Last month we looked at how five common cognitive biases can result in fund managers undermining their marketing effectiveness. If you missed it, you can find it here.
The good news is that understanding cognitive biases can give you an advantage when marketing your fund – although obviously you should only apply this knowledge ethically. Any claims you make in your marketing materials should be honest – and you should be prepared to back them up with evidence if they are questioned.
With that said, here are five cognitive biases common among humans (and remember, investors are human beings) that will help your messages cut through the noise.
I don’t have any cognitive biases!
While most people are aware of cognitive biases, few appreciate how powerful or ubiquitous they are. The most stunning thing about these cognitive biases is their enduring impact. Knowing we have them doesn’t stop them from working.
Most of us, most of the time, don’t spend much time thinking about our cognitive biases or their influence on our decisions. That means investors, just like the rest of us, have blind spot bias - failure to recognise our own cognitive biases.
Blind spot bias leaves us open to the influence of marketers. Good marketers use this to their advantage all the time. It’s the beautiful people we see in adverts. It’s the urgency retailers create through never-ending sales.
Many sectors have effectively incorporated these techniques into their marketing. The finance industry is relatively unsophisticated in this respect.
By thinking about these cognitive biases at all you are already way ahead of many of your peers.
Boring is bad for business
Salience is our tendency to focus on more interesting information at the expense of less interesting information. It is crucial to think about what will resonate with investors when constructing your story.
You should build your marketing story around what makes you interesting. That means finding the thing that makes your fund surprising or unique – and building your investment case around that.
For example, when it comes to your marketing deck and website, the goal isn’t to precisely and methodically describe your fund’s philosophy and process. That is boring.
The goal should be to pique interest.
If you can generate enough interest, the investor will want to know all the details.
If you feed investors too many details, before you generated the interest, don’t be surprised if their eyes drift away from the webcam to their phone…
People love being told they are right
Most of us have some form of confirmation bias, our tendency to trust information that supports what we already believe.
But there’s a balance to be struck. If you deliver something unexpected, you will likely generate some interest.
But that leaves you with a Goldilocks dilemma:
- Too many surprises can confuse investors, leading them to disengage or to become fixated on the wrong elements.
- Too few and you’ll end up with a snoozefest.
What you need is just the right amount of surprises!
So, set your story in a context that investors are familiar with. Use data that align with investors’ understanding of the world. That will build trust.
Then hit them with the surprising part of your story – the thing that makes you unique. Like any plot twist, it hits hardest when things seem to be unfolding relatively predictably, until suddenly they aren’t.
Nobody forgets a good plot twist. It is where the magic happens.
Harness the wisdom of crowds
The bandwagon effect explains how things become more believable the more people believe them.
It’s why online sellers like Amazon include user reviews on all their products. It’s reassuring to know that others have bought what you are looking at and have been satisfied with their purchase.
Conversely, it is hard for people to trust something new and unproven. That requires a leap of faith.
Giving people evidence that your strategy works and that you are easy to work with will help overcome this and build trust.
A good way to do this is through testimonials or slides showing existing investors. Ideally any testimonials will be from other investors or portfolio companies.
Testimonials show prospective investors that other sensible, reputable people have invested in your fund, have worked with you or respect the work you do.
It tells people they aren’t stupid for considering investing with you and provides evidence that you are trustworthy. That will help them feel better about their decision to make an allocation.
We all need reassurance at times
That leads us to our final cognitive bias, which is choice-supportive bias. This is our tendency to feel good about a choice we made – because we made it. In a way it’s a subset of confirmation bias.
Sometimes, however, we can experience the opposite: Buyer’s remorse. This is especially the case when experiences with customer service or support is poor. So, it’s important to deliver good service to investors post-investment.
Investors want to feel good about the choices they make. They will look for reasons to do so.
If you give investors those reasons, they will seize them.
And they will probably tell their friends….
Keep communicating with investors, ideally in a variety of ways.
Share articles about the opportunities you see in the market, so they understand your thinking. Call them on the phone. Take them out for coffee. The better they know you, the more they will like you – and the more likely they will be to tell other people how they feel as well.
If you do it right, they will find themselves rooting for you to succeed.
Over the lifecycle of a fund, periods of relatively poor performance are inevitable. Ultimately, asset management is a results business, and if your strategy doesn’t work, no amount of good marketing can fix that. But it will be easier for investors to be patient if you have invested time and effort into your investor relationships.
Good marketing is not about tricks or deception. It is about directing people’s attention to where you want it to be. It is about using every tool at your disposal to ensure you stand out. Fund managers have traditionally been bad at this.
If you would like help acquiring the tools to stand out with investors, jump on the bandwagon and contact our IR & Marketing team!
