Institutional Investors Hone in on the “S” in ESG Investing

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As asset managers targeting the institutional market try to differentiate, many are incorporating ESG (environmental, social and governance) factors in their investment strategies to varying degrees of success. Currently, few US institutions are incorporating ESG factors in their portfolios, but use is considerably higher in the non-profit sector, where institutional investors are more apt to seek investment strategies that align with their organization’s mission.

Within the broad category of ESG investing, the individual components draw institutional investors for very different reasons. When institutional investors are asked to identify the reasons they are most likely to adopt ESG investing, the majority of pensions and non-profits point to social aspects including diversity, human rights and consumer protection.

  • Environmental aspects, including climate change, nuclear energy and sustainability, resonate more with non-profit institutions.
  • Governance, including management structure, employee relations and executive compensation, is more of a draw for pension investors.
  • The social component of ESG investing, encompassing aspects of diversity, human rights and consumer protection, is of particular interest to tax-exempt organizations and investors representing public DB and Taft-Hartley pensions.

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Ideation: Bringing Home the Bacon

Bacon? Bacon, bacon, BACON!

Wait! What do you mean you were only joking? I can’t actually buy bacon-flavored mouthwash? What a cruel April Fool’s Day joke. In a stunt that has gone viral on social media for a couple of years now, Procter & Gamble seems to be unveiling bacon as the latest in trendy, savory flavors for mouth refreshment.

Sticky Ideas

How did this new product hoax go viral while so many other new product launches fail to succeed? In the Heath brothers’ book “Made To Stick,” they lay out a communication framework for lasting ideas:

Success =

  1. Unexpected: Get people to pay attention. Bacon-flavored mouthwash vastly differs from the typical mint flavors that it inhabits a space all its own.
  2. Concrete: Understand and remember it. I saw a picture of the packaging and could visualize the product sitting on the store shelf and in my medicine cabinet at home.
  3. Credible: Agree and believe. The product had its own website and it’s on Facebook (so it MUST be true!). Also, the longer it perpetuated after April Fool’s Day, the more believable it became.
  4. Emotional: There are some who care deeply about bacon and there are those, like me, who just salivate Pavlovian at its mention. Bacon elicits an emotional response.
  5. Story: The call to action to soon purchase at a store near you prepped us to buy and participate.

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What Is the Value of “Big”?

Years ago I participated in a colleague’s ongoing thought experiment by naming the price point at which something is expensive. My colleague wanted a crisp response without caveats but I couldn’t do it. My first thought was $100, but even then, that was cheap for a flight and expensive for a meal. I’ve revisited the question over the years and despite changing life circumstances, my resistance to naming a number has persisted and even increased as I’ve encountered more examples where it’s all relative. Messaging is rife with caveats, including—and perhaps especially—in the wealth management space.

Is an asset manager big when it serves thousands of clients? Manages billions of dollars? Has been in business for decades? More importantly—and this is the part that is often missed—are these numbers relevant to the customers the firm is trying to reach? Are the numbers communicated with the proper context to make them understandable?

We have ample data to show that the words we use are not always well-understood. For example, see this article from my colleague, Vivek Amin, that describes the dismal self-reported knowledge of fundamental financial terms. I’ve encountered plenty of instances where terms are not well understood by financial professionals either. This lack of understanding extends to numbers. While a number itself might not need defining in the same way, we can’t assume it always has meaning. Industry insiders know when a number is impressive because they have the context. Outside of context, a number is no better than jargon. Continue reading

Pinpointing Growth Opportunities in the Institutional Market

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While an understanding of current asset allocation practices is always valuable for asset managers, uncovering the asset classes institutional investors will look to in the future provides key insight into potential areas of growth and opportunities to expand a firm’s share of institutional assets. This year’s US Institutional Investor Brandscape report includes an analysis of anticipated changes to asset allocation by asset class, uncovering the areas of most demand for future mandates.

Overall, demand for active fixed income and alternatives is on the rise among both pension and non-profit institutional investors. However, breaking down each group’s top three asset classes poised for growth in the next three years shows pockets of even greater opportunity. It’s important to note that these figures represent the percentage of institutional investors forecasting changes in their use of particular asset classes and NOT the percentage of assets they are likely to move.

Pensions

US fixed income, both actively and passively managed, will continue to be in demand among pension investors across all asset size segments in the next three years. Notably, the use of alternatives is attracting more interest among this group this year than in the past, with an expected net increase of 24%. $1 billion-plus pensions report the highest anticipated positive net change in alternatives (35%) and passively managed US fixed income (33%), indicating rich opportunity for asset managers. An increase in one asset class inevitably leads to a decrease in another—24% of pension investors intend to draw down their allocation to US equities in the next three years, a trend from previous years. Continue reading

The Power of Brand Identity Research

The Power of Brand Identity ResearchEvery impression counts when promoting and maintaining a successful business, and managing your brand identity is a major factor in that success. Whether it’s your logo, your website or your business cards, your customers build an impression of your company through every interaction they have with it. Each touchpoint adds up to create your brand image. But in today’s dynamic digital market, customers have more ways than ever to engage with brands.

New and evolving technologies demand that businesses account for the myriad of platforms that can promote as well as demote their brand. Brand research across a diverse range of markets has shown that your customers’ opinions, needs and expectations can turn on a dime, particularly in the court of social media. As a result, the challenge for businesses is to navigate these platforms to ensure they don’t get lost in the crowd, or worse, stand out for all of the wrong reasons.

What Is Brand Identity and Brand Image?

Brand identity is the way a business defines itself to their target audience. Every element that helps define your brand, from name and logo to color scheme and even the language you use to communicate with your audience come together to create your overall brand identity.

On the other hand, your brand image is the perception that customers have of your brand. It is the aggregate of every experience, interaction and association that people have with your organization. Continue reading

Going Beyond Consideration

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Understanding the Institutional Investor Journey When Selecting an Asset Manager

Institutional investors yield considerable decision-making power and often involve an extensive list of resources in their process of vetting and hiring a new asset manager. The firms vying for attention need to effectively differentiate yet not over-complicate their unique value propositions. Given the intensity of competition in the institutional market, asset managers need to make the most of every potential mandate to position themselves to win new assets. While many struggle with the challenges of building brand awareness to even get a chance to be considered, the most successful firms arm their sales, relationship management and product teams with insight on the decision-making process in order to maximize their opportunities of being selected.

Common triggers prompting asset manager searches include multiple periods of underperformance, investment team turnover, style drift, and corporate merger/acquisition activity. That said, new-manager hires are not always the result of the need to replace an incumbent, as institutional investors and consultants are open to opportunistic searches for new strategies that could enhance the overall portfolio. While performance and price along with familiarity and strength of the brand are integral in the evaluation of asset managers, a variety of more subjective factors weigh heavily in the final selection decision.

In the process of hiring an asset manager, all institutional investors follow a similar journey, with each type bringing its own nuances to the overall process. Along the journey, asset managers can leverage a number of points of influence to maximize their potential for selection. The people and additional sources of information also involved in the journey vary by type of institution, offering opportunities for asset managers to target their ongoing outreach to specific audiences. For example, consultant recommendations are by far the most influential factor for defined benefit (DB) pensions, yet peer recommendations, either formal or word-of-mouth, can be a gateway for endowments.

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Advisors’ Top Reason for Selling Annuities

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Amid Rising Sales, Advisors Cite Guaranteed Retirement Income as Top Reason for Selling Annuity Products

Annuity sales are rebounding and advisors expect to maintain, or even increase, their use of annuity products in the near future. At the same time, the composition of advisors is changing, as many advisors shift further toward fee-based compensation models. Annuity providers have an opportunity to support advisors using a variety of compensation models through this transition while highlighting the important benefits annuity products can bring to advisors and their clients.

When asked how important a list of factors was as reasons for selling annuities to clients, advisors cite the ability to generate guaranteed income in retirement as the top factor. In fact, over three-quarters (76%) of advisors, regardless of compensation type, cite this factor as very important. Diving into different types of annuities reveals that retirement income products and guaranteed rates are also among the leading consideration drivers for variable and fixed annuities, respectively.  Continue reading

Is There a Future for Financial Wellness Programs?

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Financial wellness programs were greeted with great hopes when they first debuted. But is the prognosis for their long-term success starting to flag? Amid signs that such programs have not been as impactful as expected, our latest white paper takes a 360-degree look at three sets of stakeholders—plan sponsors, plan participants and retirement plan advisors—to construct a clearer picture of the state of financial wellness initiatives. Here’s a sneak peek!

The Employer View: Enthusiastic Adopters

Preparing employees for retirement is a high priority for plan sponsors. Indeed, 40% rank it as one of their top three priorities for the year. It’s no wonder then that employers embrace financial wellness programs with enthusiasm. Adoption rates among plan sponsors jumped from 16% in 2017 to 21% in 2018. And interest in offering a financial wellness program is strong, with over one-third of plan sponsors likely to consider implementing a program in the future. Continue reading

Affluent Investors: Big Emotions and Purchase Intent

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Ready-to-act Investors Reacted to Positive Market Environment in Q3 2018

No one appreciates being told that they “are overreacting,” especially in the midst of expressing a big emotion. On the contrary, having one’s feelings heard and validated serves as a powerful response and creates opportunity for further engagement, a valuable lesson for distributors and product providers to keep in mind.

Q3 began amid ongoing trade disputes between the US and its trading partners and news of the economy having grown 4.2% during the previous quarter, fueled by a strong labor market. Economic growth helped spark investor optimism, along with hope and confidence in the investing environment. By some accounts, the current US equity bull market earned the longest tenure in history this past summer, boosting consumer confidence to an 18-year high. The third quarter finished with the large-cap S&P 500 index turning in its best quarterly performance in nearly five years. Despite a 0.25% increase in interest rates in September, affluent investor sentiment remained consistent from June through the end of the quarter. Continue reading

Financial Planning Games: Financial Advisors Compete Head-to-head with Planning Websites

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My firm’s CEO, Melissa Sauter, lives by the motto, “fail to plan, plan to fail,” and encourages her employees to do so as well. Based on life’s often harsh lessons around preparation, “fail to plan, plan to fail” seems to resonate with most people, including affluent investors, as more than half (58%) report having a financial plan and another one in five (19%) is currently working on one.

However, 17% of investors with at least $100,000 in investable assets admit to not having started to make a financial plan, including about one in five investors ages 54 to 62, arguably beyond the ideal time to already have a financial plan in place.

Financial planning is the act of creating a plan where you establish a set of goals in your life and figure out how much money it will take to achieve them. This involves saving money, investing, and getting insurance to protect you and your loved ones. It also includes having legal documents created in the event of an emergency so that your family is prepared.

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