Practical analysis for investment professionals
03 September 2015

What’s Your Competitive Advantage?

As investment professionals, we spend a lot of time honing our analytical skills and keeping up to date on the latest market developments. But the other role many of us play is that of a communicator, one who effectively explains to prospective clients why we will serve them well. This is a competitive business, so clients want to know what makes us different from the thousands of other investment firms out there.

The selection process for an investment manager often culminates in a much dreaded “beauty contest,” where after a request for proposal (RFP), a few finalist investment firms are invited to impress the decision makers. Many factors are discussed (and tailored) for the particular audience, but despite lots of preparation, the suspicion is often that, in the end, the committee will just pick the firm with the best performance over the last 1–3 years.

When we asked our CFA Institute Financial NewsBrief readers what they emphasize when seeking new clients, however, only 19% of the 484 participants said that performance is what they lead with. Perhaps this is because the uncertainty of the markets means that promising consistently strong returns is a sure way to encourage client turnover.


Which of the following criteria do you most often emphasize as your competitive advantage when seeking new clients?

Which of the following criteria do you most often emphasize as your competitive advantage when seeking new clients?


What will, instead, engender enduring loyalty amid the various market ups and downs? The greatest number of respondents (35%) recognize that it is their investment philosophy that sets them apart. With this, comes their passion for investing and the conviction in their approach. These are characteristics that the investing “greats” have in common. As my colleague Jason Voss, CFA, often notes, the quest for alpha means by definition that you must be doing something different from the competition. Therefore, a well thought out investment philosophy, consistently followed for many years, will make you stand out.

The second most popular answer, at 27%, was experience. Having seen how the markets react and learned along the way where you have an edge — that’s something that cannot be replicated. You cannot teach wisdom, and while employers often say that knowing financial history should help new entrants to the profession, we know that reading something in a book is no substitute for having lived through the experience.

A strong educational background and a commitment to a sound ethical framework are, of course, worth noting in a conversation with someone who will entrust their money to you. But only 3% of our respondents said they highlight their education the most and just 8% lead with their ethics when engaging with potential clients. This is an interesting result, because according to the 2013 CFA Institute/Edelman Investor Trust Study, only 53% of investors in the United States, United Kingdom, Hong Kong, Canada, and Australia trust investment firms to do what is right. In fact, investors reported that trusting an investment manager to act in their best interest is the single most important factor in making a hiring decision. Achieving high returns was cited only half as often, and fee amounts/structure only a fifth as much.

So do we really know what clients want? This is perhaps the greatest competitive advantage any investment professional can have. Again in partnership with Edelman, CFA Institute is conducting just such a study on investor preferences, asking retail and institutional clients themselves what matters to them. Look for this update to the 2013 study in the coming months.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Rebecca Fender, CFA

Rebecca Fender, CFA, is head of the Future of Finance initiative at CFA Institute, a long-term global effort to shape a trustworthy, forward-thinking investment profession that better serves society. Prior to joining CFA Institute, Ms. Fender was a vice president at BlackRock working with pension funds and endowments, and she also worked at Cambridge Associates, where she published research about manager selection. She earned her undergraduate degree in economics from Princeton University and holds an MBA from the Darden School at the University of Virginia. Future of Finance publications include From Trust to Loyalty: A Global Survey of What Investors Want, and Gender Diversity in Investment Management: New Research for Practitioners to Close the Gender Gap. Previously, Ms. Fender also served as the director of the flagship CFA Institute Annual Conference.

3 thoughts on “What’s Your Competitive Advantage?”

  1. Ron Surz says:

    The 4 P’s are sacrosanct: People, Process, Philosophy, & Performance. Performance is the score card, but most don’t realize how important it is to understand the game before you evaluate the score card. The Performance P needs to be evaluated within the context of the other 3 Ps.

    For an interesting analogy, please see http://www.ppca-inc.com/pdf/Minding-Ps-and-Qs.pdf

  2. Very interesting presentation, Rebecca. I’m continually baffled that the most important factor in making an investment advisor hiring decision isn’t, “Can I trust this advisor to act, with a singular duty of loyalty, in my best interest?” I look forward to the update to the 2013 study.

  3. Kaon Nelaon says:

    What about helping clients do for them, that which they wouldn’t do for themselves… Staying disciplined to strategy trumps all others, in my view!

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