Rather counter-intuitively then, if an investment firm is struggling to attract and keep clients it should be spending on improving its existing investment capabilities rather than adding to its sales resource or acquiring assets. It may take a while, but strong long term investment performance will always build a far higher quality client base than industrial-scale marketing.
So what should we be focusing on in looking at the annual reports of investment firms? I’d argue that there is one metric that captures all of the above, and it’s client satisfaction. I’d also argue that this is far more a leading indicator than AuM can ever be. Clients will typically show signs of dis-satisfaction long before they make the decision to take their money way. Satisfied clients may reduce their holdings on the back of strong performance: this reduces AuM but it’s hardly a long-term negative.
Client satisfaction will clearly be performance-led, but it also takes into account non-performance factors such as responsible investing, clarity of communication, and levels of service. Properly done, client satisfaction measures should capture all of this. Show me an investment firm with highly satisfied clients, and I’ll show you a firm that has a rosy future.
At Baillie Gifford, we try to instil this way of thinking right across our firm. We have no AuM growth targets. We do not pay fund managers based on the amount of assets they run. Our bonus structure for client-facing people and even for most of our sales teams is determined by client satisfaction measures, not sales targets.
We use an independent firm to survey a cross-section of our clients every year, and from that, we get a Net Promoter Score. This measure of client satisfaction feeds directly into variable remuneration and incentivises selling the right strategies to the right clients at the right time, putting the interests of existing clients first and building trust through the inevitable cycles of investment performance.
Baillie Gifford is not a listed company and has no outside reporting requirements. But if we were and we needed to produce an annual report, I know what metric I’d point our shareholders to. It wouldn’t be AuM.
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