This anecdote was being passed around the office this morning. The story goes like this…
Joe is a small-town barber. Joe knew his clients’ preferences after decades of service and he always charged his clients fairly. A national-chain haircut salon opened just across the street. It had shiny new fixtures, neon signs, young and attractive personnel AND they were offering haircuts for $10.
Joe watched as traffic poured into the new competitor and wondered how he was going to compete with that. Should he put up a sign “Haircuts $9.99”; what to do, what to do?
After some thought and reflection on his business, with a smile Joe posted a large sign outside of his shop: “We fix $10 haircuts”. He pointed the sign directly at his competitor’s front door.
What does this clever marketing antidote have to do with fiduciary and investment consulting? A few thoughts come to mind: what motivates investment fiduciaries to seek and obtain outside advice and expertise? What is the motivation of a Board, investment committee, or group of Trustees to reach outside their committee and bring in prudent experts? It could be that others are encouraging them to hire a consultant. It may be that there is a situation within their plan or fund that has alarmed them to act. Or it could simply be that the realization is “what they don’t know is what they don’t know”; and this is problematic.
The challenge is finding the right organization to assist and provide counsel to your investment fiduciaries and that possesses the knowledge and expertise that you need. Our experience is that not until you have had a number of substantial conversations with a plan sponsor or a group of investment fiduciaries do you really flush out their true need(s). Too many times glossy brochures claiming to solve all your problems blur the real issues that fiduciaries have. Misdirected Requests for Proposals (RFP) to a broad field of seemingly capable candidates many times misses the fine points and nuances that specialized practices have when addressing these complicated and highly focused issues. Frequently RFP results end up on a masterful excel spreadsheet, ranked skillfully in every way possible, and result most times overlooking or eliminating the most capable firm because “they engage in ten fewer investment manager interviews per year than the next firm” or some other quantitative elimination criteria.
The $10 haircut may have been cheaper than Joe’s price, but it was worse and in the end didn’t get the job done. If you are looking for a firm to assist your investment fiduciaries with a specific challenge or on the search for an ongoing partner, spend time discussing your situation with a variety of firms, get to know each firm through conversation and discussion of your pain points and their possible solutions to them. Ask to speak to references that each firm has and engage your peers in conversing about what keeps you up at night. Most times you will find that those are many of the same issues that keep them up as well.
Prepare yourself should you decide to engage in the thankless project of a wide sweeping RFP, spend some up front time to be sure that the firms you are inviting are exactly what you are looking for and provide the solutions that you are most comfortable with. $10 haircuts look a lot like they cost $5. Find firms that are capable of fixing $10 haircuts.