The Subtlety of Language in the Art of War

 

“Generally, in war the best policy is to take a state intact; to ruin it is inferior to this. To capture the enemy’s entire army is better than to destroy it; to take intact a regiment, a company, or a squad is better than to destroy them. For to win one hundred victories in one hundred battles is not the acme of skill…

Thus, what is of supreme importance in war is to attack the enemy’s strategy. Next best is to disrupt his alliances by diplomacy. Thus, those skilled in war subdue the enemy’s army without battle.”

From The Art of War, Chapter 3

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Been reading up on Sun Tzu’s The Art of War? If not, you had better move the book to the top of the weekend reading list- the next ten years of your career might depend on it.

It is one of the world’s oldest and most respected texts on military strategy. First translated into French in 1772, The Art of War is on the reading lists of many who seek competitive advantage (including the United States’ CIA).

The book focuses on the importance of exploiting nuances at critical moments on the field of battle and a willingness to shift strategy as the environment changes.

My bet is that the winners in asset management over the next decade will be recognized by their capitalizing on what today (to many) appear only as subtle nuances. These companies will be marked by their decisions to shift their strategy to meet the current demands of the investment environment and their clients.

In fact, those at the very top of the leader boards will have been instrumental in defining the major shifts that are now underway. In large part, this advantage will come inventing and orchestrating a powerful new lexicon; that is, the language of the industry in the future.

Leading asset managers are today defining the terms of the future. In the battle for client influence and assets, language can be a powerful while disarmingly subtle weapon.

During directional shifts, after major industry/market shakeups (as we are now without doubt experiencing), key nuances are indeed the fulcrum points from which the future is driven. The language used will define and be used to commercialize the trends that emerge.

At the outset of any lasting and influential shift in trends, we experience changes in the usage of common terms and invention of new ones. Language is invented and honed to discuss the future world we want to see. Language eventually becomes central to our collective understanding of how the world turns. ‘New Normal’ anyone?

Take for example the impact of the shift of language from ‘products’ to ‘solutions’ in recent years. Quite a distinction between understanding an asset manager as a product or solution provider, right? This change has been important for defining relationships between asset managers, intermediaries and end-clients. Asset managers positioned as ‘solutions providers’ to end-clients are far less likely to facilitate the traditional role of an intermediary. Think back over the history of asset management; it is full of such sematically-linked developments.*

In my reading, The Art of War is in many ways a strategic guide to winning by doing other than your opponent does or expects you to do. It is about defining the terms of engagement. It is about taking control in unexpected and unconventional ways.

The strategic use of language may prove to be key artillery in the art of client acquisition in the shifting relationship and roles between asset management ‘manufacturers’ and ‘distributors’.

Take another example into consideration. Though attributable to Sun Tzu, it is perhaps children who are the earliest masters of this approach. Readers with children?- you know the tactic well. Have you lost a flashlight, a pen, or perhaps an automobile to the subtlety of the shift in possessive case? Your child takes what is yours by simply calling it her own. No need for a war (in the conventional sense), no need for hostility. A smooth and unchallenged conquest. And so it goes: your car, the car, my car… as easy as that.

A parallel can be found in a major asset management company’s campaign for “Investing for the New World” that ran over the last couple of months. Full page ads were placed in the WSJ, FT and elsewhere. Heavy direct to investor advertising. Iconic video shoots with lots of emotion. All in an attempt to connect the company more directly to the client (that is, the one with the money).

Also part of the marketing campaign was a video ‘interview’ between the company’s CEO and its head of client relations discussing the brave new world of investing. Peppered in the conversation about the changing investment landscape and the CEO’s wide ranging insights, an indication of another new world emerged.

These two industry executives consistently referred to Financial Advisers (FAs) as “our FAs”. Let’s be clear, FAs are employed by the financial intermediaries that distribute this and other company’s products. FAs advise their end-clients to purchase mutual funds and other investment products. They are independent of product manufacturers. To a measured extent (depending upon the nature of the engagement), FAs ‘control’ their end-clients investment decisions.

As quickly as you have lost your pen to your child, has this CEO (attempted) to influence as his own the sales force of an intermediary who distributes its products? Simply by calling them his own, has he attempted to create a tremendous point of leverage to the end-clients under the FA’s guidance? Increase a sales force and loyalty by adoption? Does this CEO have the The Art of War tucked in his Tumi carry on bag? (we are reminded, “…to take intact a regiment, a company, or a squad…”)

Asset managers that define the terms of the language used to describe the ‘new world’ are in powerful positions to steer that new world in their own direction. As the industry picks itself up from the events of recent years, one should wonder: “is it the world of investing that has changed or the way we understand it and the language we use talk about it?”

In the battle between asset managers and the intermediaries who distribute their products, there is one more piece of wisdom we should take from Sun Tzu. In Chapter One, Sun Tzu tells readers, “[a]ll warfare is based on deception”.

We, therefore, should not deceive ourselves. To the extent that an asset manager and intermediary distributor/adviser are offering the same service to an end-client, they are not partners but competitors. To the extent that they can take aspects of business from a competitor without jeopardizing the all important relationship with the end-client (the one with the money), they should will.

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* Elsewhere, we are wrestling with a less ‘offensive’ term than ‘tactical’ asset allocation; a term which feels too much like ‘market timing’ – still unmentionable in the presence of many for whom ‘long term’ and ‘strategic’ are sacrosanct.  As alternatives come mainstream, the language used to discuss ‘liquid alts’ or ‘main alts’ (to point out but two), will have tremendous implications on how the products as evaluated, allocated to and distributed. Think about the evolution of the asset allocation process and the implications of ‘style boxes’ on how we describe, select and compare investment products. The list goes on and on.