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Fear of Freshness

How to respond to market demand for crisper communications

September 2011

The following document will offer observations regarding the feasibility of disclosure falling outside the parameters of market-neutral verbiage.

Still with us? Awake? Let's try that again.

We'd like to talk about making business communications just a little fresher, without alarming investors, the markets, your colleagues, or yourself.

You'd think financial institutions would be comfortable with risk—in their portfolios, taking appropriate risks is essential. But they are surprisingly risk-averse when it comes to communications.

Firms, funds and portfolio managers with even the most distinctive investment themes hide their originality behind walls of boilerplate. As message advisors, we often find ourselves pushing to put some risk in—making document language not daring, just direct and clear. Such directness would stand out from the norm.

Want proof? Spend a few minutes on Google searching for typical phrases from financial documents, and you'll marvel at how often they recur.

"Top-down" and "bottom-up" are a couple of favorites. A real estate fund describes its investment and portfolio-construction process as follows:

"The universe is narrowed down using a top-down approach based on our fundamental views, along with a bottom-up approach utilizing our extensive company-level research and proprietary models."

Another large hedge-fund firm claims to generate

"alpha through a flexible approach, combining top-down country analysis and bottom-up detailed company research."

The managers at a third firm try a bit harder to describe what these shopworn phrases mean to them:

"The portfolio management team begins their search for investment prospects using rigorous stock-by-stock, or 'bottom-up,' analysis….The team couples this process with a high-level, or 'top-down,' approach…"

This is how even pithy, accessible phrases become jargon: overuse drains meaning.

Better to avoid cliché altogether and describe the process as concretely as possible: "Our team analyzes country and company-specific information to identify investments most likely to benefit from changing economic conditions." We wouldn't call this language catchy, but it's clear, direct and unlikely to be misinterpreted.

The obvious response to our critique here is, Why bother? Just as the unexciting IBM PC outsold Apple's sleek Macintosh in the 1980s because "no one ever got fired for buying IBM," investment managers might conclude that if returns are good enough, language won't matter. Moreover, the disclosure and communications-related provisions in the U.S. Dodd-Frank law are being watered down.

These are fair points. But where Washington has proved ineffective, the market is demanding better.

“Clarity of investment philosophy” is now the No. 1 selection factor for institutional investors, according to a SEIC-Greenwich Association report early this year. Later in the year, the Boston Consulting Group’s annual study of asset managers was even more forceful: given “virtually limitless investment choices,” institutions are now “probing into managers’” investment processes and philosophies…[A]sset managers need to review what they do best, make it distinctive, and market it powerfully.”

In short, to the implied question Why bother? we humbly reply, "Why not?" The bar for clear, uncluttered communications in business is, frankly, rather low.

We would never recommend that a client make a prospectus read like a Hollywood screenplay. But simply veering away from overused adjectives and meaningless descriptions would go a long way toward making financial communications stand out.

Our clients who have made their communications more direct have reaped rewards, in the form of grateful feedback (and steady business) from their own clients. This is no small consideration—in the current markets, a bit of fresh language may be what it takes to win the loyalty of discriminating investors.

Simplicity for Sophisticates
Making disclosure more readable will be vital in the post-reform era
Lost in Transparency
Disclosure is not enough - financial reform must also mandate clarity
Seeing Clearly
Transparency is no substitute for clarity
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