KYC – Know Your Client – Outflow Prevention 2.0 for Funds

The ‘Know Your Investor’ rule has other benefits beyond risk management, below Newgate’s Henry Adefope implores asset managers to explore and harness a granular understanding of investors and their motives to not only retain business, but to grow it too.

Why a granular understanding of the issues that investors hold dear could bring fans, and drive inflows – so long as this understanding is clearly communicated

Anyone who has worked anywhere near a customer-facing function in the investment sector will be aware of the widely quoted Know Your Client rule enshrined by the Financial Conduct Authority – the process of a business verifying the identity of its clients and assessing potential risks of illegal intentions for the business relationship. But why just stop there. Aside from asset managers exercising best practice regarding risk, this insight could also help generate future business, as well as keeping existing clients happy, and invested.

In-depth knowledge about the investor base is the best type of insight a fund manager can gain into how their proposition is being perceived and supported by investors; and should be viewed as an essential piece of intellectual property for an investment brand; something that can aide both product and new business development.  The evidence is literally right there to be investigated.

This opportunity is available for all types of money managers with a wholesale, institutional or retail client base.  However, index tracking managers should seriously consider having sign posts in place as their perceived lack of active stewardship and engagement with the companies they invest in leave them more exposed to activism attempts (for the listed entities) and outflows than traditional stock-pickers in this regard. To ward off any investor discontentment, those managers that regularly analyse the sentiment and objectives of current and prospective investors, and engage them along the same lines, altering their product range and values when necessary, will likely get ahead of the ones that do not.

So why research your shareholders? A diverse shareholder base means a one-size engagement approach may not fit all.  The non-traditional investment issues will differ across the different types of shareholder – albeit greater importance should be given to those investors that have deployed the most assets with the fund. The engagement must be sophisticated, i.e. sentiment surveys, targeted investor forums, online magazines, guidance videos etc., with an understanding of the range of investor issues, which the fund must be able to remedy then communicate to investors thereafter. We live in an age of hyper-visibility and exposure, time-poor professional lives, and rapid decision making. Investors want to know whether a fund can meet their needs instantly – they will not wait to find out and will vote with their feet.

But knowledge of the needs and wants of investors alone isn’t a panacea to robust stakeholder relations.  It has got to be harnessed and translated into better outcomes for the investment brand. Therefore, it is crucial for fund houses to have a clearly defined vision of their values, investment style, ethical considerations if any.  Similarly, this should include all marketing materials and website(s) – whether this is the brand’s own form of activism, responsible investing, or anything else of broad interest to the trustee, asset owner, family office, and intermediary communities who may invest with them.

Daniel Coatsworth, a seasoned investment journalist and retail investing champion, has long called for improvement in this area within the sector stating “…we believe every fund or investment trust should provide crystal clear information on how they look for investments, what they choose and how they manage their portfolio”.  Fortunately, he notes that “…there is a growing number of fund management companies which explicitly state what they desire when seeking investment opportunities” …for investors, and this is an encouraging trend that those who follow will benefit from.

Increasingly, investors are pushing for more clarity on not only traditional, but also non-traditional investment issues, so having an answer for them in real-time, is a no-brainer.

Five tips for assessing your investors:

  • Ensure you have a full understanding of your shareholder base – the different characteristics and objectives – this may help target investors with similar characteristics to attract
  • Regularly survey or assess your shareholder base – gauging any change in sentiment or objectives about their assets
  • Create and deliver effective, targeted communication campaigns that can engage this client base
  • Be one step ahead and in a position to anticipate the next move by your investors by frequently getting feedback and response from them on key issues like investment strategy or product range etc.
  • Integrate stakeholder mini-hubs and microsites to online and offline collateral i.e. ‘activism to us is….’ Or ‘We are IFA’s platform partner of choice’ into company websites and other marketing supplements that stakeholders can instantly recognise
    • The audience specific segmentation of messaging, informed by insights, is key to the propositions success

Written by
Henry Adefope, Account Director at Newgate Communications

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