In a world clamoring on all sides for our attention, it is becoming more and more difficult to filter out the background noise and focus on what really matters. And this is nowhere truer than in the investment advisory space, where headlines are lining up to divert your clients’ and prospective clients’ attention from the timeless principles that lead to long-term success in investing.
Perhaps an RIA’s best defense against the relentless clamor of the media and the world around us is a clear, concise investment philosophy that communicates to clients and prospects the most important principles governing the firm’s stewardship of their assets. A finely honed investment philosophy, communicated frequently and in all types of economic and market cycles, can often accomplish more for your firm than reams of paid advertising, hours of podcasts and screen after screen of market reports and analytics.
What an Investment Philosophy Should Do
Capture key principles. What are the advantages of boiling your investment philosophy down to its most essential points? For RIAs and their clients, there are three principal benefits.
- Consistent messaging and clear expectations. RIAs with commitment to a well-constructed investment philosophy are able to confidently project a core message, in good markets and bad, that provides clear signals for clients about what to expect. Much like what most companies call a “mission statement,” an RIA’s investment philosophy keeps everyone — both clients and associates — aligned on what really matters. A good investment philosophy improves everyone’s ability to “keep the main thing the main thing,” in the words of Stephen Covey.
- Improved focus on long-term direction and results. An RIA with a sound investment philosophy is less likely to be distracted by temporary market or economic conditions and more attentive to discipline and consistency of process. The resulting confidence in the long-term outcome translates to more sound advice, calmer clients and improved portfolio outcomes — not to mention more abundant referrals.
- Alignment, from client onboarding to back-office operations. When the firm’s most important guiding principles are known, communicated, and practiced, they are ingrained into every aspect of client prospecting, client service, portfolio analysis and business operations.
Be clear and memorable. As Shakespeare reminds us, “Brevity is the soul of wit.” And the Bard has a point: the most effective communication tends to be concise and direct. Otherwise, why would companies spend $13 million per minute to air commercials during the recent Super Bowl? Clearly, there is great value in the marriage of brevity and memorability. To be most effective, your investment philosophy should focus on the one or two most important, over-arching tenets of how you manage your clients’ assets. In other words, if you want your internal and external messaging to be durable, memorable, and effective, you need to refine your investment philosophy and commit to delivering it with consistency, confidence and frequency. One of the best ways you can do this is by making it both succinct and definitive. The two qualities are not mutually exclusive, and the best investment philosophies encompass both. Getting your investment philosophy boiled down to its most essential elements may take some time and thought, but the investment will repay your efforts with improved clarity for you, your associate, and most of all, your clients.
At its most basic, a good investment philosophy effectively communicates what matters most in the way you structure your firm’s success—and the success of your clients. This means that a well formulated investment philosophy identifies and communicates your core strengths: the foundational qualities that you should be keeping at the forefront of attention, both for yourself and your clients.
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Sources
TinyPulse.com, “What Is a Company Mission Statement and How Can You Create Your Own?”
Stephen Covey, Seven Habits of Highly Effective People (New York: Simon & Schuster, 1990).
Dave Butler, “Helping Your Clients Go from Worry to Calm” (pdf), Dimensional Fund Advisors, March 18, 2020.
Madison Williams, “Super Bowl Commercial Cost in 2022,” SportingNews.com, February 13, 2022.