead.
An analogy with the real estate industry might illustrate the point further. The COVID-19 Resident Sentiment Reports by Kingsley, a leading real estate research and consulting firm owned in turn by property tech startup Grace Hill, and Apartments.com, recently found that residents were more likely to pay rent, renew their leases and recommend their apartment complexes to others amid the coronavirus pandemic if property managers were more transparent.
In property management, transparency meant keeping lines of communication open – giving residents opportunities to make suggestions and air complaints – instituting policies that reflected those comments and training staff to address concerns. Residents who were satisfied with management’s communication during the crisis were more comfortable making maintenance requests, a key driver of whether they remain or go through the hassle of finding a new home.
The same model applies to the financial services community, where some firms are already leading the way.
Investment management firm, Neuberger Berman, launched new online portals this year that gives clients a closer look into their finances between quarterly reports, for example. They include a mobile app, access to more client data and other features. The new tools provide clients with quick and easy information. That’s what they’re used to.
Bigger names are experimenting with other measures. Morgan Stanley is expected to offer a new feature to help financial advisors instantly analyse the impact of breaking new on portfolio holdings. TD Ameritrade is developing a recommendation service for customers based on their goals and past picks. UBS is considering using robo-advisers so clients have answers to questions on a 24/7 basis.
These roll-outs show how customers expect fund managers to understand their needs, respond instantaneously to market changes and explain how and why they’re taking action with shared data that they’re accustomed to trying to analyse themselves online. Customers want fund managers to do the work for them. But they will appreciate their managers more if they know what went into the choices that impact their portfolios. And if they appreciate something, they’ll value it enough to never want to let it go.
