Do you suffer from (said in a whisper) jargonitis?

Let’s be honest. We’ve all fallen prey from time to time, present writer not excluded, to jargonitis (or its sister malady acronymbia). After all, who doesn’t love a good term that no one but industry insiders really understand? Adding alpha, bottom up, top down, smart beta, SMA, UMA, you name it, it all sounds impressive. At least when we’re talking to each other.

You lost me at factor-based investing

But we need to remember our audience may not find these terms quite so fascinating….or easily understood. It’s all too easy to forget that we are trying to communicate what may be very complex thoughts to individuals for whom this isn’t their daily lives. Plus, is that what people really care about when they talk to their wealth advisor? Well, yes, of course, they want to know their wealth advisor has knowledge, expertise and a defined approach, philosophy and way of managing money. But they also really want to know their advisor is listening to them, understands their concerns and goals and can help address them appropriately and successfully.

Small, simple words only?

Of course, there’s the other approach to communication which can be equally annoying; when you assume your reader knows nothing and develop content that carries the implied “don’t worry about these very complex and sophisticated concepts, we know you won’t understand them and we’ll take care of everything for you.” No one wants to feel patronized and talk down to, especially intelligent individuals and families that have been extremely successful in their chosen fields.

Balancing act

It can be a challenge when communicating with prospects and clients. Striking a tone somewhere between “we’re all rocket scientists” and “we all know nothing” can be an elusive endeavor. A certain amount of educative content is helpful and value-added, a full-blown lecture, not so much.

Differentiation and Survival


We’re often called on by our investment advisory clients to help them select the TAMP best suited to improve their operational efficiency and grow their businesses. These search and due diligence exercises invariably included two names, FolioDynamix and Envestnet. For firms primarily focused on model management in an open architecture format, these two have been the dominant players for the last several years and have each grown to offer among the most comprehensive and advisor friendly service packages.

The challenge for the market and for these players was not their adequacy as capable platforms. Each had minor advantages and disadvantages relative to the other, but overall either were adequate in serving the needs of their target markets. Rather, the challenge was their inability to clearly differentiate themselves from each other or to effectively increase their penetration of the other’s core market. While Envestnet had greater scale by some measures, there was no clear leader in technology, service breadth or pricing.

Now the competitive battle is over. Envestnet has purchased FolioDynamix, marking a significant consolidation in the TAMP marketplace. TAMP clients and prospects are not likely to be negatively impacted. FolioDynamix clients will be able to avail themselves of the added services of Envestnet, including potentially easier transition for brokers to fee-based advisors. Envestnet clients should see little change. New TAMP clients will have one higher quality provider rather than two similar ones from which to select. Differentiation is a key to survival. Without a clear and distinctive value proposition, scale will typically win.


How high can you go?

Image from

Last week, Apple unveiled the latest and greatest in its lineup of iPhones, Apple Watches and Apple TV. By far, the lion’s share of publicity has been garnered by the two new iPhones coming out, the iPhone 8 and the X. For anyone who has been able to ignore the constant bombardment of news, reviews and critiques that have been spewing forth, version 8 is being positioned as an enhanced, upgraded version of the “traditional” iPhone, while with the X, we, to quote the Apple site, “Say hello to the future.” Along with saying hello to the future, we also say hello to the $999 cell phone.

There has been no shortage of outrage, debate and judgment concerning the pros/cons/ridiculousness of paying $1,000 for a phone (no one being fooled in this case by the psychology of pricing just below the even dollar). But ultimately, consumer wallets will attest to the success or failure of the X. It is too soon to make a definitive statement on the X, since it will not be available for pre-order until October 27. And, of course, there is always the “gotta have” the latest gadget crowd. However, early indications are that, even beyond the core gadget group, those that feel they can afford too may be passing on the “humdrum” 8, with pricing slightly above that of previous iPhones, in favor of the X. This may be partially the result of an accidental (but it’s Apple, so it’s hard to believe anything is being done accidentally) or intentional positioning strategy.

If it were a simple choice between keeping one’s old phone and spending several hundred dollars more for the X, the jump would likely seem even more significant and perhaps off-putting when it comes to the purchase decision. By inserting an interim product with an interim price, it softened the leap to the more expensive phone by leading to the question “Do I want to pay more for a similar product or pay more, even if it’s a significant amount more, for something that seems really different?” It appears the answer may be that people will pay a lot more for something new and exciting. In other words, we’ll pay more if, on the spectrum of available goods and services, the premium price paid is commensurate with the premium goods delivered.


Print is not as dead as some think

I recently received several printed pieces in the mail that I actually opened and read. The purpose of any communication is to resonate with its intended audience, which is hopefully the senders’ target audience.

The first successful promotion sent via “snail mail” to my home was the brochure for the American Ballet Theatre. The incredible photography, as could be expected, is of dancers in amazing costumes in the act of various ballet moves. The colors, quality of the paper and overall design is excellent, content is easy to peruse with just the right calls to action. While not a season ticket holder, I was inspired to call a friend and see if we could arrange a day at the ballet.

The second piece of mail I recall is the Spring 2017 Saachi Art Catalog. is an online art dealer/curator. As both an artist and a collector I am on the site often. I get regular emails from them, which I typically open, but I was pleasantly surprised to get a printed catalog of something I’m actually interested in. It’s designed beautifully and the content is interesting and inspiring. The cost of ink, paper and mailing is not lost on me. The online version is here.

One of my favorite pieces of recent mail was a thank you note from the auto mechanic that fixed my daughter’s car because of an unfortunate breakdown. Although this garage is strategically placed across the street from the high school, I had never considered using them. Convenient to where her car was and highly recommended, I asked if they could help. Not only did they fix the car at a very reasonable price, they taught her how to recognize if there is a problem AND they sent a very nice hand written thank you note telling me how much they appreciate my business. They have found a customer for life.

Before poo-pooing a good old-fashioned piece of printed mail, ask yourself if a version of it would resonate with your intended audience and grab some attention that you may not be getting from your online communications. Whether selling something specific, telling a story about your brand or taking the time to say thank you, a nice piece of mail can be a welcome relief to those whose attention you are trying to capture.

Save your Clients from Themselves









Whether you’re helping your clients accumulate or preserve their assets, making rational recommendations based on the numbers can be the easy part. To really get it right, you might want to trade your CFA for a PsyD. That’s because, for many investors, emotional behavior, particularly during times of market stress, can subvert the best-laid plans. In fact, it’s spawned an entire subspecialty: behavioral investing.

Vanguard research, for example, reveals that in periods of volatility, the cool head and soothing words of an advisor can add 150 basis points to an investor’s return over time.* Left to their own devices, investors tend to panic and sell rather than seek professional advice. This can often mean selling at exactly the wrong time and scrambling to get back on board when maybe they shouldn’t.

It’s also been shown that investors who ignore their statements fare better over time than those who regularly check them. Checking in means tinkering, and tinkering often means disrupting a plan that’s working just fine.

A recent piece by InvestmentNews Research and Great-West Financial** identifies four other common behavioral pitfalls:

Distorted feelings about gains and losses. Most people tend to be loss averse, and for your glass-half-empty clients, this can put a significant damper on gain. For your overconfident clients, on the other hand, the tendency may be to take undue risks. So for the exact same probable outcome, you may want to accentuate the positive to the former – 75% chance of market appreciation this year (based on historical averages, say) – and caution the latter about the potential downside – 25% chance of negative returns.

Saving too little. The nation’s low savings rate versus other developed countries can be mostly explained by two financial behaviors: “anchoring” and “confirmation bias.” Anchoring sets a norm in one’s mind that’s difficult to move. If saving 5% or 6% of one’s income sounds realistic early on, individuals resist a change to that number, whether it’s higher or lower. Confirmation bias says that people are especially attuned to – and even seek out – information that supports their beliefs. So that if 5% or 6% is the number investors believe to be correct, they’ll find evidence to support it and reject evidence to the contrary.

Overcoming pressure to spend. “Temporal discounting” is the tendency to place a greater value on present gratification and less on the future. Much of the time, clients don’t even consider how much they may be spending annually on what seem like small expenditures. A morning cappuccino, afternoon snack run, evening drinks out with friends; they can all add up over time. Helping investors see how much a small change in spending can result in significant increases to their nest egg over time can help change behavior.

Falling back into old, bad habits. Thanks to what behavioral researchers call “habituation,” people tend to discount or ignore messages they’ve heard repeatedly. Kind of like the surrounding noises you no longer register when you’ve lived somewhere long enough. Individuals often revert to behaviors that are habitual and feel comfortable and familiar. Changing up how information and advice is delivered can keep it fresh and impactful. Similarly, a new and different voice of authority can bring refreshed credibility to the tried and true. Finally, reinforcing positive behavior and acknowledging progress can be the best way to ensure more of the same.

* Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®, Vanguard Research, September 2016
** The road to retirement success: Understanding – and overcoming – your clients’ behavioral biases, INReserch and Great-West Financial, 2017


Last week the Twitter hashtag celebrated its 10th birthday. For those interested in a little history, the hashtag was created by designer Chris Messina, who asked on August 23, 2007 the innocuous question “how do you feel about using # (pound) for groups. As in #barcamp [msg]?” For those burning to know what the heck barcamp is, “BarCamp is an ad-hoc unconference born from the desire for people to share and learn in an open environment. It is an intense event with discussions, demos and interaction from attendees.” Although the hashtag idea originally received mixed reactions, it obviously overcame its humble beginnings to become the ubiquitous symbol it is today. Facebook started using them in 2013, and they can be found in pretty much all forms of social media now. Today, an average of 125 million hashtags a day are posted on twitter.

Hashtags have been used to mobilize social awareness and movements (#BringBackOurGirls, #BlackLivesMatter, #LoveWins, #prayforparis), sports (#WWE, #mlb, #nbafinals), for humor (who could forget #cofveve?, Jimmy Fallon’s #momtexts), and for pretty much any other purpose (or just for fun) under the sun. For those wondering, the most popular hashtag is #FF. This stands for Follow Friday, where (on Fridays) users recommend other accounts and people to follow in order to build their own following.

Even financial services have entered the hashtag world, from hashtags devoted to those interested in major financial organizations or stock exchanges (#Fed, #NYSE, #NASDAQ), to types of investments (#stocks, #IPO) to more needs based or descriptive hashtags (#personalfinance, #401k, #wealthmanagement, #womenandwealth). For those interested in what devotees to the Oracle of Omaha are up to, #WarrenBuffett is there for you.

Judicious and consistent use of relevant hashtags in social media posts can help to increase your firm’s visibility online, while also reinforcing and strengthening your brand. So, go ahead, give it a try #BeBold.

The Rise of Liquid Alternatives

The rise of liquid alternatives funds appears to have peaked. The chart below shows the annual asset levels and net flows of open end liquid alt funds since their introduction during the Financial Crisis. While the number of liquid alts continues to rise, total assets for these products have started to decline and cash flows have turned negative.

The clear driver behind the waning interest in liquid alts is performance. The chart below compares the average annual returns of liquid alt funds in the marketplace to the annual returns of the S&P 500 Index since 2007. Clearly in the bull markets following the Crash, liquid alts have significantly and consistently lagged the traditional benchmarks. This loss of the upside has clearly worn on some investors and advisors, perhaps even those that are using alts primarily as a risk-management tool.

What also may be of concern to those considering liquid alts options is performance relative to the long-only market. Since 2007 the correlation of the average annual returns of liquid alts to the S&P 500 has been 0.89. When the market has gone down, liquid alts have generally followed, although with exceptions, throwing into question the value that many of these funds may add as a diversifier during a more severe correction. This increases the importance of due diligence in selecting the right alt offering.

Whether liquid alts regain their allure will likely be determined by their performance in the next bear market. But for now they offer an informative case study of the genesis and development of a new product idea.

The Price of Perception, and Vice Versa

Work we’ve done on pricing recently has gotten us thinking about that intersection of supply and demand that defines optimal pricing. When should a price be raised or lowered? When is a price excessive, fair or too generous?

First movers in an emerging category often have the luxury of naming their own price. They’re ahead of the curve. Demand for what they offer outpaces the supply of what is available. When multiple suppliers enter the market with similar offerings, the products offered may then fall into the unenviable category of commodity, where there is little compulsion to choose one supplier over another except based on price.

Market forces routinely define that self-evident point at which supply and demand intersect and rational pricing is revealed, right? Ah, if only the world worked as cleanly as economic theory. Such theory ignores a simple but powerful dynamic: brand perception, which can sometimes be anything but rational. Brand perception can make an item at Nordstrom far more desirable, and, therefore, of higher value, than a comparable item at Target.

Made up of a cadre of talented, creative individuals, with its own culture and way of managing money, every advisory firm offers a uniquely different client experience. But how do you break out of the commodity clutter and communicate that to prospects?

Scan the cyber landscape of advisory firms and the same attributes and many of the same words will play back – disciplined, experienced, sophisticated, responsive. It’s not that you aren’t all these things, it’s just that you’re running up against brand perception, or lack thereof. It’s hard to be believed if you haven’t been tried. It’s hard to be trusted before you’ve earned it. And it’s hard to price fairly if your brand doesn’t broadcast your real worth.


Asset Management Fee Compression: The Next Shoe

It was recently reported that assets in Blackrock’s Style Advantage, a factor based hedge fund, nearly doubled in the first half of 2017 to reach an impressive $1.6 billion. The fund’s performance was reasonably strong but the boost in interest is likely to have been driven also by pricing. With a 0.95% investment management charge and no performance fee, Style Advantage is one of the cheapest hedge funds available.

The success of Style Advantage is the latest indication of a broader trend among advisors to opt for lower cost investment products generally. Saving on cheaper funds allows advisors to reduce some of the pressure on their “advisor level” fees while at the same time enhancing their value by increasing their role in asset allocation and portfolio design. The availability of tech platforms offering sophisticated modeling and automatic rebalancing encourages this trend by making advisors’ “in house” production process more efficient and affordable.

The trend toward cheaper product has its winners and losers. Among investment manufacturers, the winners in traditional investments will be firms that produce and distribute ETFs and index funds at scale. In alternatives, it is likely that low cost, liquid product manufacturers will meet with increasing success if the experience of Style Advantage is any indicator. Laggards are, and will continue to be, underperforming actively managed mutual funds and SMA managers, particularly those with above average fees. Hedge funds that stick to traditional pricing but fail to shoot the lights out are also likely to suffer, especially as the availability of lower cost, more liquid options grows.

Regardless of who wins on the investment management side, on the winning side for advisors may be those who can stabilize their fees while not sacrificing the quality of their service.

The Answer is Blowing in the Wind

At Optima Group, we often look outside financial services for inspiration in how consumers are served best. While companies such as Amazon or Apple are often cited as classic examples of the move from disruptor to market leader, another telling example comes from an unlikely source, the world of vacuum cleaners. More specifically, the work of James Dyson, the English inventor who quite literally reengineered the vacuuming experience.

Long, long ago….

As the story goes, Dyson’s interest in a better vacuum cleaner stemmed from his own experience. In 1978, he was vacuuming his house and was dissatisfied with the fact that the cleaner constantly lost suction because the vacuum cleaner bag frequently became clogged. At that time, the design and functionality of electrically powered vacuum cleaners had remained virtually unchanged since their introduction in the early 1900s.

From the ground up

This is where the story gets interesting. Rather than trying to improve upon the existing type of vacuum cleaner, Dyson rethought the whole process with an eye to solving the problem he encountered. The result, after thousands of prototypes, was a completely different cyclone-based bagless vacuum that used centrifugal force. Although the Dyson cleaner was priced significantly higher than most other standard vacuums, its market share, particularly in its UK home base, has grown significantly. Dyson has since expanded its product line to tackle other areas (electric fans and heaters, hairdryers, lighting and hand dryers) and Dyson himself is a billionaire.

The mind of the consumer

So why has Dyson been so successful? Two reasons, both of which are equally important:

1. The company tackles everything from the viewpoint of the consumer not from its own view of what needs improving. In the case of the vacuum cleaner, it was the suction power. For hair dryers, it’s controlling the heat, noise and the weight (at $400, it costs significantly more than the average hand held professional grade hair dryer, but pros and non-pros alike are buying it).

2. It ignores the status quo. Just because that’s how things have always been done is not a reason to continue doing them that way. In an Edison-like process, many different iterations are tested before being satisfied that the solution really solves the problem.

The important takeaway; don’t be afraid to try something different and be a market changer. But make sure it’s what the consumer wants.