Separating Products from Solutions: Navigating the Investment Sales Process

Separating Products from Solutions: Navigating the Investment Sales Process

An old proverb goes something like: when you see a situation you don’t understand, look for the financial interest. In today’s world of investigations by special counsel or U.S. attorneys, it’s also described as “follow the money.”

Admittedly, a shame that avarice is such an important driver of human behavior, but we do see this trait exhibited frequently in the world of investing. One’s “book,” the services and products a firm has available to offer for sale, often becomes the driving force behind a campaign of educating and informing the buyer as to what is the best possible solution for today’s investor. 

The result, of course, is confusion and angst for individuals and institutions that find themselves in dire need of return in a difficult environment where the allure of the shiny object is as compelling as the spinner bait is to the hungry bass. In both cases, by the way, there is a hook involved and often an unhappy ending (for the fish).

What Clues Should Investors Look For to Assess If Solutions Providers Are Baiting Them?

Let’s bring this to life with some real life examples taken from a small subset of emails, papers, blogs, and thought pieces that land in our inbox on a typical day.

The Statement of "Fact"

The Source

The Reality

The long run of passive management’s success is at an end

Not a passive manager

No one knows when, or even if, the long run will end

Hedge Fund returns have turned the corner and are back on track

Hmm, a Hedge Fund perhaps

Returns have improved of late, but that doesn’t make a trend

Emerging markets are poised for a long term favorable run

Unlikely a manager of U.S. Bonds

Emerging markets are volatile and while Segal Marco supports a substantial position for most asset owners, investors must take a long term approach given the degree of price volatility of the asset class and assess their own ability to rebound from unexpected shocks.

But wait a minute, isn’t this just capitalism?

Aren’t investment product salespeople hyping the possibility of improved returns just as the promise of whiter teeth and fresher breath by toothpaste companies is part of the fabric of America? After all, toothpaste ads wouldn’t be selling deodorant as the best way to “get the guy/gal,” so why would an asset manager talk up someone else’s asset class? Besides, you always have to consider the source, or noted another way, the buyer has to beware. 

How Can Investors Sort Through the Volumes of Data Sent by Solutions Providers to Determine What is Best for Their Plans?

In a world where “solutions” is the catchword of the day, the issue for investors is figuring out who is being helpful to you or mostly being helpful to themselves. Here are a few simple questions that can provide some guidance:

  1. Do they always appear to offer a product that solves every problem?
  2. Is the solution provider rewarded based upon whether you take their advice?
  3. Has the solution provider ever advised you not to buy their solution/advice?
  4. Does the individual recommending their solution personally benefit if you buy?

If one or more answers to these questions is yes, then it is likely that they should be labeled an untrusted advisor. This label doesn’t necessarily mean wrong, or nefarious, or charlatan, but it does mean that you as the buyer must be aware of the inherent conflict between the solution/advice being offered and who is doing the offering. 

In the lexicon of parables regarding the topic of trust, there are a number of sayings such as “the fox guarding the henhouse” or “beware of Greeks bearing gifts,” that have been used for a very long time to express this concept. So when you hear a solution that appears to be too good to be true, consider the motivations of the seller and you may avoid being the bigger fish that gets fried.

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Tim Barron, CAIA

Tim Barron, CAIA
Senior Vice President, Chief Investment Officer

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Catherine Hickey

Catherine Hickey
Vice President

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