RFP: Diary of an institutional salesman, part 25

M&A mania continues apace here at Integrity, dear diary. The owner of Swiss Heritage and instigator of these hostilities, Paddy O’Dores, has been very transparent about not providing easy exits for anyone at either firm. Rumours are that we’ll have to re-interview for our own jobs and risk demotion if we don’t measure up against the guys from the other side. Well, this is one war I’m going to turn to my advantage.

With this in mind, I’ve arranged an informal chat with Andreas Himpfeldorfer, one of the rising stars within Swiss Heritage’s sales team. He eagerly accepted my LinkedIn request (you should too) and now I await with perfect Teutonic precision at 12.30 for his arrival, nestled in the quietest corner of the restaurant.

12.50. On my third water.

12.55. He must be starting the mind-games early. My suggestion of an open sharing session has obviously been misinterpreted as some form of espionage, leaving me no option but to play along. I push the digital recorder’s red button as I see him striding towards me, seconds before one o’clock.

Formalities over, Andreas launches into his spiel. The private banks have been his main focus over the past few years. He reels off incredible statistics about the explosion in this sector – can there really be more private bankers in the region than there are teachers?!

Andreas goes on, elucidating the tricks of his trade. I’m all ears: Integrity has had essentially zero success with the bankers, whereas Swiss Heritage’s Swiss heritage naturally makes it an easier sell.

The PBs, he claims, pride themselves in being different to other investors and in going the extra mile for their clients. It’s true, he laughs, they go even further down the wrong roads than most others and exaggerate the worst traits of everyday investors. I check the gadget is still recording as he details his magic formula:

Stick to last year’s winners.
Even the worst performing Thai equity fund on the market would have had a storming 2010. This will draw the relationship managers like flies to you-know-what. It’s easier for them to sell a rosy story to their rich, dumb clients and so it’s an easier sell to the bankers themselves. The exception to this is in areas where the bankers think they can successfully pick securities themselves. So don’t try to push domestic equity or index-tracking products – they need an exotic story to demonstrate their added value.

RMs are kings.
Treat the relationship managers like royalty. Laugh at their jokes, pretend you value their crazy opinions, take them to the best restaurants, send cars to pick them up at airports and, most importantly, dangle as many pretty young girls in front of them as possible. (Boy, am I glad I hired April now!) All of these things, although seemingly superficial as Andreas admits, will greatly enhance your chances of getting your fund into their clients’ portfolios. The bankers laugh at how easily they can place $2 million of their clients’ money into any given fund, and then they fall for exactly the same tricks themselves!

Baksheesh rules.
Well, not quite the same, as Andreas’s third point highlights. The all-important element is the kickback. Often called a distribution fee, in order to seem more civil, this is a backhand payment seldom disclosed to the end investor.

Most of these guys have to bring fees of at least 1% of their clients’ wealth in to the bank each year. It’s much easier to extract that from sources other than the clients directly, who may be rich and dumb, but still look at the occasional bill. So they ask us fund houses for 5% upfront – that bit does come out of the clients’ pockets directly, but they can lay the blame on us. And they demand a 1% kickback on the annual fee before they even look at the fund. Andreas groans – often the 1% is not enough and so they flip their clients’ money back and forth between investments, pocketing 5% each time.

The picture he paints is interesting. My years of selling to institutional investors have led me to consider sales as an art, blending psychology and persuasion techniques. It’s possible to be good at this, to be a better salesman than the next guy.

But selling to private banks, supposedly a more sophisticated audience, is pure and simple economics. Find your best numbers (+52% last year; 4” heels, 36-25-35; 5% upfront, 1% pa into a grubby pocket) and repeat until exhaustion. This vast parasitic army can be tamed, but it will cost you.

Why has he told me this? Could his cynical perspective possibly be true? Is he bluffing, trying to throw me off the scent ahead of the takeover showdown?

I’m thinking about how unethical it would have been of him to make this stuff up when my recorder bleeps a low-battery warning. I pat my chest pocket. “Heart-rate monitor,” I tell him, knowing his Swissness will make him too polite to ask for more detail. He changes the conversation and asks me what are the tricks for selling to institutions.

Fortunately, we were already halfway through coffee by this time, so I did not need to draw on too many creative reserves. There are a few things to remember, I tell him. Firstly, fees don’t matter. In fact, it’s often seen as vulgar for a good salesman to discuss such things until the deal is almost done.

Secondly, forget performance numbers and focus on Net Information Ratio instead. Despite the fact that nobody ever paid a NIR-related fee, talking about past performance in this manner makes people feel smart and part of the in-crowd. “You’ve got to trust me on this one,” I assure the confused Swissie.

Finally, it’s all about innovation and differentiation. No institution wants to look the same as the others, so be sure to showcase the latest complex and dynamic strategies ahead of the boring stuff.

Well, did you really think I was going to tell him the truth?? This is war, after all…

William T Fitzgerald is a fictional character, as are all the other individuals and companies in "RFP:  Diary of a Salesman". Any resemblance to the living or to real firms is purely coincidental. Bill's adventures continue fortnightly.