Steven's Thoughts

Steven at ALIF in Luxembourg

Consumers want to be educated

I am a new fan of the magazine called "Good"(see previous blog). I've been reading some great articles.

• Metal is making a comeback in Egypt after a crackdown on "Satanic music."


• The Ashland Media Exchange and the Espresso Book Machine seek to put books back in people's hands


• Michael A. M. Lerner talks with the man who is putting the “science” back in political science.                           

While I was reading I came across what looked like an article which listed several facts about the dangers of pesticides.

• "six times greater the incidence of children born with autism to mothers living within 500 meters of California fields sprayed with pesticides than the rate of autism births nationwide"

• "10,400 Number of people who die in the U.S. each year from cancer related to pesticide exposure."

• "250 Number of people in the U.S. killed each year by assault rifles"

• "245,000 Number of fish killed in 1995 when a heavy rainstorm caused runoff from Alabama cotton fields into a nearby creek"

• "4,000,000 Number of people in the U.S. who routinely drink water contaminated with carcinogenic herbicides"

• "90 Percentage of municipal water treatment facilities lacking equipment to remove these chemicals from the drinking water"

• "5 Number of the nine most common pesticides used on cotton that are classified as “known carcinogens” by the EPA"

• "75 Estimated percentage of pesticides sprayed from crop dusters that blow away rather than reach the ground"
  

The article was sponsored by what I thought was a not-for-profit organization called Loomstate. I was intrigued and went right to my mac to enter www.loomstate.org. Lo and behold Loomstate is actually a organic jeans company, not an environmental not-for-profit.

What a great marketing campaign! If they would have created a typical jeans ad featuring a sexy model showing off a nice butt,  I probably would have flipped right to the next page. Well, maybe I would have looked for a little bit, but I would have quickly forgotten the brand and I definitely wouldn't have gone to their website. Rather than using sex to sell their jeans, Loomstate chooses to educate their consumers about the environment and in turn piques some interest in their product that goes beyond the surface.

Asset managers tend to show the equivalent of what are sexy models in their ads, by touting 1, 3, 5 year results. Why doesn't the industry educate advisers who are interested in investments and provide insights to portfolio mangers? Asset Mangers could present statistics or analysis, that reveals something new to advisers, which would ultimately drive traffic to their site.

I hope the financial industry catches on and the next time I open Financial Planning Magazine I will get inspired by the information presented to me. And who knows perhaps I'll  gain a new perspective that will compel me to hop on the computer and find out more.

Great business idea - give all subscription $ to charity

I was on my way to Tokyo when I stopped at one of the newsstands in the airport.  Because I was getting ready for a 14 hour flight I bought a bunch of magazines. One of them was this magazine I had never seen before called "Good".

On the plane I got completely sucked into the content.  I barely skipped any of the articles, which is very uncommon for me. But this what makes this magazine a great business ideas is not only the excellent targeted content, but also their subscription model.

First, this magazine is targeted as they call it at people who give a damm:

"We see a growing number of people tied together not by age, career, background, or circumstance, but by a shared interest. This revolves around a passion for potential mixed with fierce pragmatism and creative engagement. We sum all this up as the sensibility of giving a damn. But to shorten it, let's call it GOOD. We're here to push this movement and cover its realization."

Second, the subscription money goes to a charity that the subscriber choses. This is why they say they do this:

"We're doing this because

1) it's smart business and 2) we believe in this.

Let the secret be known—most magazines do not make money on subscriptions or newsstand sales. Traditionally, the best way to get a bunch of new subscribers is to send millions of pieces of unsolicited mail—junk mail—to people who might have some interest. We don't like junk mail, and we don't like the thought of spending millions of dollars on it. So we came up with the idea of giving away all subscription fees and allowing subscribers to choose which organization they would like to support.

This whole thing is an experiment. If it works, we'll actually spend less than half of what it traditionally costs to acquire subscribers. The success of this campaign will allow us to:

a) meet a self-selecting group of quality subscribers who find us through word of mouth, internet links, media coverage, our partner organizations, or the other crazy schemes we like to come up with; b) raise significant money for organizations that will do something important with it; and c) save resources and prove that you can do well by doing good.

Our goal for our launch year is to create 6 amazing issues of GOOD, sign up 50,000 subscribers and donate $1 million to their favorite organizations.

If you like what we're doing, please help us make it happen. Choose GOOD. Thank you".

The magazine didn't bridge the majority of my flight, but was a great read and got me to subscribe to it.

DC plans still don't offer SRI options

Increasingly investors are putting their money towards socially responsible investment (SRI) funds. A survey by Mercer Investing Consulting, prepared for the Social Investment Forum (SIF), show that less than a 20% of defined contribution (DC) plans, such as 401(k)s and 403(b)s, at work, are currently offering one or more SRI funds. DC plans are starting to listen to investors and an additional 41% are planning to offer SRI options within three years.

Why would a DC plan not offer a SRI option when increasingly investors are demanding this as an investment option?

The future financial advisor

I recently spoke with an executive of one of the largest asset managers in the country. He was the first, outside of kasina, that has been trying to figure out what the next generation of financial advisors are going to be like and what impact they will have on his business.

The future advisor is now 26 years old and four years out of college.  He/She has been:

• Using a PC since elementary school
• Blogging for the last three years
• Doing all research, at school, for term papers through the Internet
• In school downloading her professors lectures from the university Intranet
• E-mailing since 15
• Communicating with friends through IM for the last eight years
• Having a myspace.com profile for the last two years and before that was on friendster and facebook
  
• Podcasting about recent trips to Costa Rica and Peru
  
• Using wikipedia to help understand many finance topics

What are the implications of this for selling asset management products? The advisor of the future will use technology like advisors of the past used the fax, phone and their Rolodex.

The advisor of the future will:

• Primarily use the Web to research products
• Read blogs to stay informed and educate
• Write a blog to communicate to clients
• Write a blog to share her expertise with colleagues
• Communicate with IM and e-mail to their clients as well as to the asset manager
• Share research sites through del.icio.us
• Podcast or videocast to clients
• Want to use tools such as:
• Webex
• Brainshark
• Use wikies to collaborate with her colleagues

Most heads of distribution are looking in the rear mirror instead of seeing the signs ahead. It was very refreshing to talk to someone who is interested and has vision for the future.

Selling it not an art!

As I posted earlier, I am reading the The Rules of Business: 55 Essential Ideas to Help Smart People (and Organizations) Perform At Their Best. One of the quotes that resonated with me was:

"Don't confuse selling with art."
--Jack Taylor, vice chairman, Jordan, McGrath

Firms that are successful at selling have taken control of their wholesaling organization and have stopped letting the wholesalers run the show. These firms have started to take a larger role in determining the activities of their wholesalers to ensure that they are executing on a strategy, rather then playing golf with the same advisors over and over again.

Three things firms have started to do:

1. Focus on less firms, about 15 focus firms, and only pay on these firms
2. Focus on less advisors (150 per wholesaler)
3. Have hybrid wholesalers focus on lower level advisors and prospects

By executing on a sales strategy firms are taking a much more process-oriented sales  approach rather then relying on wholesalers heroic efforts.

Hot Topics

I am at NICSA's annual conference in Miami. And yes, for all of you in the northeast it is 78 degrees and sunny. Yesterday was NICSA's Board/Co-chair meeting, where we discussed some of our future plans including a number of hot topics the industry is facing. Here are a few of the things that we are thinking of addressing:

• How to please B/D analysts?
• Changes in Key Accounts, how to value shelf space
• The undefined RIA opportunity
• Marketing beyond collateral 
• Business Continuity in preparation for the potential bird flue
• How firms can take advantage of the explosive growth in the Asia Pacific region?
• The role of funds in the SEC point of sale disclosure
• Implementation of rule 22 c-2
• Looming legislative changes
• Heath savings accounts, will they be the next IRA?
• Oversight of distributors
• Efficiency of risk management

Fund Managers don't listen to investors

Most fund firms develop their products based on internal preferences, rather then investor and or advisor research.

A recent study by the Civil Society Institute showed that seven out of 10 U.S. mutual fund investors now want their mutual funds to support global warming shareholder resolutions, but not one of the nation’s largest mutual funds voted in favor of any climate change proxy measures during 2005. 

Most of the mutual funds are distributed through financial intermediaries so the question arises who should represent the shareholders/investors interest? In my opinion it should be both. But in the long run this will hurt the mutual fund companies more then the intermediaries. They will have to start creating products that investors want and that differentiate them form the pack.   

Differentiate or make $22 mil

G Richard Wagoner Jr, CEO of GM, made $22 mil over the last 5 years. How can a firm and a CEO be allowed to lose $8.6 billion, or $15.13 a share? The car industry should be an important warning sign for the Asset Management industry. Most US car makers don't offer cars with differentiating features that people want to buy. At the same time, they have a labor force that is deemed too expensive to produce the cars cost-effectively.

In our industry, most Asset Managers also have trouble developing differentiated products and firms are not looking at the profitability of their distribution relationships. 

Why can the Mini and the Hummer sell at the suggested retail price and their customers will put themselves on a waiting list to get the car? Because they are different. The Mini is the smallest and the Hummer is the biggest car. They don't try to be a car for everyone. Asset Managers need to take the same approach. Develop products and a brand that people care about. In order to do that firms can't go the safe route and try to appeal to everyone. Advisers need to tell a story to their clients. Asset mangers need to provide that story to them.

On the profitability side firms need to evaluate their distribution relationships and the cost structure to support that. Firms need to look at net new revenue added and the profitability rate, which need to be considered both for existing assets as well for assets that will be gathered in the future. Only by going through this exercise can firms ensure focus on the most profitable relationships.

Do Webcasts work?

Most firms have have struggled with video content on their sites. In the last year due to increase in broadband and overall interest in online video more firms are launching video casts.

Amazon will start broadcasting a weekly live program with Bill Maher that will also be archived.   

There are a number of sites dedicated to video content:

http://www.youtube.com/

http://video.google.com/

http://www.ifilm.com/

http://www.boreme.com

The future is in online video.