Steve Seid:
Welcome to The Whole Truth, where we help financial professionals build great practices and thrive in a rapidly changing industry. We'll bring you the stories and voices from those on the front lines of this change, and we'll have some fun along the way. Thanks for listening and contributing to the discussion.
Disclosure:
The views expressed herein are those of the participants and not those of Touchstone Investments.
Steve Seid:
And welcome everybody to The Whole Truth. Steve here. We are doing our clip show for 2023. We identified a series of clips that we wanted to revisit and rethink about to get us going for 2024. We hope you enjoy. Not an easy process, I gotta tell you, to identify just the few that we put on this episode. So we left off a lot of good stuff, but I think these clips will be worth revisiting. And we grouped them into a series of groupings, which I'll talk about in a few minutes, but we got to get to some bigger show news, really big actually.
Steve Seid:
And I'll start with Kurt Dupuis, my partner. Kurt is actually leaving us, leaving our firm. He's decided to go over to the financial professional, financial advisor side, in the RIA1 space, and take over a book. And I am super happy for him. I wish him nothing but the best of luck. I'll certainly miss him on this show. We had a boatload of fun doing this show together. So Kurt, we will miss you, buddy. We will check in. We will see if any of the things that you talked about and learned on this show are relevant to your day to day. But wish you well, buddy. We'll talk soon.
Steve Seid:
As to the show itself, it kind of leaves us at a little bit of a crossroads. I'll start by saying that I would love, and in my mind want to continue to do the show. What will probably happen is, I will be the constant in the show and then we'll have a series of co-hosts, many of which you've heard on the show before. You know, Ben Alge, Mary Mock, Liz Lenz, people like that. So we'll just get a series of co-hosts that'll come on with me. But we have to break and talk about it. On the practice consulting side, we're taking a long term strategic evaluation of what we're doing. We've gone so far and we're, we're starting to get so known for this that we kind of have to step back and say, what are the priorities here? And this show is part of that discussion. You probably know how I feel. To reach the audience we have, which is thousands and thousands of people and downloads is beyond what I ever could have imagined. And I think it's very rare, those that are listening, you can let me know if you disagree, but I don't think there's anybody in the industry doing even close to what we're doing. I think the uniqueness of the show really does, does stand out. And we can see that by the growing audience.
Steve Seid:
So it's a discussion that has to happen. So we will, we'll see what happens. And I know there's a risk taking a little bit of a break here, because podcasting is something that becomes a habit, you know? I know for me, I've got a series of shows when they pop up, waiting for the new episode, the episode pops up, I'm looking forward to it. And I know for many of you, you feel that way about the show, and I'm completely grateful for that. Huge, huge, thank you to everyone that has ever listened and given us a chance and is listening to this right now. Just an unbelievable ride, unbelievable, fun thing to do. It always surprised me when I was in, you know, just, just random meetings, you know, it could be I'm out in some different state, some, some territory I haven't even been to before, with someone who you wouldn't think even would be listening to the podcast and you're like, Oh, I listened to your podcast. I mean, it's just, it's such a cool thing when that happens. So it's been, it's been such a fun ride. And let's get into our clip show.
Steve Seid:
We're going to go through a series of five different groupings of clips here. And we're going to start with two clips that are focused on execution, on taking steps, on making change. As much as we can talk about practice management and things that people need to do, the biggest hurdle remains how do we actually take those steps? How do we prevent ourselves from just falling back to the status quo. So we're going to have two clips here, one with our friend Tom Singler and one with our friend Liz Lenz. Take a listen.
My takeaway of what's worked is an ongoing relationship with an external or the right internal third party is what's really going to work. I have an ongoing relationship with somebody that keeps things moving because there's likely to going to be some false starts along the way.
Tom Singler:
The better way to maybe put that into one sentence is you need to have an accountability coach.
Steve Seid:
Yeah.
Tom Singler:
And really what we've seen too to help offset the false starts is now what we're doing is we're making the duration between check-ins shorter at the front end. So if we do have a false start, we're not waiting a longer period of time to identify what the issue is. So maybe after the original meeting, it's a one-week check in and then it's a two-week check in, then we go to three weeks, so on and so forth. So just seeing your name on the calendar for a five-minute phone call usually prompts some activity.
Kurt Dupuis:
This actually falls in line with another one of the teams or the moments that I wanted to describe, and I will call this the tough love team. So one of the things that kind of opening up your practice to showing us the data and us analyzing it is it kind of empowers us to have different conversations than we otherwise would be able to have. The one I'm thinking of recently is... A very common question that we get asked is what's working for client acquisition? I mean, maybe not daily, but at least weekly.
We get asked that question and there's a fun trick, fun game I like to play to kind of throw that back on whoever's asking, it's like, "Well, what are you doing now to grow?" And when I get crickets, we have to step back and have some tough love because what you're asking me is some silver bullet where we can snap our fingers and change the outcome. The reason you're not growing is because not doing anything for growth, pick a path and go down it. What Practice Consulting does is it puts a relationship in a microwave and allows you to be more candid more quickly. That's the conclusion of my TED Talk.
Tom Singler:
I think too, to Kurt's point, pick a path and stick with it more than three weeks. The constant I see towards acquisition specifically is, "Well, we tried it, it didn't work." "Well, how long did you try it for?" "Well, we gave it two weeks. Well, why don't you give it six months or a year?"
Steve Seid:
Love it. And I have something to add here, but I'm going to hold because I'm going to leave it for the section of common challenges because it's related to what we just discussed. Okay. Tom, do you have one more on what's worked?
Tom Singler:
Where I see a big blind spot with a lot of teams right now is the value proposition towards acquisition. The ability to have a rehearsed defined value proposition as to why they should be with you versus the guy down the street or the guy down the hall or gal is a big missing link there. And so if we think about the three things that you could control within the value proposition of quality, of the output relationship, speed of resolution and the cost, generally speaking, you have two of those, but not all three.
But having a actual value proposition as to why or why your team is something that is a big missing link when it comes to finding and identifying net new households, net new assets, and we have some presentations within an acquisition that go through the ideal value proposition as opposed to... "You can call me anytime" versus "If you call me, you're going to have a response within one hour and resolution within 24 hours."
Steve Seid:
Yeah, and I'll just put a cherry on top of this by saying, and the value proposition should be about them. So a lot of value propositions are about who we are, what we can do, our capabilities. If you can't bring it back to what that actually means, then it's less impactful. So you think about what Tom just said, it's not about, "Hey, I have all these members of the team that can return your calls." It's like, "No, here's what you can expect when you call in."
Kurt Dupuis:
This is one of my favorite rants in this business because my first job out of school was selling appliances, and so the acronym FAB was drilled in my head, features and benefits. We love to talk about features in finance, it's got all these bells and whistles, but we never talk about the benefit, what it actually means to the person receiving the information.
Tom Singler:
Don't say I or me a lot. If you focus on the you aspect when presenting, it's a whole different... I think we fall into that too. Focus on the end client and what it means to them, not what you are doing, what it means to them.
Steve Seid:
Okay, so I'll throw one more of what's worked. Teams that I've seen make a lot of progress, they have someone on the team that's kind of focused or coordinating the execution piece. So all the team is involved, but that one person is the one that's responsible for driving that change. I've seen that work a lot. I want to add a caveat to this though, and then you guys can comment. If that person is the only one on the team involved, the only one, and everyone's like, "Yeah. Yeah, John's doing it" or "Sally's doing it" and no one else is engaged, that's a pitfall. So we want somebody that's focused on execution that can help drive this change, but you also have to have some involvement and some buy-in from the rest of the team.
Tom Singler:
You need kind of the COO within the practice management realm, and whether that's a real title or not, they're going to head up this piece of the operations where we want to move the business.
Liz Lenz:
I've had this happen, the team says, "Yeah, we'll start a new way of doing it tomorrow." I'm like, "Great, good on you. Let's go do it. I'm going to hold you accountable to it." And then lo and behold, a month later they're doing three out of the four things. But the reason why they're not doing the fourth is because logistically it doesn't make sense or functionally it's got some other nuance to it that we didn't really write it down all the way. So it's often a best practice to go back after that implementation and be like, "Hey, are we good to finalize this?" People say, "Yes," and then you check the box.
With any process though, the number one thing that's your friend is technology to help you implement it. And what I mean by that is tasks, workflows. If you can create a workflow or task management system behind it that's automated, the systems are going to start telling you... And one, you're either going to notice that it's wrong right away in the way you're functioning versus what it's telling you to do. And if you ignore it long enough, you say, "Yeah, it's wrong. I'm going to do it this way anyways," you're going to get annoyed about seeing the wrong task too many times. So that is another way to implement it and hold yourself accountable to the process. You have to create processes on the non-differentiating pieces of your business. Anything that's boring, repetitive, the same thing-
Steve Seid:
Good call.
Liz Lenz:
... that you could teach a computer, you make that process oriented. You want to be wild on your wow gift idea? Every client you onboard, make it a wild moment. I mean, that's fine, but make everything else process oriented.
Steve Seid:
All right, up next we have three clips on growth. Everyone wants to grow or at least most people want to grow. I shouldn't say that, not everybody, but we've got three pretty excellent clips on growing your business. The first one from Matt Campbell, second from Jake Willis, third from Dan Allocca. Matt Campbell is going to be covering utilizing some databases to find information on prospects that you may not be aware of. Jake Willis covers the principles of persuasion and how to think about that in the sales process. And Dan Allocca from Prosek, which is a marketing firm that we work with, it covers value propositions and how to market yourself. So let's get into those three clips on growth.
Matt Campbell:
No matter what stage you are in your business, you need to either get more out of your existing clients or you need to get new clients and prospects through the door. And even if you are growing by referral, and I put this in to my notes really even before I knew that we would be segueing into a referral specialist too. But even if you're growing by referral, the very essence of that is that in a lot of ways you're relying on someone else to help you grow your business and not really that sweat equity. And in some ways, growing by referral is releasing who that next client is into the universe and taking it out of your own hands, which if you think about it that way, might give some advisors pause.
We've all bought lists of high net worth individuals that were angry at their financial advisor or whatever that survey was that they filled out, whatever the reason was that they got on that list. But the problem is chances are they've been sold to everybody and their brother, and by the time you get to that list, everyone's already called it. So I started thinking about how to solve this problem and we live in this information age, so this information has to be out there. But the problem primarily I think is that it's not all in one place. I was also pleasantly surprised by all the resources that were out there on the internet where you could find really good and pretty granular information about people and also maybe a little bit scared too, I guess in that same regard.
If you use some of these websites in unison with one another, you can really get some very actionable ideas and leads out of it. And I'm going to share with you a couple of websites. There's a website called Reference USA, and the actual website is referenceusagov.com. It's a government-based database, but you can see a huge list of... I think it's 84 million US businesses. And it's also 2.2 million healthcare professionals and dentists. And you can access this information a couple of different ways. There is my account page where I'm sure for a small fee you can sign up.
I was able to use my library card, and this might be different from state to state, but what Reference USA allowed me to see was all the businesses in my area. I could search by a mile radius, number of employees. There was owner's name, there's a number of C-suite executives, years in business, addresses of locations and brick and mortars. In some cases, there're even HR directors and their numbers or their email addresses. Maybe you're going after business owners. I know a lot of advisors do that. Maybe you're going after physicians in a specific area or of a specific ilk or calling. But also if you're a 401(k) producer, you could search a company that's got a hundred employees that's been in business for 20 years. Chances are they've got a nice K plan, and if they don't, they probably need one. So that's Reference USA.
Another way I thought of to maybe slice this pie is there's a lot of property ownership websites too. And again, a lot of these are... They function county by county. But the example I'm going to give you is Greenville County, South Carolina. Their website is greenvillecounty.org. That's the main page. And on that main page, you can look up specific subdivisions that you know to be wealthy subdivisions. In this particular instance, I'm using a place called Chanticleer, which is a high-end community in that area. And so I put in a search in that area and I found-
Steve Seid:
What's the website?
Matt Campbell:
The website? Well, this one in particular is greenvillecounty.org. So my suggestion here is property ownership websites are going to be county by county, so whatever county you're in, I would just put county I'm in dot org.
It allows you to search within wealthy zip codes or even subdivisions. You can get the name of the owner, you can get the address, you can get the listing price or the most recent purchase price. So it's like Zillow on steroids. And also, for example, there's a gentleman's name here and it says revocable trust. Someone's got a revocable trust that's holding a house. Chances are they've done some financial planning in the past.
Another tangential idea there is, so now you've accessed owner information, address, even the amount of properties that these folks own when they purchase what the value of these homes are. But if you search with Plustech search, you can gain some extra information. And so that's sort of step one. Step two would be, all right, I have this person's name and address... We live in this information rich age and so everybody else has this information about us, so why not take advantage of it?
Steve Seid:
That's right. It's the business model of all the tech companies. So you're not doing anything that everyone else is not doing.
Matt Campbell:
So in any case, if you find business owners, property owners, maybe somebody you met at a cocktail party, there's somebody you had a conversation with that you wanted to follow up with or maybe put them on a mailer for some sort of future event. There's two websites that work in this regard that I found at least for my searching, was www.officialusa.com. And I'll say these twice, www.official, like a referee, usa.com. And at the splash page of this website, it won't look very relevant because it says "Enter government business or name of business," but as you scroll down, about two thirds of the way down, you'll see officialusa.com people directory. It's organized a little funky, it's in alphabetical order by first name and then last name. But I tried to look myself up on it and I was able to find my information and it was accurate.
What you would do is you scroll down a people directory, you search alphabetically, you can find these names, you can find emails, you can find dates of birth, which also would be good if you were doing a social security presentation or something where age specificity was important. And not everybody's going to show up in this directory, but if they are on the site, the phone numbers at least that I have looked up up and I looked up a couple of my family members, they were accurate. They were exactly what they were on my phone.
Kurt Dupuis:
No kidding.
Matt Campbell:
And so this is kept up to date and more accurate than the second website I'm going to share with you. But the reason I share this one with you is chances are if they're not on one, they may be on the other. The second one is called fastpeoplesearch.com. It seems a little bit more like a white pages and you can put in somebody's information, their address, which you could have gleaned from those tax documents. Search by address, probably more so the name because I've noticed some folks in here aren't necessarily by their given names. It might be Matt instead of Matthew, it might be Chip instead of John or whatever their first name is.
So I guess finally in summary on this, I think you could use this information for a couple of different reasons. You could fill some seats at seminars, prospecting events that you needed additional folks to join. You could use this to learn more information about people that maybe are in your country club that you might want to partner up with at the next golf outing event. Maybe lose somebody's business card or maybe you wrote down the wrong number. But I think that's my catnip idea. It's not all in one place, but if you were so inclined, you could really find some interesting information. And I think with some cutting and pasting in a few hours time in an evening while you're watching football or something, you could compile a decent little prospecting list here and you don't have to pay a dime.
Jake Willis:
So the second one is commitment. And he says that people want their beliefs to be consistent with their values. You're going to do what you say and that you're going to stand by your word. I think some of the feedback as wholesalers we get is we don't do enough of this.
Steve Seid:
What's a challenge on our side of the business is actually doing what you say you're going to do. That's a big challenge for us. And I don't think that people do that purposely. I think you're in a meeting, "Oh, we can do that. Oh, I'll get that to you. Oh, absolutely." Then you're onto six other meetings and you don't do any of it or half of it or whatever. I don't know if that's as prevalent in financial professionals, but I'm going to guess that there's probably some level where things could drop off, whether it's doing what you're say you're going to do or just following up or being present. For each of my opportunities for each of my clients, I'm going to show more commitment. I'm going to guess that that's something that would benefit them as well.
Jake Willis:
Absolutely. And I think you're right, Steve. I think we all do it. We get so busy, we're doing things. And it almost comes back to segmentation too, a little bit, because you probably can't have that same level of commitment if we're being real with every single engagement we have.
Steve Seid:
We've talked about having too many households. This is what that affects is the commitment level, the ability to deliver the type of experience and commitment that you want to show. But sometimes people don't realize that in our side of the industry, they think wholesalers are out there and they could just call on everybody. No, we have a certain number of relationships too. We cannot be everything to everybody. And there's a big universe out there. So I think it's a good principle, I think, for all parts of the industry.
Steve Seid:
Any other recommendations that you have, social media or otherwise around marketing and financial professionals?
Dan Allocca:
Yes, I think financial professionals, brands, marketing, sales, it almost doesn't even matter the industry you're in, you have to look at yourself from outside of yourself, and you have to ask yourself really hard questions. So I'm a financial professional in a big city center, there's only so many potential clients. So when that person wakes up in the morning and is like, "You know what? Today's the day I'm going to go and build a relationship with somebody," why should it be you? And if your answer is "Because I'm good at financial advice" or "I'm high integrity" or... That's not enough, so is everybody else.
So I think sitting down and thinking about truly why would someone hire you is the most important question to nail. Then everything else becomes easy because you know why you exist in the marketplace. Then you start to make content that supports why, you start to host events that kind of tie to your why. It can't just be another event. It has to be an event that is on brand for you personally. And I think that's where most businesses struggle and most financial professionals struggle is what makes them different from the person, quite literally next door in their branch and probably an elevator ride down at a different firm in another branch.
Steve Seid:
All right, these next two clips are going to come from Ben Alge and Dane Jensen, who was a guest on our show who wrote a book called The Power of Pressure. Ben Alge talks about and we had a nice discussion around client reviews. Love that episode. If you haven't listened to that episode, go back and listen to that one. That was a lot of fun. And Dane Jensen talks about topics from his book, The Power of Pressure. Give it a listen.
I've got a top five list. I got five bullets here. Sorry about that in advance. The first was agendas. Did you guys get any feedback on agendas? Were people using them consistently? Did they comment on that at all or-
Kurt Dupuis:
Yeah, I had a couple people send me their agenda and their flow and there's something I still want to cover with that too. Yeah.
Steve Seid:
So did you get a sense that it was 50% minority, majority? Did you get a sense of that?
Kurt Dupuis:
Utilization?
Steve Seid:
Yeah, of agenda in general?
Kurt Dupuis:
No, it's highly agenda and highly... I feel like there's going to be some sample bias in here because the people that listen to the podcast and then responded are going to-
Steve Seid:
Probably, yeah.
Kurt Dupuis:
They want to know what other people are doing, but they already probably have a pretty good system.
Steve Seid:
Ben, did you get a sense of that?
Ben Alge:
Yeah, sample bias. Talking to bigger, more complex teams, most of those had agendas. Yeah, so I'd say more than that.
Steve Seid:
Interesting. So for me it was about half, which surprised me. Now some people are saying, "Well, I have an informal agenda." I guess what I would say is, and the opportunity is, if you're not using an agenda, I think you should. And it's time management, but I also think it makes your process look better, come across better. And there was also this great quote that I got from one of our good friends and listeners, Kat, "Once I implemented agendas, I was able to make it more complex in less time." In other words, I got through more things, but I also saved myself time doing it. And I think that's what agendas do.
Ben Alge:
And just to piggyback on that, Steve, and not only do I see teams use agendas, but some of the best, they send out the agenda before the meeting.
Steve Seid:
That's good too.
Ben Alge:
So get it out to a client a week before and say, "Is there anything on here that I'm missing?"
Steve Seid:
Yeah.
Ben Alge:
Very few will come back and add anything, but it'll feel customized because they've had some time to see it.
Steve Seid:
Love that idea. Love that. Yeah. What should we add to the agenda? That's great. Opportunity number two, this is what I heard yesterday, and I don't even know if it has to do with client reviews, but it came up and I'm just going to plug it in here.
Kurt Dupuis:
Strategy Sessions.
Steve Seid:
Strategy sessions. Very good, Kurt. Thank you. I will get that next time, I promise. Clients that actually left you, this lady I was listening to, she was a Barron's top 100 type person. And so she was there to talk about things that she does, and she will still in her service model, if she's doing birthday cards, for example, continue to send birthday cards to clients that actually left her or that she didn't get. So prospects that didn't convert, and then clients that have left for one reason or another. They may have, "Hey, I think this is the right direction to go," but then they have some kind of experience that doesn't live up to it and "Oh, this person still in front of me, still doing their thing."
Kurt Dupuis:
Oh, wow, that's good.
Steve Seid:
So this isn't a client review. I kind of shoved this in this episode, but that was an idea that I thought was worth passing along.
Kurt Dupuis:
That's beautiful. Remember when we had that conversation about the perspective of abundance or coming from a place of abundance versus scarcity? And that's how I kind of approach wholesaling is I'm not super pushy, because I just... You're going to be a client at some point. It just may not be today. But that is very much in that same vein. I've never heard that. That's good.
Steve Seid:
See, I blow your mind every once in a while, Kurt. But I stole it, so it's not like I'm blowing your mind. That's all I do is steal the ideas.
Ben Alge:
All good ideas are stolen.
Steve Seid:
I'm not sure I've ever had an original idea, I'm going to be honest with you, but anyway.
Ben Alge:
They've all been done.
Steve Seid:
Opportunity number three that I had was, I think we touched on this a little bit, but to spend some time going through the things that were actually accomplished or the things that you actually did on behalf of a client, because we assume-
Kurt Dupuis:
That's a good one.
Steve Seid:
... that the client knows everything that we've done with them, but they don't. Let's just refresh the things that we did this year. "So we did A, B, C, D, here's what we want to go next." And it's kind of hard to be one of these people that wonder about the value after you see those robust lists.
Ben Alge:
It's amazing how many teams we talked to that are uncomfortable with the fee they charge and worrying they charge too much. When you list out all the things a financial advisor does today, and compared to 30 years ago, it was buy and sell stocks to what it's today, you try to put a dollar amount by each one of those. You did those separately. It'll make you feel a lot better about what you're charging your clients.
Dane Jensen:
I do a lot of work in financial services. I do a lot of work in all aspects, but a lot in wealth management. So one thing that I think is maybe people who are listening to this podcast will understand, but I think is a bit of a misconception from outside of the financial services industry is when we talk about importance, the importance of pressure. The tension that I put in front of people is that in order to get the energy from pressure without the anxiety and overwhelm that can accompany pressure because that's really my goal through this book is how do you harness the energy under pressure but avoid the kind of crushing anxiety and energy sapping that can come when pressure gets overwhelming. I have to simultaneously see what I'm doing as important. I have to be able to connect the dots to kind of go, "Okay, I understand how what I am doing is contributing in some way. It's helping me build bonds with people. It's helping me grow as a person." I have to be able to over time get in touch with why what I'm doing matters.
And at the same time, I have to be able to see importance in perspective. I have to be able to zoom out and go, "Yes, this matters. And it's not life and death here." And I think that the thing that is misperceived from outside is that financial services is a mercenary game in which number one, two and three are how much can I make here? And that there isn't really that connection to purpose, to importance at a deeper level. Frankly, whether it's wealth management with private clients or it's asset managers or people that are doing active management of funds or product, the number one thing that they're concerned about is the wellbeing of their clients, number one with a bullet. And so I think actually that connection to why am I really doing this? Well, I'm doing this to secure the financial future for the people that have chosen to entrust their assets to me. And what I am really interested in is how can I create better outcomes for those people and do what's right for them and help them succeed.
And of course in doing that, I am also going to succeed, but the primary motivator is to take care of the people who we serve. I think that is misunderstood from outside of the industry, but I actually think that is a huge component of what creates pressure for people in the industry. I'll often put a poll up and I'll kind of say, "Okay. Well, what's harder for you right now? Is it seeing the meaning in the work that you're doing? Is it finding meaning and importance in what you do or is it seeing things in perspective?" Is the key issue that it gets overwhelming with how... And almost universally in financial services people go, "I have no problem seeing the meaning that I'm creating here and the meaning of the work that I'm doing. What's actually tough is seeing things in perspective and not getting sucked into how important this is to all of my clients and their financial futures." So that's certainly one that I think is interesting.
The second one, because uncertainty is such a heavy hitter when it comes to pressure, I think there's a real challenge in financial services. Uncertainty is magnified. The more you compress the timescale, the more uncertainty starts to create pressure. And if you have a client that checks their performance once a year, they're going to be happy 95% of the time. If you have a client that checks their portfolio every 30 minutes, they're going to be happy 50.6% of the time. This sort of magnification of uncertainty, because as much as we like to preach long-termism and we all want to be Warren Buffet and Charlie Munger and operate on 30 year timescales and 40 year timescales, the reality is you have your clients phoning you up every single day. So that ability to do the zooming out and roll with the punches that uncertainty requires, I think you have a whole bunch of forces that are working against you in terms of how performance gets measured, how your clients are reacting, all of these layers that sort of add to the little twitches of uncertainty.
Kurt Dupuis:
I'm going to owe you some money for a therapy session. My line with our clients is, "The more you use zoom out, the righter I am." I don't know what's going to happen in a quarter or two, but you give me a few years to make some predictions on trends and where the markets are going, I feel better about my probability of being right.
Dane Jensen:
100%. And this is where we're working against the flaws in human psychology, which is-
Kurt Dupuis:
Every day.
Dane Jensen:
... easy to understand, hard to do, and especially as technology has made access to real-time information so much easier. There was a piece I had written originally for the book that didn't end up making it in there that talked a little bit about are we really dealing with more important things or more uncertain things than we were a hundred years ago? I think there is this sort of commonly accepted wisdom that we are in "unprecedented times."
Kurt Dupuis:
Always. Yes, it's always unprecedented.
Dane Jensen:
Always unprecedented. And it's like, okay, well, a hundred years ago we were coming out of the First World War heading into a depression. It's not clear to me that we're dealing with anything more important or more uncertain than we were a hundred years ago. I think what is really clear is that you have an entire industry, the media technology industry, that has a vested interest in amplifying the importance and uncertainty of what we're going through. And so I get notifications pushed onto my lock screen on my phone when the market goes up or down by more than 2%. It's actively thrust into my consciousness, whereas, in the past-
Kurt Dupuis:
So that's been active the last couple of years?
Dane Jensen:
Yeah. Even if objectively we are not dealing with more important, more uncertain situations than we were 100, 200 years ago, I think subjectively, technology, access to information has sort of hijacked the circuit breakers that allowed us to keep a little bit more of an equilibrium.
Steve Seid:
When you're talking to people, coaching to people, do you do things like say, "Turn those notifications off"? We know that this is happening, one of the ways in which you can manage this equation that you described, which again, let's talk about what that equation... Let's say that again, it is importance times uncertainty times volume. Are you specifically getting into that equation and saying, "Here's where you can turn the dial down," or is it how do you respond to that equation because that equation's happening?
Dane Jensen:
Yeah, it's both ends, for sure, Steve. So I think a big part of it is information hygiene. Are you managing your environment? And this gets at volume as well. Just the sheer volume of... To prep for this interview, when I open this podcast studio to make sure that I'm not going to get interrupted, I closed iMessage, WhatsApp, Signal, Outlook, Zoom, Teams, and Outlook. So there's at least seven different ways that people can reach me at any given moment that I had to shut down in order to not be disturbed before we come on this show.
I think as human beings, we're not really built to deal with that big of a hose pipe of information that's kind of pointed in our direction. When we try to use our willpower to ignore all of these things, it's like you are putting your willpower in a tug of war with 20,000 incredibly highly paid software engineers that are sitting in Silicon Valley and their entire job is to think about how to distract you and monetize your time. Your willpower is not going to beat that.
Kurt Dupuis:
That's how I feel when Cheez-Its are in the house.
Dane Jensen:
Yeah. You and I might have similar challenges, Kurt. The goldfish that I buy for my kids' lunches last about 18 hours.
Kurt Dupuis:
They disappear.
Dane Jensen:
Yeah, they're gone. They're gone.
Kurt Dupuis:
The struggle is real.
Dane Jensen:
Yeah. So maybe it's just that I have really weak willpower and I projected that out through the book. I'm a big believer in structure over willpower. And so, as a very long roundabout way to your point or your questions, Steve. Yeah. The more you can create the conditions where you don't need to engage your willpower, so really good hygiene on notifications, creating space and time where you are truly disconnecting and putting yourself in in distractible environments. My example of this is always planes. It's relatively easy to stay focused on a plane. You don't have to will yourself not to refresh Twitter. You don't have emails coming in, you aren't getting text messages. In those environments, it doesn't require willpower to stay focused. It's relatively easy. Now, unfortunately, they are starting to put wifi on planes, but it's still slow enough and expensive enough that it requires less willpower. But yeah, I think that's a big part of the battle, for sure.
Steve Seid:
Okay, next up, we have two investment related clips. Practice management show, yes, but we're investment people here. We're going to talk about investments every once in a while, just absolutely has to be the case. And we start with Sands Capital growth manager who we deal with one of my favorites, talking about AI. Fascinated by this topic, dominating storylines, no one better to help us figure it out than Sands Capital. This was kind of our initial discussion with them and we were thinking about, wait, what is happening? This open AI thing came out and what's going on in the world? And it seems like it's moving at such a rapid pace that I almost need to have show two and three with them and maybe we'll actually do that. So they'll talk about AI. Then we have our great friend Steve Owen on. Steve Owen heads up the London Company, which is another one of our managers based in Richmond, Virginia. Steve also used to work for Touchstone, just a phenomenal guy. And he gets into the topic of selecting active managers. Two amazing, amazing guests and amazing conversations. Give it a listen.
Tom Trentman:
It's definitely something we've been paying attention to as a potential unlock of value creation and innovation, but really it wasn't until you could see just how it could be used for the understanding of human language that you really saw the... Okay, this is going from fraud detection models and recommendation engines into, I could see how this could change every way in which I interact with the world of computing and other products and companies. And that's really because the way we think about the major change is it's going from a Windows, a graphical user interface, to a human interface.
So just like going from DOS command prompts to Windows was a pretty big change, this is going from dropdown menus and "Where's this feature?" And "I can't find it" to "I'll just tell the computer what to do and it'll do what I want." If we think about investing in AI and the companies that benefit, when you've got these paradigm shifts, you see a couple different phases. So the first is you got to deploy the technology, which is really around the infrastructure and the hardware that enables it. So that's the first set of companies that are benefiting. We think they're roughly in three categories. So you have the semiconductor manufacturing supply chain that makes all these advanced chips. You've got Nvidia, which is the architectural leader, think Intel inside, but for the AI age. And then you've got the public clouds, the Azures, the Amazons where all of this processing is going to happen.
So right now you're just... In order to do anything, first, you've got to deploy this tech. So early on in a paradigm shift, that's where the most money and results shows up. Over time, the deployment of the tech will slow and you'll move to companies that are advancing the technology. And if we think about in mobile phones, we transition from Qualcomm who benefited a lot as the mobile phones took off to Arm, which had the chip designs for these phones and kept adding more components to chip designs even as mobile phone units started to plateau. And then ultimately using this new technology to do new things is the biggest and largest opportunity. And we think about that today, I mean, we can look at incumbents transitioning and trying to adapt the technology, but a lot of interesting companies probably haven't even been founded yet.
I mean, you go back to the internet. First, you all the websites proliferate, then you needed a search engine. And then it turned out that I think the top search engine 1996 was AltaVista and Google... They don't even exist today. So you've got this uncertainty around these new users, or you take companies like Uber and DoorDash, they weren't even founded until multiple years after the iPhone was launched. So that emerging disruptors, as we call them, the companies that rise up in the new era, do something totally different, they don't even exist today. And so we're looking for them and we're trying to figure out where they'll come. But the reality is most of our investments are earlier in those steps down in the hardware infrastructure layer. And then we're evaluating the incumbents that we'll have to make the transition.
So that's sort of a setup to how we're looking at that backdrop. And then you take Microsoft specifically, one of the earlier areas you are seeing productizing of AI is that... They've pioneered the term, the CoPilot. They started with GitHub, which is helping engineers draft computer code, and now they're rolling out that more broadly in the OfficeSuite, and that's where... Could it check your letters? Could it draft your letters? Could it add transitions to PowerPoint? There's all sorts of things that the AI copilot could do to make you more effective in your basic white collar job of being an office worker. And they've announced pretty significant pricing uplift for those features. And if you think about how much time and money they save, it's significant. So even after the discounting, we think it's still stand to double the price per user of anyone who adopts these features.
So they've got a specific product they're offering, they've set a price point, they're going to be selling it. It looks like it should be pretty broadly useful. That's a pretty good backdrop to benefit. But what's powerful for Microsoft is, it's not just that. They also have Azure, which is where all this computing is going to happen. So if companies are trying to figure out, "Well, how do I build my own copilot" or "How do I use my own proprietary data," or "How do I do something that's specific to my organization?"
The first step is going to be getting into public cloud and Azure is going to benefit from that. And then the last piece is because Microsoft's so broad, they really have an opportunity where when X, Y, Z corp comes and says, Hey, we want to get to AI, they will hold their hand and say, "Well, first you buy the Azure and you buy the Office Copilots, and then you got to buy all the security tools and our analytics tools and our storage, this and that, and we'll build all these pieces and then you'll have everything in the Microsoft ecosystem." So they're going to sell a whole bunch of stuff that isn't directly related to AI, but it's that part of that ecosystem to get you on that path to being able to do enterprise AI. So it's really those three key pieces. They have a product, they're put a price on, they're going to launch, monetize. They have one of the fundamental building blocks in the public cloud, and then this whole broad ecosystem.
Steve Owen:
So directly or indirectly, for 15 years or so, I was working with active managers, and I guess the one thing I recognized was there's not one blueprint for success from being an active manager, but there are successful attributes that in hindsight you can use to evaluate active managers. There's three key tenets that I tend to repeat over and over again. So one is active share2. So in its simplest form, active share is how active are you relative to your benchmark? So if you can buy the S&P effectively for free, if somebody has a 7% weight in Apple and the S&P has a 7% weight in Apple, you shouldn't pay your portfolio manager to make that decision. That's 7% you can get for free. So active share is how differentiated are you? So you want to have an overweight or underweight to that 7% in Apple, that's your active component, rinse and repeat, add it up across the portfolio. So to outperform the index, you need to be different than the index measured by active share.
Another element that I've picked up along the way is fund duration3. And by the way, I didn't invent these. These are based in empirical research from a guy named Martijn Cremers who's now at University of Notre Dame. So if you have high active share, and then you have, they call it fund duration. So think of that as the amount of time you're holding onto a stock. And that just makes intuitive sense. Like Benjamin Graham says, "In the short term, the market is a voting machine and in the long term, it's a weighing machine." Now the third thing is active fee4. So it's a way to reframe fees within the industry. So if you can get those three things right when evaluating active managers by focusing on how active are they relative to their index, what's their turnover like and are you paying a reasonable fee for that active portfolio? And then of course you have to be a good stock picker. Those are the things that really matter.
Steve Seid:
Make sure that you hit all of those and then we could dig further. Is that how you think about it?
Steve Owen:
Absolutely.
Kurt Dupuis:
I want to ask you a couple of questions and just agree or disagree. Most people put way too much emphasis on the quantitative, so stock returns, and not enough emphasis on the qualitative.
Steve Owen:
I totally agree. Selecting your investment manager, that is a very complex decision. If you only screen on a one and three and five year basis for performance, if you think you found the holy grail from that, or you look at the number of stars a product has, there's always more to it than that. So maybe you think of it in an analog with picking a potential spouse. Are you going to pick your potential spouse based on how tall they are and how old they are? Because those are two easy quantitative data points to screen on, and it's really easy to measure, but it's really hard to say that your future results will be what you desire if you're just using a couple of data points.
Steve Seid:
I picked my spouse wrong. Is that what you're saying to me right now, Steve, because that's what we were-
Steve Owen:
I mean, it depends on what your quantitative measures were-
Kurt Dupuis:
How many stars does she have? Sorry.
Steve Seid:
How many stars? She has seven stars, Kurt. Seven stars. All right. So let's talk about for the financial professionals, what a good hit rate looks like. So if I'm running a portfolio, let's say I'm picking a handful of active managers, whether they're alone or you're satellite with ETF or stocks, doesn't matter. Let's say I'm picking five active managers. What's a good hit rate? Should the expectation be that I get every one of those right over time? Is that a reasonable expectation or do you think about it differently? Talk about it from a portfolio construction perspective.
Steve Owen:
Yeah, so it's all about the puzzle pieces and how they fit together in the puzzle. So can your hit rate be five for five in your question? Yeah, of course it can. But it depends on your time period for measurement. So maybe a way to reframe your thinking around that would be... The way to measure an active manager might be along the lines of thinking about their turnover and then measuring them relative to that. So for example, at The London Company, our turnover is 20% per year on average over a 20-year period. So how are you going to know if we're successful? You can't measure us on a one or three year basis. You need to measure us on a rolling five year period to accommodate for the 20% turnover. You're not going to get them all right, but if you're batting average is pretty good from an excess return standpoint, I think you found a really good formula for measuring active managers. If somebody's turnover is 100%, you probably need to measure them on a rolling 12 month period.
Steve Seid:
Yeah. So I reflect on some of the managers that I sort of bought into early on in my tenure and I got burned a little bit on them. What did I miss when I was evaluating them? And I've come to some of my own conclusions, but I wonder, think back over your career of evaluating managers and think about the couple, the one or two, the whatever that disappointed you. What did you get wrong? Why did they disappoint? What happened? Was it a matter of all your process and your selection criteria was good, but they just didn't execute, or a PM left?
Steve Owen:
I'll probably take a lot of arrows for this one from other active managers.
Steve Seid:
Good, we like that.
Steve Owen:
Yeah, here we go. I think quant5 is just really hard to figure out. I've had a bias against quant. I think most gatekeepers, professional buyers, research analysts have that bias. So if you have a small investment team and a really large investment portfolio and your turnover is really high, even if your numbers are good, you're just going to have a hard time keeping up that alpha6 generation because you're going to have to consistently get it right.
Steve Seid:
Yeah. I tend to fall back on team size heavily. Especially you get into those universes like the small caps or some of the international where you better have a deep team to do it.
Steve Owen:
Yep, I agree.
Kurt Dupuis:
What are the qualities of an asset manager that they have to possess? What are table stakes to even really be considered?
Steve Owen:
Yeah, I mean the table stakes items that people tend to think of are... It's your repeatable investment process. It's how deep is your investment team? Do you maintain your style? Those are just the very obvious criteria. I think the hardest thing to figure out is what is the investment edge of the investment team that you're evaluating? You need to try and figure out what the advantage of the investment team is and how they're going to create that alpha in the future over a full market cycle. And I think it was Michael Mauboussin that talked about three competitive advantages an investment manager can have. So one is an analytical advantage, second one would be an informational advantage. The third one is a behavioral advantage. So if you tick through those one by one, the analytical advantage would be, I'm better at analyzing this stock and the competitors and the peers than the person next door.
Informational advantage is really hard to come by these days with Reg FD and Twitter and there's just a lot of information flying around, so it's hard to say that you've got an information advantage. Hedge funds used to use satellites to evaluate parking lot coverage for retailers, and that was an information advantage, but now everybody has access to data. The only thing I think that you can get an advantage on today is a behavioral advantage. And why is that? It's because human behavior is irrational and you can capitalize on that. One other thing I'll mention about asset mandatory due diligence, and this is the really hard stuff, is it's very holistic. So what do they stand for? Do they have a clear mission? Do they have a vision for the future? Do they have core values and what is their culture like? And you can only figure out the culture part by spending time with somebody.
Steve Seid:
We talked about some of the characteristics before that Steve referenced, but also understand what that investment edge is and also how we expect it to behave in different environments. It's also a good understanding when a manager's likely to lag, right?
Steve Owen:
Absolutely. And if you can figure that out, you can actually use that to your advantage.
Kurt Dupuis:
What are some of the often ignored items in manager selection that people really should think about more?
Steve Owen:
Evaluate things like the firm. So how stable is your investment firm? And you can think of the big tier ones and you're going to say they're stable or you should be saying that. But with passive headwinds and them losing market share, are they as stable as you think? Something else over time, is the infrastructure supporting the clients? Is that built in a strong foundation with compliance, with marketing materials, with client support? And then I think the alignment of incentives. So if you're a low turnover investor, are your financial incentives focused on the long term? Incentives do drive behavior, and so how the investment team is paid needs to be aligned with portfolio construction and with your client's timeframe.
Steve Seid:
What are some of the things you hear a lot, but it doesn't really tell you much?
Steve Owen:
I mean, the stars. Granted, it was built 30 years ago on the back of very little data and computers were hardly in use, so you had to come up with something.
Steve Seid:
And we are going to conclude our Clip Show with one of our favorites, Penny Phillips. We're going to do two different Penny Phillips clips. Always, always love when Penny's on. Always one of the highlights of the year. So give this a listen. This will be the final clip for the Clip Show. So thanks everyone for listening throughout 2023 and I hope you enjoyed this episode of highlights.
So the first around getting to a point where the financial professional is spending 80% of their time on business development. A big problem in the industry right now is one, finding talent, hiring talent. I guess one, what do you do about that problem? And the other part of my question is, are people rethinking roles? So you alluded to something there that was an in-house advisor being different than a rainmaker. Are people thinking about different roles for sales assistants? So I think I just threw 15 questions on you.
Penny Phillips:
The one thing that does not keep me up at night about this business is finding talent. And it is the opposite of what everybody says. I believe the firms that cannot find talent are the firms that have no differentiator, value proposition, vision and mission that especially the younger talent wants to coalesce around and listen. Maybe that's harsh and maybe people will disagree, but when you have an industry where the leaders of these organizations all literally physically look the same, by the way, except for me, but physically look the same, they have the same background and pedigree... I think when you have a different perspective on the marketplace, when you're trying to do something different, one of the things we talked about very early on was this idea of allowing people to define success for themselves.
This idea that every advisor or every person who enters our business needs to become the billion dollar advisor who's a CEO of the business, to me, that is us dictating success for everybody else. What if somebody wants to come in and be an advisor and have work-life balance and pick up their kids from school at three o'clock, but work with the type of people they want to work with? It's our responsibility to build a model around that advisor, not get them to change what they want. And so the way we were talking about what we were trying to build, I think just attracted a lot of talent. We're 50% women, 50% female advisor, which is very rare in our business. And I think it's because we've just taken a different perspective. The other thing is this, I am a relentless prospector. That's a concept I talk a lot about. I have been keeping a list of people I've wanted to hire in a fictitious business venture that I didn't even know about seven years ago.
I've had a list of people for probably a decade, people that I've met through coaching, through consulting. Everybody at Journey is somebody that I knew from a past life. So when you're running a business, and I tell this to advisors all the time, you have to be that obsessed with the future of what you're building. So much so that you meet somebody, you have a conversation with them, guess what? They're going in an Excel spreadsheet. You're calling that person four times a year because when the role opens up and you want that person, it is guaranteed they're joining you because they're so excited about what you're building.
So the other piece I'd say is in terms of advisors finding talent, look at what's happening in our industry with firms like Fidelity that have these in-house advisors. And I'm not saying Fidelity is laying people off. I'm saying you want to hire an advisor on your team to deliver advice? Look at the insurance broker dealers. They bring on so many advisors that fail out within the first three years because they can't rain make or aka, sell whole life insurance to anyone but are great advisors. You find people at Fidelity or any of the custodians who are in-house advisors and get sick of working in a corporate structure. That's where you need to be looking for talent. And so that piece is never one I'm worried about.
Steve Seid:
I was all over the place. I don't know where I was, but I was-
Penny Phillips:
I'm sick of my face. I'm sick of my face and my voice and everything.
Steve Seid:
... bouncing all over this industry. But you talked a little bit about paralysis in marketing. I want to have time, but then I find myself doing busy work. What causes that paralysis and is it simply by going through the things that you just mentioned that gets you over that? Talk about that a little bit.
Penny Phillips:
It's such a great question and it's a couple of things. So first of all, we are so over simulated in general and especially in our industry. Every day it's someone, a vendor or a third party, promoting a new way to do things like, "You need to be on Twitter. You need to be on YouTube. You need to hold a virtual webinar." At some point it becomes really difficult. I mean, it's really hard to sift through all of that, not get FOMO and figure out what's authentic. So that in and of itself is really difficult. By the way, the bigger institutions now, because the industry is consolidating, they are dominating our industry media. So they're saying, "Most advisors are growing because of SEO on search engines" or whatever they're saying. Yeah, if you have millions of dollars of budget to put around SEO and ads, of course you're going to grow that way. The reality is if you talk to individual advisors and you ask them, "How did you grow last year? How was last year for you?" How are they going to answer that?
Steve Seid:
Referrals.
Penny Phillips:
They're going to say, "Amazing." People keep introducing people to us and actually we don't even ask for referrals. They're just giving us referrals. Imagine if we asked? That's what advisors always tell 99% of the time. So my point in that is doubling down on creating experiences, tangible value in the individual meetings with clients, using things like holistic plan. I'm speaking on a holistic plan webinar next week, introducing tax planning software where you're scanning their tax returns and providing insights. No one's doing that right now. So thinking of ways in which you can elevate experiences in and of itself is a marketing strategy.
The other piece of this though is really important. We will naturally default to the things that make us feel like we've had success. It's the dopamine sort of regulation or oxytocin or whatever it is that makes us feel good. We feel good when a client says to us, "I love working with you," or a prospect wants to work with us, but realistically, we can have a week where we don't get any of that feedback. And so what starts to happen is we don't want to put ourselves out there as much because we're not getting that positive feedback. We're not getting the dopamine. So the idea of getting the rejection or going on posting something on social media and not getting any likes, it starts to... Psychologically and subconsciously, we're not getting the feedback. We don't want to do the activity anymore.
And so what do we default to? We default to doing things that are making us feel like we've completed something. So we're doing BS work, we're answering an email or we're stepping into something we shouldn't be stepping into because there is some finality to it. We have control over it. And so what I tell advisors is when you start to feel that, call your best clients. If you have a week where you're not getting that dopamine that's going to keep you excited about prospecting, create it for yourself. Call your best friend, call your best client, call the center of influence, ask people what they love about working with you.
Steve Seid:
You can find The Whole Truth and subscribe for free on Apple Podcast, Spotify or your favorite podcast app. We'd love it if you took the time to rate and review the show on Apple Podcasts. It helps others find the show. And for more episodes of The Whole Truth, go to www.touchstoneinvestments.com/thewholetruth. That's touchstoneinvestments.com/thewholetruth, all one word.
As of December 31, 2023, Apple Inc. made up 7.4%, of the Touchstone Large Cap Fund. Amazon.com, Inc made up 7.85%, DoorDash Inc made up 2.22%, Microsoft Corp made up 8.09%, Nvidia Corp made up 5.49%, and Uber Technologies Inc made up 2.97% of the Touchstone Sands Select Growth Fund. Current and future portfolio holdings are subject to change.
1RIA is an acronym for Registered Investment Advisor which is a person or firm who advises high-net-worth individuals on investments and manages their portfolios. RIAs are required to register either with the Securities and Exchange Commission (SEC) or state securities administrators.
2 Active Share measures the percentage of the Fund’s holdings that differ from those of the benchmark. It is calculated by taking the sum of the absolute difference between all of the holdings and weights in the portfolio and those of the benchmark holdings and weights and dividing the result by two. Active Share is not a performance measurement. A high level of Active Share does not assure outperformance of a fund relative to its benchmark index. Index performance is not indicative of fund performance. Investing in an index is not possible.
3 Fund Duration - Holdings Duration represents the weighted-average length of time that stocks in the fund were held in the portfolio.
4 Active Fee is the annual expense ratio of the fund adjusted for the Active Share with respect to the self-declared benchmark and the expenses of investing in the self-declared benchmark index.
5 Quant is short for quantitative trading.
6 Alpha is the portion of a fund’s total return that is unique to that fund and is independent of movements in the benchmark.
Touchstone Investments has partnered with Martijn Cremers to provide consulting services. Touchstone and Professor Cremers are independent of each other.
Sands Capital Management, LLC and The London Company are sub-advisers of Touchstone Securities, Inc.
Disclosure:
Please note that this content was created as of the specific date indicated and reflects views as of that date. It will be kept solely for historical purposes and opinions may change without notice in reacting to shifting economic, market, business and other conditions. Touchstone funds are distributed by Touchstone Securities Incorporated, a registered broker-dealer and member FINRA and SIPC.
Disclosure:
This commentary is for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell, or hold any security. Investing involves risk, including the possible loss of principle and fluctuation of value. Past performance is no guarantee of future results.
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