Surprising events one afternoon brought me insight into the existence of a risk that few people talk about, although it raises serious concerns in virtually every fund.
It is the risk of large shareholders or investors leaving. The costs and consequences of leaving are large. It costs a lot of effort and money to acquire new clients too. There are many reasons for leaving but one of them is just plain foolish.
It all began innocuously enough. I wanted to gain a better understanding of market dynamics, including trends, innovative ideas and strategies employed by traders in different funds. My goal was to stay informed about what’s currently hot.
There is no better way to do this than to read letters and reports written by funds. Of course, no one will write the best details, but one will write some good stuff, another a little too, and all in all, after reading a certain amount, one has a pretty good picture of what is going on in the world.
Some traders do this routinely, get new ideas to increase profits, reduce risks, see new directions. I got this idea from a conversation with one such very experienced person.
This time, however, something completely surprising happened. But first a short introduction.
A couple years ago I entered the publishing industry. So, out of necessity, I had to figure out the basics of editing to know what to require from people. Simply put, the publication must look well, it must make a good impression, not contain basic errors and, of course, I must be able to catch a large part of them.’
Back to our main topic: I have collected about 400 reports and letters to shareholders.
One afternoon over Italian coffee I got down to reading. After the first ten, I had a feeling that something wasn’t right. The content was OK, but something was wrong. After the next 20 I knew for sure. After reading about 100, I noticed that many (actually most of the funds) had a serious problem.
Most reports are very interesting and enjoyable to read. Great knowledge presented by professionals often with decades of experience.
But also most of them contain fundamental editorial errors. Before, I didn’t pay attention to fonts, margins, spacing, the way charts and photos are placed.
Suddenly I began to see how columns are misaligned, spacing and margins are a real nightmare (most documents cannot be printed because of this, the content will be outside the margins), paragraphs of text are badly transferred between pages. In some the font is so small as if someone specifically wanted to make it impossible to read. A mess. This is a serious communication problem.
And these were not exceptions. Such, unfortunately, was the majority! I’ll admit that I spent the rest of the evening in complete bewilderment as to how it is possible for so many funds to release such lax documents.
A small part looked like a text written in a simple word processor and converted to pdf. No graphics, no fund logo, all badly formatted. As a result, the whole thing made a bad impression, probably the worst of all possible – cheapness.
Why do I think this is a serious issue?
Let’s look at it through the eyes of an investor. Let’s think he brought $30 million into the fund. Every few months he gets a report or document that looks like it was done by a 12-year-old child. Careless. Done poorly. What kind of message does the investor get from this?
At the very least, it is a show of disrespect.
Of course, everyone will say that what matters most is results. That’s obvious. The result will always be king, no doubt.
But let’s think of a situation when a fund has a weaker quarter or even a weaker year. And let’s think about the question whether these poor documents will help to keep the client or not?
When everything is OK and results are fine then a poorly prepared document is unlikely to be a problem. But in the case of a weak quarter, such things may begin to sting.
And the effort put in, the time, money, dinners and gifts can go to waste by having a weaker result presented in a weak, messy, sloppy document.
The second, equally important issue is new investors. Potential investors or their representatives are bound to read maybe dozens of old reports back to back. I think everyone does that.
What will they find in them? What image of the company will emerge from the content and the form? Will the company be seen as professionals or as amateurs?
It’s a really sad situation when the next document in a row contains basic communication errors, has a font that is too small, charts that are too small (a large proportion of people today read on tablets and even phones).
Those who print reports for themselves the old-fashioned way usually find the margins and top and sides cut off. Such a printout is unreadable and only fit for the round archive.
Some of the reports and letters give a bad impression. Carelessness. Lack of attention to form. Cheapness.
Over the past year I have read maybe 30 Goldman-Sachs reports. They are flawless, even exemplary. Someone there is certainly making sure the client doesn’t get anything lousy. This is a good example, worth following.
What does a Bentley or Maserati catalog look like? Is it superbly prepared graphically and editorially, or does it look like a collection of text and photos thrown into a word processor and turned into a pdf? Fund investors are used to the Bentley level so the gap is huge.
A few conclusions at the end
The advice I have is simple – it’s best to leave it to the professionals.
The investment industry is not a cheap one, clients here are used to good style, class and luxury. The documents that a company sends to them should reflect this.
They should be carefully written, crafted, and should take into account how the client will read them: whether on a PC, laptop or a tablet.
You need to communicate uniqueness, luxury and security. Fund customers are used to this.
Having read many reports, I must honestly say that there is top-notch content in them.
It is really worth spending some amount of cash to make the editorial level similar, so that the two create harmony and show both a high level of the company and respect for the investor.
I’m not saying this to take an editor from Vogue right away (although it certainly wouldn’t hurt) but about a simple matter: to have the text, graphics and editing looked at by a professional.
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