Active, Passive and Factor-Based Investing, Oh My

While not quite as scary as lions and tigers and bears, the many approaches to investment management can seem daunting, particularly when wealth managers are considering what to offer. Throw in the question of proprietary, open architecture or a mix of both, and things really get complicated. And that’s all before we’ve even raised the issues such as the inclusion of alternatives, ESG investing and other more esoteric investment topics. It can be particularly tempting to go for the ice cream parlor approach of offering many flavors in order to be all things to all clients – “you like chocolate, we’ve got that,” “rum raisin, no problem.” Yet, all too often, in the wealth and investment management space, this leads to confusion and a perceived lack of beliefs, not to mention dispersion of portfolios and results.

So what’s a manager to do?

The question that often comes up, as a result, is what approach is right? Not to kick the can down the road, but the answer is, there is no “right” answer. This is a decision each firm must make for itself after thoughtful consideration and one that can be polarizing and sometimes divisive. A small sampling of questions to pose include:

•  In what does your firm, at its core, believe?

•  Can you articulate your philosophy and approach?

•  What is the composition of your current and aspirational client base?

•  Do your beliefs and desired approach align with client needs (if not, either your beliefs or your client base may not adapt)?

•  Is that belief consistent with how you have been managing money; if not, why?

•  Is everyone at the firm in agreement with the direction being taken?

•  Do you have the resources to continue (or to implement) the approach in which you believe?

•  If you don’t, what would it take to enable you to do so?

To the decisive go the $$$

While the exercise may be painful, our experience has shown us that those who can be definitive in their message and their actions are more successful in attracting and retaining clients. Clearly setting, communicating and meeting (or exceeding) expectations in terms of money management results in acquiring clients that are a good fit for your firm and minimizes the potential for unpleasant surprises down the road.