After our recent conversations about fund manager corporate culture and the ‘vibe shift’ we perceive in finance, we wanted to shift the conversation to the changing employer-employee relationship within both advice firms 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, entitled ‘Does Wall Street Need New Storytelling?’ caught my eye because it raises a good and perhaps self-evident point, while presenting a riddle for many of the firms that we cover in Citywire RIA and Citywire Professional Buyer.
In the post, Gieschen points out the importance of aligning around a mission that’s bigger than money. He writes:
If all you offer is money, all you get are mercenaries….The people you really want by your side on your journey, as clients, partners, and team members, don’t join for money alone. They want to know why they should care. Why your mission is important, what challenges you face, and what interesting questions you are trying to solve.
I think we can agree that this is sound advice. But what does that mean for advisors who are trying to maximize their clients’ wealth, or fund selectors who are trying to find the funds likely to deliver the best (risk-adjusted) performance? What’s the story you tell employees that’s about more than money, when the job itself is pretty much about money?
Alex Steger: I’ll start with advisors as I think that’s the slightly easier one and speaks nicely to the vibe shift and culture pieces we’ve covered recently. In short, this is partly what the RIA movement is about. About moving away from corporate and uniform environments at wirehouses and setting something up that is about more than hitting targets, nice business cards, and steak dinners. Once independent advisors can often offer their clients a wider spectrum of services and investments than before, they have greater say over fees, and indeed how they communicate with the clients. They can, in theory at least, put them first and that’s a nice purpose to have.
Rosenberg: I agree, some advisors’ business cards are atrocious. But no, it is the easier one. You’re hearing a lot of emphasis on holistic financial planning—helping clients enjoy their money more in addition to just amassing more of it—but even for non-planning focused advisors, I think that the mission of improving clients’ outcomes or even simply helping boost client returns is something that many believe in deeply. The goal may have to do with money, but for the advisors, it’s not just about the money that they are themselves taking home.
Steger: This last point is important. It’s not about the money, but it’s not about the money. And, of course, there are some RIAs that don’t end up looking and feeling too different from a wirehouse team. But I think the broader point stands.
Rosenberg: I think it’s because the advisor is so close to the client. Like if they’re doing their job, they literally know everything about their client – how long they expect to live, all their relatives’ names, how they personally feel about their money, what actually happened on that guys’ weekend in Curaçao, 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 this is where it is more of a challenge for fund analysts, and those in non-client-facing investment roles. They are yet another degree removed from the end investor and often effectively give suggestions for advisors. Still, to Gieschen’s point, those that are doing it for more than just the paycheck are likely the ones you want to be working with. What that wider purpose might be can vary, but I would suspect it could include the educational element of the role (you speak to the best – and some of the worst- managers all the time), and earlier the ability to effect change at asset manager. As we touched on before, gatekeepers are pushing, or at least trying to push, PMs on issues like diversity and ESG.
Rosenberg: This gets to a really interesting point, and one I think Aswath Damodaran may have missed in his now-infamous ‘idiots and knaves’ post. I’ve long thought that one underappreciated reason for the rise of ESG is that money is boring. It’s just plain boring to talk about risk and return all day, and most of us (all of us?) are very bad at making assessments about future returns, so it’s just like this giant unfun parlor game that everyone shows up to play every day . And then some people are like, hey, come sit at our table, we’re talking about how we can make the world a better place. And that very quickly became the cool table that everyone wanted to sit at it. Of course, since many of the people in the cafeteria are fiduciaries, they had to claim that making the world better would also magically produce better returns, which is quite obviously hogwash – 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’re driven by a mission they believe in (and find interesting) could be helpful.
Steger: So ESG is like finance’s ‘Don’t be evil’? A mission statement attached to a company, and by proxy an industry, which didn’t necessarily mean anything but which helped recruit people and helped those people feel like mining the information of private citizens for profit was like cool and positive and changing the world.
RosenbergPrecisely. I mean, hell, instead of ‘making the world a better place’ we could have said ‘finding the holy grail.’ The important thing is that it’s A) sufficiently motivating and B) sufficiently vague. Like, you’d have to think the holy grail could be found by cloud computing companies or big box stores and not simply by grail mining companies; the mission can’t be allowed to entirely redirect you (or the portfolios you manage). But whether the holy grail exists – or whether investment selection can actually solve the world’s problem – is irrelevant for this purpose. The simple fact that there is a mission makes everyone work harder for less money.
Steger: Nice recovery. I felt we might be drifting off into one of your ESG-is-not-a-thing-and-here’s-why in a tight 2,000-word newsletter, which, I should say, I have nothing against, but we did agree to do only once a month.
Rosenberg: I’m starting to move on to ESG post-existentialism. The interesting question is not whether ESG advocates are either lying or missing the point, but why. And frankly I do think this mission issue really does explain that. How do you motivate people with more than money when the job is about making money (albeit for clients, in addition to yourself)? By reframing the job around this admittedly dubious core belief: Only by saving the world can we make money.
Steger: I doubt it was as deliberate as that. In that, I don’t think Larry Fink and co sat in a dark room dreaming up a ruse whereby they could rebrand asset management as a force for good, charge people more, and pay people less for the privilege. But clearly the industry has embraced ESG, and I see your point that it counteracts one of the problems Gieschen brings up in his post. He quotes Michael Lewis as saying ‘Wall Street has gotten too dull.’ He goes on to say it needs a new story, to attract new people or incentivize those already there, and – certainly in asset management – ESG does this. In other roles, particularly client-facing ones, there are some other options.
Rosenberg: For RIAs, niches certainly come to mind. Take someone like Stacey Francis, who believes powerfully in empowering women financially, as she explained to Michael Kitces (aka the Knight of Niches) in a moving interview. But even something as simple as, ‘I want to help retiring dentists sell their practices and enjoy fulfilling retirements,’ can have a powerful personal salience to advisors. Clearly this kind of focus is helpful if you’re trying to attract, well, retiring dentists, and often when we talk about niches we talk about attracting and serving clients. But I think it also does something powerful for the advisor, and for any employees this advisor has.
Steger: Yep, there’s nothing dull about retiring dentists. No sir. But, you’re right, a mission whether small (removing molars) or big (removing miners) should help attract people interested in more than just money, however misguided that mission might be to outsiders. And we should know, we chose to work in journalism!
Agree? Disagree? Let us know what you think – email Alex Rosenberg at email@example.com or Alex Steger at firstname.lastname@example.org.