The Spence Johnson Blog

By Philip Robinson, 13 February 2015Client Research

Client reporting in the UK- significant room for improvement

Spence Johnson compared the reports of 8 leading asset managers in the UK and the findings were not pretty.  Even more surprisingly the difference between best and worst practice was very marked. 

Of the 30 or more client management criteria that Spence Johnson tracks every year, the quality of performance explanation is almost always in the top five.  To that end it would have been expected that managers would by now have improved their reporting on this.  Alas this is not the case.

Three managers simply did not pass muster on the quality of output.  Elementary mistakes were made on length of commentaries, lack of pithy executive summaries and performance explanations that simply misled the reader.  Fee transparency, poor risk management explanations as well as a low level of ESG compliance were also in evidence. 

Length is also an issue.  One quarterly investment review was a massive 62 pages.  The shortest was a mere 16 pages. 

Two managers provided excellent quarterly investment reviews and had obviously taken a lot of trouble to listen to client demands. 

Why the difference in quality of output?  It is Spence Johnson’s view that too much emphasis has been put on industrialising the client reporting process without taking full consideration of the quality of output.  The trend is toward bespoke and tailored reporting as pension funds embrace ever more complex pension solutions.  Managers tell us that the clue is to identify  portfolio managers who can write well and use their skills for the commentaries. 

An amusing aside was evident.  At Spence Johnson we conducted an internal poll on performance explanations within client reports.  And it was clear that managers fell into a trap of writing longer explanations the worse the performance. 

It is clear that managers in the UK have a way to go on client reporting.

 

By , 13 February 2015Client Research

Excellent client management adds value

Excellent client relationships add value to managers.

In research completed in late 2014 pension fund decision makers told us that in periods of underperformance excellent client management keeps clients for more than 12 months extra.

The 41 UK pension respondents with AUM over £13bn were also asked to differentiate between mandates.  For a £100 million multi-asset mandate respondents stated that a year extra would be awarded for excellence in client management. This equates to about £290,000.  Spence Johnson’s research covered property, fixed income, and equity, as well as liquidity mandates, with the latter showing the lowest added value at 5 months extra. This would still give over £50,000 in fees (source for fees: LCP). 

What is excellence in client management?  Spence Johnson continually tracks over 30 criteria and the following were the top five in 2014: 

  1. Responsiveness (quality and timeliness)

  2. Continuity of staff (single point of contact)

  3. Quality of performance explanation

  4. Clarity and trust on investment process

  5. Face-to-face meetings

Compared with similar research in 2008 responsiveness and quality of performance explanation remained in the top 5.

Pension fund clients have become less patient since the financial crisis in 2008/9.  Back in 2008 excellent client management would have given a manager over 20 months extra time despite investment underperformance.  The following reasons were given for this growing impatience with managers:

  1. 2008/9 financial crisis

  2. Disappointment with active management

  3. More onerous monitoring of mandates

  4. Emergence of solutions and scheme specific absolute return benchmarks

  5. Greater level of staff discontinuity at asset managers since 2008

  6. Improved pensions governance

Spence Johnson believes that this impatience is one of the key drivers for pressure on institutional fees. Despite market recovery since 2008/9 it is likely that managers will remain under greater scrutiny. Excellent client management will continue to be important in this environment.   

 

By Philip Robinson, 13 June 2013Client Research | DB Pensions

Net Promoter Scores back in vogue?

Meeting a major UK asset manager the other day the question was posed - how can we measure sales effectiveness?  This is the same question I have been asked repeatedly of late. The conversations then focus on Net Promoter Scores. 

The concept of Net Promoter Scores was pioneered in 2003 by Fred Reichheld. In a Harvard Business Review article claiming that this score was ‘the one number you need to grow’ a metric was born that is widely followed in client research. 

Net Promoter Scores are calculated on a scale out of 10 with 9 and 10 being considered promoters.  Scores 7 and 8 are fence sitters and scores 0 to 6 are detractors.  The Net Promoter Score is the % of promoters minus the % of detractors. 

The range of Net Promoter Scores is 25% to 61% in over 50 client audits conducted on behalf of 9 asset managers over the past 5 years.  This survey sample comprises over 2,500 pension decision makers responsible for assets in excess of £250 billion globally.

This is a good result and one that needs to be better known.  At a time when the respected Edelman Trustbarometer reports that the financial services industry is the least trusted sector globally the asset management industry, by contrast, is generally trusted by institutional clients. 

Asset managers need to earn the right to be proactive.  If an asset manager is underperforming on a mandate then there is much less of a right to sell new strategies to that client.  Nevertheless if the investment performance and client relationship are strong then there is a greater willingness to respond positively to an approach.  When we have posed this question directly with decision makers the range of positive responses is from 15 to 35%.  So, if you are doing well more than a 1/3rd of clients will listen seriously to you.  That is a good result and one that must take seriously. 

By Philip Robinson, 29 April 2013Client Research | DB Pensions

Client retention in times of stress

Keeping institutional clients obviously makes financial sense. Research conducted in 2008 suggested that good client management can keep clients for more than 12 months despite investment underperformance. If that is the case then on a £100 million global equity mandate this equates to about £500,000 on a median fee (source: LCP).

At a recent Financial Services Forum attended by over 40 decision makers and chaired by Spence Johnson the focus was client retention. 5 clear themes emerged from the debate.

Firstly, good client management gives you longer time with clients. And that means precious fee income.

Secondly, it is all about people. Take people out of the equation in asset management at your peril! Most respected manager researchers state that the actual team makes up about 40% of a decision. I have conducted over 50 client audits in 5 years with over 2,500 pension decision makers (c £250bn globally) and the message is always the same – responsiveness to queries by a consistent team known to the end client is the most important criterion.

Thirdly, a few tips on what not to do. Client tiering is generally not good practice. I have war stories where a client realised he was a Bronze client and he told many others. Result – client loss! Industrialised reporting rather than bespoke doesn’t work either. And be careful on outsourcing administration as clients state that managers doing this get lower client satisfaction ratings.

Fourthly, take care on trying to ascertain the true costs of good client management. Portfolio managers will have to face the clients in times of underperformance and this is increasingly expensive!

Fifthly, listen to clients. Over 75% of asset managers undertake client audits either internally or externally with an independent. The trick is to act on the findings and ensure higher ratings in future.