RFP: Diary of an institutional salesman, part 18

WTF develops his own ETF (Extremely Tempting Fund).

The Asian product-development team at Integrity is always on my back for ideas to please our clients.

“What do people need, Will?”

“What is the competition selling?”

“Where’s the gap in our range?”

Those guys are not working hard enough for their money, but I can buy me some leverage by helping them out. I’ve been having quiet conversations with private banking investment strategists and industry experts (those are two mutually exclusive groups, by the way, dear diary) to generate some ideas.

Investors want something different, need something new, crave something they haven’t thought of yet. Because today’s investors obviously have such different needs from yesterday’s.

Product development is a dark art indeed – dreaming up gimmicks and fluff that investors don’t yet know they need, creating something out of nothing. It’s a mix of spying and conjuring. Investors like guarantees and capital preservation, outsized returns and no surprises. Fund management houses like scalable products and low capital demands, juicy fees and lengthy lock-ins. It’s the prod-dev team’s job to make sense of these differences and make it look like investors are getting what they want, while making absolutely certain that the fund house gets what it needs.

There is no direct line between price and value in this game. For the past two decades, guys like me have worked hard to convince the industry that our services deserve the high fees. Of course they do – asset management companies have considerable overheads to cover, not least us superstars in the sales team. Without us, there is no business, so it’s only right that our industry generates sufficient margins to compensate us adequately. And, by golly, I have earned my crumbs today.

Because I’ve seen the future, folks, and I’m fully prepared to embrace it. The writing is on the wall for active mutual funds: our days of selling luck and hope are over. Now we can make even more money selling something much simpler.

Nobody can have missed what’s been going on; those guys over at iClones have been on the region’s biggest recruitment drive ever, snapping up anyone and everyone, clearly regardless of whether they are good or not. It’s the megatrend of our time. Extremely Tempting Funds (ETFs) are here to stay in a big way.

Look at the AUM growth in these past few years, even during the GFC – it’s all about scale. Think Wal-Mart. Even better, think Microsoft – the coming anti-competition lawsuits will take decades to sort out, by which time we’ll all be off on our 70-foot Sunseekers.

Don’t be fooled by the headlines. Just because these things are passive index-trackers doesn’t mean we have to give them away for low fees. On the contrary, all we need to do is convince investors that they need the additional liquidity and convenience, and we’re hardly taking a hit on fees from the usual active crap we’ve been peddling for years. And we can get rid of those costly prima donnas downstairs in the investment team. Fortunately, sales is one function which cannot be replaced by machines!

Ladies and gentlemen, we are going to clean up here. Following the too-good-to-be-true nature of the whole ETF market, we will soon be launching the new “Alchemy ETF”. This unique structure will guarantee a return equal to the greater of the returns on gold and lead. Gold with downside protection – it’s what my market research told me people want to have. They will snap this up without reading any of the small print. I don’t think I’m giving away too much by reminding you, dear diary, that gold is at all-time high prices and lead simply doesn’t trade very much at all. For a firm of Integrity’s size and resources, protecting our account by selectively ‘impacting’ the price of lead is no problem at all.

Pricing comes down to what people will be willing to pay. We have packed the product with features – the hottest commodity in the world, with downside protection, the great Integrity brand name, the ability to trade any time of any day on a range of exchanges, the glossy brochures and TV advertising, those posters on the MTR and MRT, the Harry Potter wizard kits to be given away with the first 1,000 sales.

All these things cost money, which doesn’t grow on trees you know. So we include subscription levies, sponsor fees, marketing costs, investment management fees, custodian fees, trustee fees, structuring fees, pricing fees, legal dues and market representative’s charges, in order to make sure that Integrity doesn’t lose out. How we’ll get that little lot past the regulator, I’m not quite sure, but it’ll keep our lawyers fed and watered.

So there’s yet another feather in my cap, or at least there will be once we get this baby off the ground. iClones had better watch out – even a whole army of sales-bots is no match for a rampant William T. Fitzgerald!

(William T. Fitzgerald is available to answer queries regarding the industry, your career and your clients. Requests for advice that mention Will’s successes and accomplishments will receive priority in the queue. You can e-mail him at [email protected].)

William T. Fitzgerald is a fictional character, as are all the other individuals and companies in “RFP Diary”. Any resemblance to the living or to real firms is purely coincidental. Will’s adventures continue fortnightly.

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