After our recent conversations about the corporate culture of fund managers and the “change of mood” we perceive in finance, we wanted to shift the conversation to the evolution of the employer-employee relationship within investment firms. advisory and fund selection teams. A recent blog post by Frederik Gieschen (helpfully linked to by Abnormal returns) gives us the perfect opportunity to do so.
Alex Rosenberg: This post, titled ‘Does Wall Street need a new storytelling?‘ caught my eye because it raises a good and perhaps obvious point, while presenting a conundrum for many of the companies we cover in Citywire RIA and Citywire Professional Buyer.
In the post, Gieschen stresses the importance of aligning around a mission that goes beyond money. He writes:
If all you offer is money, you only get mercenaries….The people you really want alongside you on your journey, as customers, partners, and team members, don’t just join for the money. They want to know why they should care. Why your mission is important, what challenges are you facing, and what interesting questions are you trying to answer.
I think we can agree that this is good advice. But what does this mean for advisors trying to maximize their clients’ wealth, or fund selectors trying to find the funds likely to offer the best (risk-adjusted) performance? What is the story you tell employees that is not just about money, when the job itself is more about money?
Alex Steger: I’ll start with advisors, because I think it’s the easiest and fits well with the change in mood and cultural elements that we’ve been discussing recently. In short, that’s part of what the RIA movement is about. About moving away from the increasingly corporate and one-size-fits-all environments of wiring houses and implementing something more than just achieving goals, nice business cards, and steak dinners. Once Independent Advisors can often offer their clients a wider range of services and investments than before, they often have more say over fees and, indeed, how they communicate with clients. . They can, in theory at least, put them first and that’s a good goal to have.
Rosenberg: I agree, the business cards of some advisers are atrocious. But no, it’s the easiest. You hear a lot about holistic financial planning – helping clients get more out of their money in addition to accumulating more of it – but even for advisors who don’t focus on planning, I think the mission of improving client financial results or even just helping to increase client returns is something that many believe deeply in. The goal may have to do with money, but for advisors, it’s not just about the money they bring home themselves.
Steger: This last point is important. It’s not a question of money, but it’s not only a question of money. And, of course, there are RIAs that don’t end up looking and feeling too different from a wirehouse team. But I think the broader point is valid.
Rosenberg: I think it’s because the advisor is so close to the client. As if doing their job, they know literally everything about their client – how long they expect to live, the names of all their relatives, what they personally think of their money, what actually happened this guy’s weekend in Curacao, etc. So even if you’re just trying to help them get good risk-adjusted returns, you feel like you’re helping someone on a personal level.
Steger: I think that’s where it’s most difficult for fund analysts and those who don’t have direct contact with clients. They are yet another degree removed from the ultimate investor and often give effective suggestions to advisors. Still, according to Gieschen, those doing it for more than pay are likely the ones you want to work with. What that larger goal might be may vary, but I would suspect it might include the educational element of the role (you talk to the best – and some of the worst – managers all the time), and increasingly the ability to make changes to asset managers. As we discussed earlier, gatekeepers are pushing, or at least trying to push, PMs on issues such as diversity and ESG.
Rosenberg: This comes at a really interesting point, and I think Aswath Damodaran may have missed in his now infamous post ‘idiots and rascals’. I’ve long thought that an underrated reason for the rise of ESG is that money is boring. It’s just boring to talk about risk and return all day, and most of us (all of us?) are very bad at judging future returns, so it’s like this giant fun board game which everyone shows up to play every day. And then some people say, hey, come sit at our table, we’re talking about how we can make the world a better place. And it very quickly became the cool table that everyone wanted to sit at. Of course, since a lot of people in the cafeteria are trustees, they had to argue that making the world a better place would also magically produce better returns, which is Of course bullshit – until you consider Gieschen’s point. Having a mission makes it easier to attract employees and makes employees better at their jobs. As long as they remember that on some level their job is to generate returns, the fact that they are motivated by a mission they believe in (and find interesting) could be helpful.
Steger: So ESG is like the “don’t be mean” of finance? A mission statement attached to a company, and by proxy to an industry, that didn’t necessarily mean anything but helped recruit people and made those people feel like extracting information from private citizens for profit was cool and positive and was changing the world.
Rosenberg: Precisely. I mean, damn it, instead of ‘making the world a better place’, we could have said ‘finding the Holy Grail’. The important thing is that it is A) sufficiently motivating and B) sufficiently vague. For example, you might think that the Holy Grail might be found by cloud computing companies or big box stores and not just Grail mining companies; the mission cannot be allowed to fully redirect you (or the wallets you manage). But that the Holy Grail exists – or that investment selection can actually solve the global problem – is irrelevant for this purpose. The simple fact that there is a mission forces everyone to work harder for less money.
Steger: Nice recovery. I felt we might drift into one of your ESG-isn’t-a-things-and-here’s-why in a tight 2,000-word newsletter, against which, I have to say, I don’t have nothing against it, but we have agreed to only do it once a month.
Rosenberg: I’m starting to shift to ESG post-existentialism. The interesting question is not whether ESG advocates are lying or missing the point, but why. And frankly, I think that mission glitch really explains that. How do you motivate people who have more than money when the job is to make money (albeit for customers, in addition to yourself)? By reframing the work around this admittedly dubious fundamental belief: only by saving the world can we make money.
Steger: I doubt it’s as deliberate as that. In that, I don’t think Larry Fink and co sat in a dark room dreaming up some trick by which they could rebrand asset management as a force for good, make people pay more and pay less for the privilege. But it’s clear that the industry has embraced ESG, and I understand that counteracts one of the issues that Gieschen discusses in his article. He quotes Michael Lewis saying, “Wall Street has gotten too boring.” He goes on to say that he needs a new story, to attract new people or motivate those who are already there, and – certainly in asset management – ESG does that. In other roles, especially customer-facing roles, there are other options.
Rosenberg: For RIAs, niches certainly come to mind. Take someone like Stacey Francis, who is a firm believer in women’s financial empowerment, as she explained to Michael Kitces (aka the Knight of Doghouses) in a moving interview. But even something as simple as “I want to help retiring dentists sell their practice and enjoy a fulfilling retirement” can have strong personal meaning for advisors. Obviously, this type of orientation is helpful if you’re trying to attract, well, retired dentists, and often when we talk about niche, we’re talking about attracting and serving clients. But I think it also does something powerful for the advisor and for all of that advisor’s employees.
Steger: Yes, there is nothing boring about retiring from dentistry. No sir. But, you’re right, a mission, whether small (removing molars) or large (removing minors), should help attract people interested in more than money, however misguided that mission may be. for foreigners. And you have to know, we have chosen to work in journalism!