Wednesday, December 5, 2012

Delivering the Bad News: Client Service


Delivering the Bad News: Client Service

Institutional investors expect someone to meet with them once or twice and a year.  They also expect to get a phone call when something goes wrong in their portfolio.  These are reasonable expectations, and the client pays more than enough for a bit of service.  As money management firms grow, senior portfolio managers don’t have the time to make all the required client visits.  Moreover, a client has to wonder when the portfolio manager has time to manage money if he’s forever visiting clients.  Enter the client service officer.

401(K) Board Meeting (2010)

The client service officer (CSO) is usually a former portfolio manager.  At some point in his career, his investment performance became so poor that he was no longer permitted to manage money. The only difference between the CSO and a real portfolio manager is that the real portfolio manager hasn’t yet hit that rough patch that will relegate him to the role of CSO.

Many clients are unaware that the CSO is simply repeating key investment points and reporting on returns.  Typically, the CSO is given a decent title, such as portfolio strategist or product manager.  In fact, he won’t take the job without a being given a good title.  On the organizational chart, it will look like he’s fully integrated into the investment process, and he will attend all the research and investment meetings.  He might even be allowed to speak on occasion.  However, his main job will be to take notes and turn those notes into stuff he can share with clients.  So, CSOs have to have impeccable acting skills in order to keep the client happy. 

In a nutshell, here’s how the job works.  When the CSO goes to visit a client to deliver performance results, he must project an aura of deep involvement.  It might sound something like this (note the strategic use of the pronouns “I” and “we”):

CSO: “This meeting is really timely.  I was in our investment meeting very early this morning talking about the situation in Greece, and we discussed the implications for your European holdings.  We decided to hold our positions for the time being.  In fact, I had Bill [the portfolio manager] in my office, and we agreed that we might add to our positions in France if we see further weakness.”

In reality, as I’ve already told you, the CSO just took notes during the morning meeting, and he actually popped into the portfolio manager’s office for a quick update before dashing to the airport.  The CSO is just a reporter.

I have a great deal of admiration for the CSOs because they have to stand before the client when the investment performance is dreadful.  When the numbers are bad, and the portfolio manager should stand in front of the client, the portfolio manager is unavailable for travel.  So the CSO has to visit the client by his lonesome and absorb the wrath of the client.  When I was Research Director at Shield Asset Management, a couple of the portfolio managers made me do a bit of client service when the numbers were ugly.  At one account in Queens, a crusty old trustee for a construction union let me finish my song and dance, and asked me only one question, “Where the [expletive deleted] is my [expletive deleted] portfolio manager?”  I got out of there as fast as I could. 

Another time, I had to deliver the bad news to a client in Washington D.C.  Fortunately (not how I usually characterize an injury), I had sprained my ankle the night before the meeting.  When I got to the meeting on my crutches, I scored enough points for just showing up that the trustees forgot to interrogate me. 

Meeting with the client when the numbers are bad can be most unpleasant.  Remember the marketing guru who sold the account on the manager’s stellar record?  Now the performance looks nothing like the graphs and bar charts from the marketing pitch.  So the CSO is going to absorb the frustration of the trustees and/or professional staff.  Even worse, the consultant who recommended the manager suddenly has deep reservations about the manager’s entire investment philosophy and process.  The CSO is on his own.

If the situation gets bad enough, the CSO will get to play another vital role: taking the blame.  When the client finally fires the money manager, it won’t be the portfolio manager’s fault.  If the CSO had just done a better job of answering those pointed questions and put a slightly better spin on those miserable results, the client would have stayed with the firm.  It’s not good being the messenger.

Tomorrow, we’ll look at the Chief Operating Officer.  He’s brought in because someone has to keep the place running.


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