Financial Advisors

What Should Investment Managers Do Now to Prepare for a Recession? 6 Industry Gurus Have the Answers

Is the U.S. headed for a recession? This is the looming question for boutique investment managers. The experts appear to have conflicting opinions, with some predicting 2023 for its arrival, while others are claiming we're already in one. Some feel certain it will be deep and long, like the Great Recession, while the optimists think it will be fleeting, like the COVID-19 recession. The honest ones among us lean more towards the "no clue" category. 

Regardless of where you stand on the recession roulette table, it's a certainty that when one hits, some boutique investment managers will be hit hard, and others will be well positioned to thrive. “Business as usual” cannot survive a shrinking economy. Now is the time to make the essential adjustments to business practices to keep your firm in the game so it can come out strong on the other end. 

We assembled a team of industry gurus who have weathered past recessions to share their insights on what boutique investment managers should be thinking about and doing right now to prepare for a recession. 

Sharpen Your Focus
Loren Fox, 
FUSE Research Network

A recession, or even fear of a recession, can undermine business and consumer confidence. In reaction, boutique investment firms should position themselves as trusted partners for financial advisors by helping them support investors that are grappling with uncertainty. Strategies that are in favor can be highlighted for their obvious benefits, while out-of-favor strategies can be discussed in terms of keeping portfolios diversified.

Now more than ever, boutique managers should leverage digital marketing, like non-boutique managers, to expand reach, create new opportunities, and cost-effectively service clients. FUSE's recent research finds that a growing number of advisors in 2022 respond strongly to webinars, conference calls, and customized emails. Digital engagement also frees up capacity-constrained sales teams to concentrate on top-tier advisors.

Boutique firms should consider whether their current distribution approach is aligned with the highest potential opportunities or scattershot. The firms should prioritize segmentation so they can direct activities towards advisor cohorts likely to be interested in their strategies and product wrappers. This is an approach that boutiques should be taking regardless of the economic outlook, but volatile times have a way of sharpening an organization's focus.

Engagement and Education
Greg Bassuk, 
AXS Investments

Engagement and education are among the most critical components required in times of market volatility and economic uncertainty. Investors need a two-way channel for communications to both share their questions and concerns, and to consume the education and information required to best position and protect their portfolios.

Proactive outreach ensures ongoing engagement on which the greatest premium is often placed during times of heightened market consternation. Consideration should be afforded to a multi-medium approach to the dissemination of robust and appealing investment education and content. Among the mediums that represent strong investor education consumption are Web, videos, podcasts, blogs, and social media.

This combination of engagement and compelling education leads to enhanced financial wellness and better-informed decision-making during times when it’s needed most.

Provide Solutions, Stand Out
Rick Lake, 
Narrative Alpha

Advisors and investors yearn for guidance, reassurance, and insight during a recession or any period of uncertainty. Boutique managers must not only maintain but increase their outreach during such times. Not only is this the right thing to do, but it is also good for business. Don't withdraw. Your silence could lead to the loss of assets or clients.

In tough times, the world needs your perspectives more than ever. Communicate more with both content and personal outreach from you and your team. Embrace the mantle of trusted counselor and educator. Provide solutions. Stand out. This will help your clients and help you raise and retain more assets over time. Enhancing your communications and distribution activity is critical in tough times. If you don't, your competitors will.

For alternative managers, this is an opportune time to show how your strategy can enhance diversification, reduce risk, or provide returns or income streams different from traditional markets. The era of easy money is ending. The pendulum is swinging back from traditional to alternative assets. This could be an excellent time for boutique alternative managers to demonstrate how you make portfolios better. Your golden age is coming.

Get Your Financial House in Order
Steve Rubenstein, 
Arrow Partners

It is imperative for any business, including boutique investment managers, to have a deep understanding of the expense side of their ledger. One goal, frequently overlooked by smaller firms, is to figure out what you want to look like AFTER the recession. Some firms emerge stronger, with larger market share and better margins. Unfortunately, too many smaller firms emerge as a smaller, weaker, more vulnerable version of their pre-recession self.

Getting your "financial house" in order is paramount to surviving a recession. Building a cash reserve, cutting expenses, and gaining a true understanding of the revenue side of your firm are key. Boutique firms should have an honest assessment of their "burn rate" and staying power.

Boutique managers, more than global multiproduct firms, should also be able to approach service providers, vendors, and sub-contractors to initiate a discussion about their current agreement. Since these outside firms also are facing economic uncertainty from a recession, we believe they might be willing to "trade" some of the economics for the "certainty" of stability in the relationship long-term. For example, a boutique manager may be able to extend some licenses and subscriptions in exchange for more favorable pricing.

In addition, the equity owners should also be prepared to cut or lower their current salary or bonuses to retain their team. Many institutions and consultants will ask about headcount lost during an economic downturn. Retention of key people should not be overlooked. 

Conversations with Customers Should be #1
Chris Ruppenstein, 
Synthesis Technology

Marketers should revisit their strategies to ensure they have a clear picture of where they can focus to drive and retain revenue. A recession or pending recession can lead to hiring freezes and budget cuts, requiring a stepped-up alignment across Marketing, Investment and Sales teams with a focus and plan an imperative from the top down. Marketers must shift from trying to do too much, to doubling down on what works - even if it's just one or two types of campaigns or modes of distribution. Marketers and their teams should also strive to free up time for execution. This means spending less time in meetings and more time doing actual marketing activities. Firms with the benefit of multi-strategies should be pivoting and focusing on the fund offerings that work best in a recessionary environment.

Conversations with customers should always be #1. Now is the time to double down on client success to retain and grow existing business. Talk to customers to learn how the recession is impacting them and how you can help. It's important to listen, provide solutions, guidance, and insight, and demonstrate a depth of experience to help make sense of what can be viewed as a troubling time in the markets. 

From these conversations, you'll be able to glean strategic insights that will inform your strategy. Make your interactions personal and show clients you're there for them in good and bad time periods. This is the time to demonstrate and solidify that you have created a long-term relationship and that your firm has the vision and expertise to look forward and guide your clients through. 

The "do more with less" mantra is an everyday reality for firms even in excellent economic conditions. During a recession, it's a time to be realistic about what you can accomplish with the resources you have. To improve efficiency, firms should look for opportunities to make better use of automation and other sales and marketing tools. Focus on personal (versus personalized) outreach to elevate your subject matter experts. For example, create short videos leveraging investment experts within the organization to explain how your firm has adjusted to the current environment. This will help put investors at ease and buy into your long-term vision.

A Trio of Tactics
James Curry
UMB Fund Services

In anticipation of the next recession, boutique asset management firms should implement the following three practices.

First, review selling and platform agreements for any minimum fees or asset requirements. Several platforms are charging monthly and annual minimum fees based on assets under management. Review your agreements to see what firms may pose minimum payments should asset levels go below contract or agreed upon minimums.

Then, perform a service provider scorecard. Evaluate whether expected performance levels are matching up to the cost for those services. Providers who are experiencing continued staffing or service issues should be reviewed. No one likes to pay a premium for poor or unsatisfactory customer service and performance, especially in a down market. 

Finally, stay connected. Reach out and communicate effectively and informatively with key contacts, clients, and intermediary gatekeepers. Personal connections are best; however, social media, webinars, newsletters, and other forms of mass communication can go a long way in getting your message out.

Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketingpublic relations and sales programs. Click to read Dan’s latest Insight articles and to schedule a complimentary consultation.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Dan Sondhelm

Dan Sondhelm is the CEO of Sondhelm Partners. Sondhelm Partners, founded in 1996, helps institutional asset managers, mutual fund and ETF firms, alternative investment managers, wealth managers, and fintech firms attract investors and build brands through marketing, public relations, and sales strategies.

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