Stories from the shop floor

Jonathan Willcocks

Global Head of Distribution

Story selling

On my route into the Premier Miton office, I often find myself reflecting on stories I have picked up during a hugely enjoyable thirty plus years working in financial services around the world. In this note, I thought I would slightly indulgently share some of these with you. What I enjoy about these stories is that often they are anecdotes from client adviser conversations and the outcome achieved through each of the stories is to make an intangible concept feel a little more tangible. They helped clients connect the dots; they linked a financial concept to something they already knew.

Right brain, left brain

These are not stories of big trades, huge short positions taken on falling stocks or contrarian strategies that have defied momentum driven markets. They are simple, but hugely effective, anecdotes that have helped customers feel more confident in their investment decisions.

Investing or purchasing a financial product is vastly different to many of the other big financial decisions we make during our lifetimes. If we are buying a car or house, we can physically see that asset, drive it, or walk around it and build a view on what we ‘feel’ about that asset, before going away and doing the analysis behind that purchasing decision.

In his book, Thinking Fast and Slow, Nobel laureate Daniel Kahneman asserts that our left brains must perform the task of analytical thought that the right brain lacks. Investors who are more left-brained (logical/analytical side of the brain) tend to examine all the facts and reasoning. Thinking in this analytical way provides the opportunity to uncover issues with investments that right-brained people may miss.

This kind of thinking can be emotionally and mentally exhausting, which is why we often depend on the right brain (the creative/emotional side of the brain) to come to the rescue by providing emotional relief from left-brained analysis. The following conversations support that right side of the brain by relating the unknown, intangible area of investing to something more known and tangible.

Singapore – which elevator do you want to take?

Singapore is a thriving financial centre, dubbed by many as the Switzerland of East Asia. I found myself in the foyer of one of the impressive skyscrapers, a 280 m tall edifice and one of the tallest buildings in the city. As I met a distributor, a well-established private banker, he explained that he liked to bring his clients to their offices here.

I agreed that the panoramic views from the higher floors must be a spectacular setting for client meetings. The private banker surprisingly said it was the elevators and the foyer that made this such an excellent location for client meetings. Naturally, this intrigued me, and I pressed the point further. He explained that he liked to leverage off a not so well-known metaphor by meeting clients in the foyer, greeting them and taking them over to the elevators – at which point he would inform the client that the elevators on the left of the choice of four elevators only held up by two wire cables, but the elevators on the right were supported by six cables.

Naturally, the client, with self-preservation firmly in mind, would opt to travel up to the 23rd floor of the building in the elevator supported by six cables. Why? Because with the elevators supported by two cables, the risk of the elevator falling should one of those cables fray and snap is concentrated compared to the elevators equipped with six cables.

Later into that client’s meeting with the private banker, the conversation would turn to investment portfolios and the concept of diversification. It was at this point that the decision the client made in the foyer as to which elevator they wanted to ride in could be referenced, they had chosen the elevator with six cables – why? Because the downside risk was spread across six cables, a little like a diversified multi-asset investment portfolio. The client now had a very present, real example of what investment diversification feels like.

Please let me caveat this story with the disclaimer that Singapore has an immaculate elevator safety record, and I am sure my colleague had no inside knowledge on their construction, but he did have exceptional experience on explaining diversification to a client.

Mexico – invest when you see the rocks!

‘Invest when you see the rocks’ was the striking title on the poster that greeted anyone who walked into the financial adviser’s office. The image was that of one of the cliff divers from La Quebrada in Mexico, in full flight, travelling headfirst towards the famously blue ocean.

In the port of Acapulco, one of the best-known tourist attractions, is La Quebrada, a 115ft cliff where each day local divers risk their lives to both entertain tourists and to uphold local traditions. From the cliff, they jump into a channel that is only four meters deep, so they must ensure that the sea in the channel is at its highest point when impact with the ocean occurs.

How do they do this? Counter intuitively they initiate their dive when they can see the rocks below. With a 115ft to travel, by the time they reach the ocean, a wave has already filled the channel to provide them a suitable depth of water to cushion their substantial impact.

So why was an image capturing this dramatic scene in a financial adviser’s office? The adviser knew that his clients in Mexico would be aware of this local attraction, but like many investors they would be reluctant to commit to capital markets when they have fallen in value, during a bear market for example.

The adviser referred to this poster reminding clients that investing can be like the La Quebrada cliff divers, they commit to a dive at seemingly the worst time, when they can see the rocks, but is the best time to commit for the reasons just explained. The adviser would then be able to have a conversation with clients around market timing in the context of waves coming in and out and how, counter intuitively, the safest time for the divers to commit, was when they could see the proverbial financial rocks. Really simple, but effective in building client trust and understanding.

Sweden – do nothing

In Sweden, the mid-morning coffee break is called a ‘fika’ and it is not just a chance to refuel, it is also a key morning ritual. It was during one of these ‘fikas,’ a coffee with the famous cinnamon bun that I grew up on being half Swedish, that I had a very memorable conversation with a friend from a local Swedish asset management business.

My friend, a football fan (although not a long-suffering Arsenal fan like myself) was recounting a piece of sports evidence that he had read about and how it was highly relevant to financial services: He explained how there is a human tendency towards dramatic effort in the face of high stakes known as action bias. The research he had come across looked at football.

A group of researchers examined the behaviour of football goalkeepers when faced with stopping a penalty kick. By examining 311 kicks, they found that goalies dove dramatically to the right or left side of the goal 94 percent of the time. The kicks themselves, however, were divided equally, with a third going left, a third right and a third near the middle.

This being the case, they found that goalies that stayed in the middle of the goal had a 60 percent chance of stopping the ball, far greater than the odds of going left or right. So why did goalkeepers feel the need to leap about so dramatically when the pressure is on?

When the game and national integrity are at stake, you want to look as though you are giving a heroic effort and staying in the middle of goal has the decided visual impact of stunned complacency. Similarly, investors concerned with preserving and growing their hard-earned wealth do not want to sit idly by in periods of distress when markets are falling, even if the research shows that this is typically the best course of action.

The power of a good story

Why have I remembered these of the thousands of conversations I have had in my career? Because these individuals have taken a complex subject in financial planning and explained it in a straight-forward way that their clients understood, which in turn builds trust and confidence.

The strongest power of storytelling is that it helps you simplify your message. Telling simple stories will hopefully prevent you from falling into our industry trap of making an already difficult subject more difficult. These conversations were stories wrapped around a message and are in my view were a fantastic way to simplify a complex matter into terms that the client could relate to.

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Risks

The value of stock market investments will fluctuate, and investors may not get back the original amount invested.

Forecasts are not reliable indicators of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. Not for onward distribution. No other persons should rely on any information contained within this document.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice.

Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

Issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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