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Lessons learned in the wealth management trenches

We're celebrating our firm's fifth birthday this week, which has brought on lots of reflection. Before we started up, I sought counsel from as many people as possible under the theory that if you want money, ask for advice. As it turned out, I got little money and lots of advice. For instance, "Finance the firm as if you won't win a client for three years." "No matter how good your offering is, you've got to sell it." And my personal favourite, "Tom, get a real job before people forget who you are."

I ignored some of the pearls (at my peril), but heeded most of them. What I couldn't ignore, however, were lessons the markets, competitors and my team taught me over the ensuing five years. So now when entrepreneurial managers come asking for money, I've got plenty of advice to offer.

First off, I'd repeat the maxims about financing and selling. No matter what the projections say, it will take longer than anticipated to build a client base. With few exceptions, time is required to build a record and get the message out.

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From there I'd start in on what I learned in the wealth management trenches.

This stuff is hard: For your clients, investing is perverse, unpredictable, emotional and often harrowing. You need to fight the natural tendency to make it even more complicated and daunting. Your work with clients has to be explainable and kept as simple as possible.

Living the long-term: While it's hard for some clients to understand all of what goes into an investment strategy, it's even harder to sustain that strategy over a long period. Keeping clients on track requires an entire ecosystem – appropriate securities, clear communications, timely feedback, ongoing counselling and compensation that's aligned with their objectives. You can't design solutions without thinking about how they're going to be executed years from now, and in all types of markets. It's not a better ride if your passengers get off at the wrong stop.

A bias toward change: The investment industry has the attention span of a 4-year-old. Two of its key drivers – compensation (fees and commissions) and past performance (what's done well recently) – lead to changing strategies and a steady stream of new products. Unfortunately, this hyperactivity kindles clients' psychological need to take action (especially males). It makes a "stay the course" strategy, which is often the best option, difficult to maintain. In this context, it's important to communicate what's being done on the clients' behalf (research, buys, sells, rebalancing), even if it doesn't add up to substantial change.

David and Goliath: Over the last fifteen years, the big banks and insurers have come to dominate the investment business. Their reach is now so broad that in addition to owning most of the asset managers and brokerage firms, it appears they'll soon own the stock exchange. The only way to succeed against such competition is to be substantially different and emphasize aspects where you have a clear advantage – personal, custom, patient, nimble, low fee, non-benchmark, small-cap, employee-owned and other elements that scale precludes. I heard Tom Waits say recently, "If both of you know the same things, one of you is unnecessary." As a David amongst Goliaths, you can't afford to be unnecessary.

Shifting winds: On that note, it's important to focus on your sweet spot and not get too locked in on any one competitor. If someone is eating your lunch, just wait a few quarters. It'll change. Exchange-traded funds (ETFs) were a good example of that for us. We initially viewed them to be our toughest competitor. But ETFs became a less important part of our competitive landscape when the number of fund proliferated, cost and complexity increased, and the need for advice became more apparent. Adapting our strategy to just compete again ETFs, or another firm or product for that matter, would have been a mistake.

Skating to open ice: This brings me to my last piece of advice. When it comes to generating client returns, the investment industry has plenty of what I call structural inefficiencies – short time horizon, over-diversification, high fees, high turnover (staff and stocks), complexity and an overemphasis on macro-economics over valuation. For you and your clients to win, you need to exploit as many of these enduring inefficiencies as you can, and conform to few or none.

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Tom Bradley is the president and founder of Steadyhand Investment Funds. 
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About the Author
Tom Bradley

Tom Bradley is the President and founder of Steadyhand Investment Funds. His education includes a Bachelor of Commerce degree from the University of Manitoba (1979) and an MBA from the Richard Ivey School of Business (1983).Tom started his investment career in 1983 as an Equity Analyst at Richardson Greenshields. More

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