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Realizing the Difference

In 2013, Morgan Stanley Wealth Management filed for a patent on an SMA manager research screening and scoring tool called the Adverse Active AlphaSM Manager Ranking Model. The tool was developed by Morgan Stanley’s Consulting Group Investment Adviser Research Team (CG IAR), the gatekeeper for the firm’s huge SMA platform.

A year later, in midsummer of 2014, the patent was granted. At about the same time, Morgan Stanley put out a whitepaper touting the impressive results of using the tool to identify outperforming active managers. According to the whitepaper, “SMAs and mutual funds on CG IAR’s Focus List with high Adverse Active Alpha rankings outperformed their respective benchmarks by 390 basis points on average in 2013.”

These findings are compelling. But our primary interest here is neither the tool’s attractive investment results, nor its role in proving the value of active over passive management. Rather, it’s the contribution that the tool makes to Morgan Stanley’s marketing effort. Consider the many ways it helps:
• It works as a proof statement of Morgan Stanley’s ongoing effort to enhance investment results for its advisors and clients.
• It distinguishes Morgan Stanley as an innovator and thought leader in manager search and selection.
• It differentiates Morgan Stanley’s investment process and quantifies the relative advantage.

Applying for the patent enhances the perception of the tool’s value and underscores Morgan Stanley’s belief in its distinctive and innovative qualities. Having the patent granted means that investors have to come to Morgan Stanley exclusively to access the tool’s important benefits.

As wealth managers have embraced open architecture and best of breed manager selection as core value-adds to their investment management offerings, differentiation of the investment process from competitors has become increasingly difficult. Most firms default to relatively generic descriptions of their approach emphasizing the rigor of their due diligence and the depth of their research effort. Such descriptions, however, tend to fall short when it comes to truly distinguishing the firm in a prospect’s eyes.

While Morgan Stanley’s patent application idea may not be suitable for most firms, it reminds us of the importance of exploring innovative and compelling ways to deliver investment management marketing messages.