Bill Hortz's picture

" I firmly believe that the incorrect prevailing focus by asset managers on assets under management has created a soft under belly for the industry that will continue to be painfully exposed this year." - Dan Sondhelm, Sondhelm Partners

[A preponderance of mainstream industry discussion has been proclaiming that active asset management is under siege and at great debilitating risk from mounting external threats, such as, automated robos, fee compression, a one-sided passive-vs-active press assaults and migration of money to lower cost investment options. Add to this the negative relative performance perceptions which are starting to calcify and ingrain into our collective unconscious, approaching an almost urban legend or myth status. It seems to us that an all-out military response is needed. Active asset managers need to break ranks with the industry overall and proactively address these challenges and perceptions with a well-thought-out and chiseled strategy as the tip of their spear.

Strategy, a word of military origin, refers to a focused, detailed plan of action specifically designed to achieve a particular goal. It is a purposeful directing or re-configuration of your firm’s resources within a challenging environment. It deliberately moves you towards the most important, effective and leveraged way to accomplish the needs of markets and the vital goals of the organization. Strategy is the means by which objectives are consciously and systematically pursued and obtained over time.

Understanding what strategy is - as a practical and powerful business management process and a specific manner of thinking and acting- the key question becomes how do we apply it to individual asset management firms? How do you shape a strategy that will become the direction, scope and future growth of your organization?

In order to explore this more fully, the Institute for Innovation Development went to financial services marketing expert and Institute member, Dan Sondhelm of Sondhelm Partners – an experienced provider of marketing, public relations and sales strategies for the asset management industry.  We will be exploring his thoughts and insights on developing strategy and discuss some of the strategic approaches he has directed with his clients that can drive active asset management firm positioning and help them develop their own distinctive strategic manifestos for their marketplace and future growth.]


Hortz: From your professional experience working with a wide range of asset managers, what do you see as the biggest challenges for the asset management industry to be focused on in 2019?

Sondhelm: I firmly believe that the incorrect prevailing focus by asset managers on assets under management (AUM) has created a soft under belly for the industry that will continue to be painfully exposed this year. A ten-year bull market has created what I’d call “AUM lethargy” among many asset managers. Why go out and chase new assets when market returns are pushing your own AUM up 10%-20% a year? We saw this attitude take a beating during the mini-meltdown at the end of December 2018, which triggered a flight to safety that drained a lot of assets from many actively managed funds.  It was a wake-up call that got many asset managers thinking about the future of the industry and their own viability.

Findings from a recent Casey Quirk study – they’re a division of Deloitte Consulting  which focuses on asset and wealth managers - substantiated my concerns by revealing that only 30% of firms benefited from profitable growth between 2014 and 2017 and concluded that, without dramatic changes to revenues, costs, and building new competitive skills, one-quarter of asset managers risk becoming unprofitable within a decade.

In reality, the incorrect AUM focus has created gaping holes in their businesses. What has been revealed is that most asset managers do not have a plan beyond that. They are not adapting their businesses to a rapidly changing environment and are not building their outward engagement with their clients and prospects as deliberately & consistently as they should be. And when the inevitable bear market comes, the inevitable outflows from all but the safest money market and bond funds will leave many active funds in an AUM hole that might be difficult to escape from without a strategic plan.

The bottom-line is that asset managers who want to survive can no longer be complacent. They need to do whatever they can now, in 2019, to develop business strategies to address these challenges and make strategic investments for their future growth and sustainability.

Hortz:  In reviewing your most recent writings, website and activities, the predominant word you keep framing everything in is “strategy”. Can you tell us why that seems to be an important mantra for you?

Sondhelm: Developing a conscious strategy makes you challenge your assumptions, ask tough questions, and focuses you down to addressing the specific challenges and opportunities in front of you head-on. Developing a strategic plan will help asset managers focus their limited resources but also make needed business investments. My job is to help steer them in building that strategy, that targeted focus, and to implement clear actions which will maximize their sustainable growth, such as, fixing organizational deficiencies, reducing unneeded expenses, revamping and ramping up their business development efforts, and getting their differentiated firm story out to the marketplace.

Hortz: How does one become a strategist and start honing a more strategic mindset and approach to your business?

Sondhelm: The first thing you need to do is abandon the mindset that the measure of strategic success is activity. A thousand cold calls that generate no meetings and a dozen email marketing campaigns that generate no clicks to your web site are wasted efforts.

Take a step back and do an honest evaluation of your firm, its products, its people, its expenses, and its business results. Map its competitive strengths and weaknesses. Figure out how much AUM growth is coming from net inflows versus market returns. Find out where most of these inflows are coming from-RIAs? Wealth management firms? Pension funds and endowments? Brokers?  Project how much inflows will need to increase year over year to buffer AUM drain during a bear market. Estimate how much net revenue might shrink if you need to reduce management expenses. Evaluate every aspect of your sales and marketing efforts, from the win-rates of your sales team to the quality of your web site and blogs, marketing materials and pitch books.  

Once you’ve completed this analysis, you can use this information to develop a more focused strategy and action plan to address the areas that will deliver the greater impact in terms of bringing in new assets and maximizing profitability.

Hortz: What areas of greater impact have you uncovered that many asset managers are not focusing on now?

Sondhelm: Too often I see sales and marketing strategies focusing on the “What.” What we do. What our products are. What the total returns are. And most prospects have the same reaction: “So what?”

In this environment of increasing commoditization and skepticism over the value of active management, “Why,” “Who” and “How” are becoming as important as the numbers. Investors and advisors can find performance data on your website and on Morningstar. What they want is detailed explanations of how your investment process generate alpha. Why your approach is different and more effective than those of your competitors. Who on your team is developing and managing its implementation and how and why they’re qualified and personally motivated to do so.

Effective asset managers turn all these “W’s” into a compelling story that provides the proof behind the performance. One that convinces an investor or intermediary that your firm and its funds deliver results that are the result of skill rather than luck and has a story behind the numbers that they can relate to, that they find reassuring and relevant.

Hortz: Why is the positioning the asset manager around story so vitally important?

Sondhelm: Because performance alone doesn’t win mandates, especially from institutional investors. Sure, your fund’s returns might get you to a finals presentation with a pension fund committee, but chances are you’re going against two or three other firms with similar-or potentially better-results and stronger brands.

Too often salespeople go into the presentation with thick pitchbooks packed with numbers-and that’s all they talk about. Why go over information they can review on their own later on? Instead, use that precious 30 to 60 minutes to focus squarely on the qualitative factors. These are the “How,” “Why” and “Who” aspects I mentioned before. If you do this right, every member of that committee should be thinking, “This firm has the right people at the helm, they’re in it for the long haul, and their investment process and thinking aligns with our requirements as fiduciaries. This gives us the better understanding, reassurance and confidence to make this important decision”

Hortz: How does all this help an asset management firm increase “franchise value” and sustainable profits?

Sondhelm: A sound sales and marketing strategy with a compelling investment story at its core helps everyone in the firm, from the CIOs to inside wholesalers, focus on activities that consistently convey the core values and strengths of your firm. Marketing people who tell your story effectively on the web, in print and, on social media will generate more inquiries and qualified leads. Salespeople will feel more confident when they walk into a finals presentation or an advisor’s conference room.

Now, while a single $100 million institutional win certainly deliver a huge revenue lift, I believe that many smaller firms are better off incrementally building that $100 million by convincing many advisors to use their funds with their clients. Think about it: If 25 independent investment advisers each invest a total of $4 million spread among 100 of their clients, you’ve now built a community of 2,500 investors-many of who are either mass affluent or high net worth-who will now be aware of your firm. These are sticky assets that are unlikely to be sold even if the market tanks. If performance holds up, investors may purchase more shares and both they and advisors might talk your fund up with their peers, which can lead to more sales with no extra effort. That’s the kind of brand loyalty advertising can’t buy. 

Hortz: On another note, tell us about your new online Asset Management Growth Assessment you recently launched. Have the early results from asset managers responding to your survey brought forth any surprises? Have you been able to glean or uncover new insights or are results just reinforcing the trends you just mentioned?

Sondhelm: We decided to launch this assessment to help our clients understand the most common areas of concern among asset managers and the major perceptions among different market segments that are either helping or hindering their ability to grow. We’re still in the early stages of this research, but already we’re seeing that there is a great deal of uncertainty and confusion among asset management firms over what they need to do both from an organizational standpoint and in terms of revising or rebooting their business development strategies.

I welcome any asset managers reading this to participate in our Growth Assessment Survey. Once you complete the survey you’ll be able to download our Sondhelm Partners’ whitepaper, How to Rethink Your Growth Strategy Now: A 13-Point Checklist.

Hortz: What is your best advice and recommendation for asset managers on the steps to take to strategically address the challenges they will increasingly be facing in 2019 and beyond?

Sondhelm: My best advice to asset managers is to start preparing for the inevitability of the industry challenges coming this year and beyond. A growing body of independent research, and my experience from the real-world competition trends I see happening out there in the industry today, all point to active asset managers needing to direct their companies with more strategic management and distribution approaches that focus on organic growth.

Remember that I have outlined 13 specific steps you can take to address these challenges which I have detailed in our whitepaper mentioned above which you can download for free simply by taking the Sondhelm Partners’  Growth Assessment Survey.


The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.


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