Three Lessons from Three Years of Success
Instead of running through the news for October, our founder would like to discuss what he has learned from our first three years in business:
Forward View has now completed three years of successful growth. We started with a project backlog and have rarely been bored since then. I know that our best asset is, of course, our team. Kerri, Jamie, David, Grace, Michael, and Fred never disappoint, and they consistently exceed client expectations. It's such a blessing to work with truly phenomenal and talented people. Forward View wouldn't exist without them. Lesson #1, then, is this: You will never regret being picky about who you hire. Don't ever rush recruiting! There's no substitute for a great team.
Lesson #2: Apply the Golden Rule to business. Treat your customers as you wish your vendors would treat you. Perhaps this rule is cliche, but it's also true. A small business can't afford too much traditional advertising, so word-of-mouth referrals are essential to rapid growth. One of our clients has sent us four additional clients who we would have never known otherwise. If your reputation doesn't lead to webs of interconnected customers, there's something wrong with your business. You can almost never do too much for a customer! We've "fired" one client in our three years of business, but everybody else has warranted going the extra mile. Don't just satisfy client; make them grateful for doing business with you! Our approach: “Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up” (Galatians 6:9 NIV).
I'll pull Lesson #3 from our equity research business: Resistance to change is a rarely discussed risk. In order to differentiate your company, you need to develop a unique vision for your services/products. Unfortunately, you are also likely to be "punished" if your offerings don't seem familiar. Established businesses in finance are, as we've seen, especially skeptical of research that isn't traditional in presentation or substance. While our results would seem to speak for themselves in a performance-obsessed industry, we've faced tremendous resistance to adopting our analyses simply because we don't fit the mold. In fact, shortly after signing an agreement with us, one asset manager decided to drop us because we don't have a specific license... a license that is unnecessary and useless. (We limit our breadth of services in order to avoid conflicts of interest.) Oddly enough, our former client is comfortable with conflicts of interest as long as their research vendors are licensed to be conflicted. Due to the inherent lack of logic in their rules, I wrote said former client a letter:
"Thank you for your update from the compliance team. Canceling our agreement is okay with me, although I can also assure you that Forward View won‘t be registered with FINRA in the future. As an IRP. there's only a limited beneﬁt of registration. Honestly, I was tempted to write one of those 'classic' Wall Street letters focused on venting with a request that you forward it to compliance, but doing so. while cathartic, would ultimately contradict our philosophy. Instead of creating a fuss, please allow me to kindly suggest the following for your compliance department:
1. Ensure that your API no longer pulls information from Forward View research or from other unregistered lRPs [independent research providers]. If the API scours our research but we're ineligible to receive compensation from your ﬁrm. there's clearly an ethical issue at play. Capturing free data and creating a rule to ensure that unregistered IRPs can’t be paid also harms your business because research analysts, like everyone else, must eat and pay bills. If we close. you won’t receive any data at all.
2. Ensure that your compliance documents clearly state the requirement for FINRA registration. When we completed the paperwork. registration wasn’t mentioned. I assume that this is a new rule, correct? If this requirement is longstanding. please consider the time and expense involved in a process which led to no revenue forForward View.
3. Ensure that communication is timely with IRPs looking to become vendors for your firm. The gaps and delays in receiving information that we noticed should not be typical. Business courtesy demands efficiency. Greater transparency would be welcome. too. The details of compensation should no longer be hidden.
4. Ensure that your contract includes the compensation formula for the reason mentioned above. Asking IRPs to sign a legally binding agreement that doesn‘t specify how we're to be paid is patently unfair. Would you buy a house without knowing the price? Obviously not. Would you sell your car without agreeing to speciﬁc terms of compensation? Your current practice essentially asks us to provide a service without knowing how we'll be paid.
5. Ensure that your ﬁrm adheres to the Golden Rule [see our Lesson #2 above]: Do unto others as you would have them do unto you. Respect for your company's business partners should be paramount. whether you view the matter through a religious lens. believe that karma exists or simply realize that cold business calculus demands some level of mutual trust. We lRPs depend upon asset managers/institutional investors for survival, and the ongoing disruption across the sector is creating new risks and challenges for all of us. I'm sure I don‘t need to detailMiFlD II or other regulatory shifts to you, however, I will note that all ﬁnancial markets and participants will suffer from a significant reduction in quality fundamental research (such as the analyses provided by Forward View). Price discovery mechanisms require active portfolio management and unique analytical insights. Index funds which currently depend on efﬁcient markets will become vehicles of disaster should equity research become passé. Currently, there's too much commoditized research, yet there's also very little appetite for differentiated analyses. Research that seems non-standard is frequently being dumped in the digital garbage can, so please don't ignore the IRPs which consistently deliver quality ideas. Consider supporting unregistered ﬁrms like Forward View in some way for the long-terrn viability of your business and for the overall health of the global capital markets.
I wish you a successful 04."
Here's to another successful year of business for Forward View based on our favorite proverb:
“Any enterprise is built by wise planning, becomes strong through common sense, and profits wonderfully by keeping abreast of the facts.” — Proverbs 24:3 LB