Happy New Year to everyone!  I hope you all had a great holiday.  We’ll I am back and today I am going to continue my posts about Third Party Marketers and how we work. 

Before the break, we spoke about the sales process. When Gatekeepers came up I mentioned that I would come back to them.  Well, that is what we are going to focus on today: Gatekeepers – who they are, why they are important and how we work with them. Specifically, we'll discuss Investment Consultants but bear in mind there are plenty of other Gatekeepers in this business that are equally important. 

The Gatekeepers

First, let me explain what a gatekeeper is.  Since many of us don't have the time or expertise to manage our own money we use the services of a financial advisor (FAs) or a private banker to help us make our investment decisions. Likewise, gatekeepers are “financial intermediaries” that represent large institutional investors, such as the Florida Board of Administration, Ford Motor Company, or New York University.

FAs are known by several industry-specific names, such as institutional consultants, registered investment advisors (RIAs), or wealth managers.  While the names may differ and often suggest the types of clients they represent, their roles are the same:

To help their clients make the right investment decisions.

How Gatekeepers Work, and How We Manage Them

Gatekeepers are not unlike an agent for a Hollywood actor. If you want an actor to appear in your movie, you contact their agent.

Similarly, big institutional investors with tens or hundreds of millions of dollars to invest (if not billions), use gatekeepers like consultants to help them screen their options and find the best investment manager for their need.

Industry research shows that nearly 80% of all institutional investor use a consultant in some capacity, with the majority using consultants for manager searches.  These facts explain why Gatekeepers are so important. 

Tessera’s individual success is often linked to the extensive network of industry contacts we’ve cultivated within the consultant industry.

We have access, which enables us to open dialogues with consultants so they can ask questions and request additional information on the firm or product. These questions and requests are central to the decision-making process which ultimately determines with whom they would like to work.

Layers Within a Consulting Firm

There are several layers of decision making that goes on within a consulting firm. 

Manager Research

Manager Research teams are composed of a group of analysts who are fluent in a particular investment universe they are assigned to cover.  This means that a research analyst must develop a specific knowledge of the products they are covering, the universe of managers that offer that product, conduct due diligence on these managers, develop short lists of the best managers in space and run searches for clients looking for a new manager. This is why getting to know the manager research group at a consulting firm is so important. Research analysts are the first level of constituents that managers must get through if they want to win new business.    

Research teams are usually broken into at least two asset classes - long-only, traditional products or public markets product and alternative or private investments.  

Many consulting firms also segregated each of these two groups further.   In the traditional space, research teams are often broken down into groups of specialist for Fixed Income, Domestic Equity and Non-US or Global Equity.  Alternatives may be split by Hedge Funds, Private Equity and Real Estate.  

In the largest consulting firms, traditional equity asset classes are usually further segregated by capitalization or style (large cap growth, small cap value, international, all cap growth) while fixed income may be segregated by duration, quality or by debt sponsor (short-duration, core fixed income, high yield, corporate bonds or muni bonds).

On the alternative side, many consultants divide each category by mandate type.  In the hedge fund arena, we may see one analyst covering long /short while another is responsible for multi-strategy funds.  In private equity venture capital, may be segregated from buyout funds.  Real assets usually include real estate, farmland, commodities, and infrastructure.  All which might have different analysts covering a piece of a larger asset class.  

Most sales professional put all their efforts into working with manager research teams when trying to get approval for their products.  While this is important and necessary, it should only be the first step in the process.  Consulting firms also have investment committees that need to buy-in to a manager product to win new business. 

Investment Committees, Field Consultants and Senior Management

The investment committee at most consulting firms is comprised of personnel from the manager research group, field consultants as well as members of senior management.  These two other groups of decision makers are also key in deciding whether to approve a manager’s product. 

Field consultants are client-facing personnel that have a group of investor clients they work with on a regular basis. Field consultants perform a multitude of functions for their investor clients including:

  • Creating of an investment policy statement
  • Determining asset allocation targets
  • Conducting manager searches
  • Manager Monitoring
  • Investor Education
  • Special Projects

Field consultants are important for two reasons.  The first is they may sit on a search committee.  Second, field consultants help their clients determine the best strategies to invest in.  Given this, it is always a good idea to get to know these field consultants because they do have a say in whether a manager participates in searches and/or gets selected for a client’s short-list. 

The same may be true for senior management.  It is never a good idea to underestimate their influence in the search process, At Tessera we always try to determine whether there are members of senior management that sit on a consulting firm’s investment committee.  If so, we will try to include them in our manager client’s distribution lists and sometimes even call them to introduce our manager clients.  Acknowledging their role in the process can be helpful. 

Getting Noticed

I have been in the investment industry for more than 28 years.   During more than 20 of those years, I have dealt with consultants.  I can tell you from experience that consultants are not always the easiest people to connect with.  They are extremely busy fielding calls from people like us, conducting research, running searches and assisting consultants with their client’s needs. 

To get the attention of manager research, we must work for it.  Just having a product in the space, they cover is not enough.   Research analysts are looking at hundreds of different products and need to decide which one possibly two are the best choice for their clients.  As you'll recall, I mentioned that the investment industry is an exclusionary one. Here's why - research teams need to find to find that diamond in the rough, that needle in the haystack, those few products out of hundreds that deserve a second look.

Here is the good news!  You can get a research analyst to take a further look at your product by taking a few basic steps.  But, you need to smart about your approach. 

  • Analyze your product and its characteristics to determine what type of investors this product is appropriate for.  This will make it easier to decide which consultants to focus on. Say you are representing an ESG product – Start the process by contacting consultants that deal with clients that are interested in these factors, like Endowments and Foundations.  If you call a consultant with clients that have no interest in ESG products, you are just wasting your time.   
  • Determine what information a research analyst is going to look for and make it easy for them to find what they need.  For example, AUM in firm and product.  If you are dealing with a consultant that has AUM minimums, this is likely to be the first thing the analyst looks for.  Research analysts won’t waste their time researching a product if the AUM does not meet the firm’s minimum requirements. 
  • Be self-aware.  Know what is different about your firm, your product or your investment approach.  Consultants want to know why they should hire a firm. The key is to explain right up front how a manager is different and what value-add they provide.  This will save the analyst time trying to figure it out.  
  • Last but not least – take an introspective look at your marketing materials.  Can someone who knows nothing about your firm read them and come away with an understanding of what you do and how you do it? 

    We often find that managers prefer to be vague in their materials – thinking that it is better for a portfolio manager to explain their story than to articulate how it works in a presentation book.  Here is the problem with that approach.  In today’s market, you barely get 5 minutes on the phone with a research analyst before they say send me some materials for me to review.  If you send the analyst materials and they cannot follow them on their own, how are they going to know what the manager does? they won't and that's a problem.  

    Playing devil’s advocate for a minute, say you do get a meeting with a research analyst and the Portfolio Manager can walk an analyst through their process.   You still must hope that either the analyst has a good memory or that the analyst took good notes since much of the information is not in the book for him to fall back on.  

    Fast forward a couple of months and the analyst moves to a different product.  In this case a new analyst will need to get up to speed on your product.  Well, your book won't help him, but maybe the analyst took good notes.  Well what if he didn't, then you are right back where you started.  At the beginning of the process.  

    Marketing materials need to be self-explanatory!

    At Tessera we have taken this approach for many years now and we are continually complemented by consultants on the thoroughness of the materials we create.  This method works and helps move the evaluation phase of the sales process forward more quickly. 

If you think manager research groups are difficult to get in touch with, field consultants are even more difficult to reach.  Despite this, it is imperative that you connect with these gatekeepers, especially if you are in a final’s presentation for one of their clients.  Remember – field consultants often control millions of dollars of their investor-client’s assets. 

What Goes Around Comes Around

One nice thing about consultants is that it is really a small community. Here’s why - many firms tend to hire research analysts that are young, which often leads to a considerable amount of turnover in these positions.  While this can create a problem for a manager working with that analyst, often the analyst will move to another asset class at the same firm or are promoted to a more senior position, or take a more senior job at a competitor.  Regardless, most tend to stay in the consulting business, which is good for sales professionals who have developed strong relationships. 

My advice on consultants and other gatekeepers – touch base with them whenever you can.  Be responsive to their requests and help them do their jobs whenever you can.  At some point, you will encounter some of these professionals again – whether at a new firm or in a new role.  Either way, you want to be sure that you leave a positive impression on that analyst if you ever plan to work with that person again. It takes a lifetime to build a reputation, but only one bad act can destroy it in seconds.  

This scenario always makes me think about my favorite quote, which I first heard on a Head and Shoulders commercial. 

You never get a second chance to make a first impression.”

I have always remembered this and have found it true both in life and in the financial services industry. 

Next time we will discuss the Sales Cycle.