Fund managers must ensure they are fostering open dialogue and communication with their investors at all times, writes Harvest Lane’s Luke Cummings.
While delivering strong results is obviously key to keeping investors happy, in isolation it won’t necessarily ensure the longevity of the relationship.
For your clients to put their full faith and confidence in you as a manager, particularly during tough times, it takes a combination of results plus regular and transparent communication to build trust.
Handing over control of your finances, potentially your life savings, to someone who is essentially a stranger can understandably be nerve-racking and stressful for investors, particularly those who haven’t engaged a fund manager before.
Fostering and safeguarding enduring investor relationships starts with building trust — the foundation of every good relationship.
The establishment of trust in your relationship with a client is critical because it can spell the difference between retaining them in the long-term, or losing them – irrespective of performance.
So how to build trust? It comes down to communication. Many managers make the mistake of building an invisible wall between themselves and their investors by approaching transactions impersonally.
They believe that their role needn’t extend beyond achieving positive returns for their investors and that strong results alone tick the customer service box.
As a consequence though, these managers dehumanise themselves and become unapproachable and unrelatable in the minds of their clients.
And when an investor isn’t able to relate to his or her manager on a personal level, they feel little loyalty towards them and are far less uncomfortable ceasing the relationship.
Critical to successful communication is speaking with investors early and often. Managers are wise to create a process that ensures they are communicating with their clients at least once a month – whether this is via a formal approach such as an investor report, or an informal approach like an email asking for a temperature check.
Communications should be in layman’s terms and should never sugar-coat the truth.
Some managers put this type of regular communication in the ‘too hard’ basket or don’t believe it is a necessary part of their role.
Sure, regular updates aren’t mandatory, but will they assist in making your investors feel secure and confident in you and your investing strategy? Absolutely.
Fund managers would do well to remember that while we handle our own and other people’s finances all day, for many individuals, investing can be foreign and intimidating.
Managers that put their clients’ minds at ease through simple, regular and transparent communication will allay their investors’ concerns, rational or otherwise.
Another significant benefit of regular communication is it helps to educate investors so that they have at the very least a basic understanding of the fund’s investment strategy.
An investor who is equipped with this knowledge and knows what they can realistically expect to achieve is more likely to weather storms due to their understanding of how the fund works, the long-term strategy and the risks involved. Not to mention the confidence in your ability to lead them through times of uncertainty.
Furthermore, it’s important that managers take the time to explain their investment strategy in order to limit the risk of their clients being sucked into media hype – the seemingly never-ending active versus passive debate being the perfect example.
If a client has started to question your business model or your motives, they’ve likely already begun looking elsewhere.
A commitment to educating your investors ensures that they are informed and more comfortable withstanding downturns, while also conveying that you are accountable and willing to invest in the long-term by educating them and making them feel confident.
You can’t put a price on trust, and this comes with communication. If an investor feels confident and safe they will willingly pay for the privilege, and will be far less likely to shop around for another manager during turbulent times.
Luke Cummings is the managing director of Harvest Lane Asset Management.
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