Grow Together - September 2023

In this issue: President's Message | Off brand - the power of product connection | What's your relationship with money? | Advising the whole human - understanding bias in the investor experience

 

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President’s Message

Matt Evans, CFA
President & CEO

 

This issue of Grow Together is all about relationships. Positive relationships with family, friends and in business contribute to better health, helping us to manage stress, fend off anxiety, and lead longer, happier lives. It’s no stretch to say the quality of our relationships is vital to our well-being.

This brings Bill Campbell to mind. Bill was a successful executive in his own right, and he came to be known as the trillion dollar coach. He was an early leader and long-time board director for Apple Inc. He served as CEO and director for several organizations prior to retiring from operating roles, but today he’s better known as coach, advisor and friend to some of the most successful founders of the 21st century. This includes those responsible for Amazon, Google, Facebook, and the aforementioned Apple, among many others. The combined value of these companies now comfortably exceeds several trillion dollars.

Here was a man whose funeral in 2016 was attended by over a thousand people, from business luminaries to childhood pals. His impact on each of them was remarkable. As one of his eulogists put it, “Bill Campbell was my best friend. I know there are only about two thousand other people who considered Bill to be their best friends too.”

Bill was famous for gaining the respect, admiration and even the love of hard nosed and famously difficult people. What was his secret? For Bill, success in life was all about relationships, and relationships are all about trust. It comes down to what his biographers call Bill’s envelope of trust. His signature commitments were listening intently, practicing complete candor, believing people can achieve remarkable things together, and sustaining intense loyalty through challenging times.

When we completed our inaugural Voice of Client research in 2021, we discovered that trust is the attribute our clients most strongly associated with our legacy brands. We’re proud of this endowment of trust. It represents our advisors’ deep and enduring relationships with client families, often spanning several generations.

Nothing could be more rewarding than for client families to endorse CWB Wealth as a company they can trust. We aim to build on this through all that we do.

In that spirit, this month we’re excited to embark on our annual series of exclusive, in-person client events in cities across the country. Our distinguished speaker this year, Riaz Meghji, will explore how to build and sustain meaningful relationships through the different stages of our lives. If you’re familiar with Riaz’s bestselling book, Every Conversation Counts, you’ll know he shares several of Coach Campbell’s core convictions.

This edition of Grow Together is similarly emblematic of our obsession with relationships of all kinds. We explore how to navigate the subjective, emotional relationships we can find ourselves in with our investments; what it means today for a brand to be in relationship with its customers; and, more broadly, the many forms our relationship with money can take over the course of our lives.

As much as our work is centred on high-trust relationships (arguably, the “soft stuff”), we’re also data-driven and performance-oriented. We ask for feedback because we take nothing for granted. As we say in our core values, better is always possible.

We’ll be out again this fall to refresh our Voice of Client research. It’s critical to hear directly from our client families on how we can serve you better. And we take the same view when it comes to our teams. We’re just now in the process of analyzing our annual team engagement results. Fittingly, the system we use to measure engagement is called the Trust Index.

This brings us back to Bill Campbell. What was the secret, really, to his profound success? It was simple in the end: you could count on him. His eulogist, Pat Gallagher, was comfortable among thousands to call Bill their best friend because, “it didn’t matter to Bill where you were on the list of friends. He would always be there for you no matter what.” We should all hope to be remembered so fondly.

I look forward to seeing you at our client events this fall. And as always, I’m grateful for the time you will spend with this issue of Grow Together.

Off brand - the power of product connection
to influence investor behaviour

Scott Blair, CFA
Chief Investment Officer

There’s a new king of beers in the U.S. For the first time since 2001, Bud Light is not the number one selling beer as that honour now belongs to Modelo Especial. Since April, sales of Bud Light in the U.S. have been down 25-30% on a year-over-year basis.¹ Meanwhile, parent company Anheuser-Busch InBev’s overall U.S. market share has fallen more than 5% to 37%.

Such a dramatic shift in market share usually comes from supply chain issues or a health scare with the product. Not in this case. Bud Light’s fall from grace started with a very short promotional post on Instagram by Dylan Mulvaney, that featured a tallboy can with the likeness of the transgender social media influencer. After seeing the ad, many conservative media personalities called for a boycott of Bud Light and all the products of its parent company, Anheuser- Busch InBev.

The story got even worse for Bud Light. Some progressives, who felt Anheuser-Busch InBev’s response to the controversy was not supportive of Mulvaney or the LGBTQIA2S+ community, also called for a boycott. Investors took notice and the stock lost 16% from the start of the controversy, while competitor Molson Coors gained 20% over the same period (see below).

Figure 1: Anheuser-Busch InBev vs Molson Coors returns

Source: FactSet, USD Price Returns since April 1, 2023 to August 22, 2023

Making a connection

When we think about a brand we think about a product or service, a name and a logo. This is just the start of a branding process.

Truly successful, enduring brands develop a deep – often emotional – connection with their customers. This breeds loyalty and advocacy.

In the past, traditional advertising such as TV commercials and radio spots were critical in developing a brand image. Today, these outlets are still important, but the digital-age toolbox has expanded – and so have customer preferences.

Brands are no longer being asked to just deliver a quality product consistent with their advertising. Increasingly, consumers (especially Millennials and younger generations) prioritize attributes like authenticity, transparency and consistency in the brands they purchase. Some of these concepts can be confusing and overlapping, but it essentially comes down to honesty.

For instance, say that you purchase a product because the company says one of their core values is giving back to local communities. How do they live that value? Do they live it all the time or some of the time? Where is the proof? The brand must deliver on the promise or the customer connection will not be made. Losing an established customer connection is perhaps even worse for that company, because once a customer leaves, they’re unlikely to come back.

The internet has taken transparency to a whole new level. Usergenerated content and online reviews are now essential to most consumer purchases – especially new products. It also makes it nearly impossible for a brand to hide from its missteps, and sooner or later all brands have a misstep or two. Today, any interaction can go viral, and countless do.

Let’s turn back to Bud Light. The brand was built in the ‘80s around Spuds Mackenzie, a bull terrier and literal “party animal” that became a pop-culture icon. The brand cultivated a frat boy party image geared towards young men, and it was enormously successful. Many of these consumers stuck with Bud Light as they aged, and the beer remains immensely popular with certain demographics. But overall sales of Bud Light have been falling for fifteen years. And in an effort to reverse the trend and attract new customers, Bud Light managed to alienate not only existing customers, but ones they were also trying to attract. The brand no longer felt authentic.

Lessons learned

No doubt, many will think that the blowback against Bud Light was an extreme overreaction. After all, it was just a short video on social media and a personalized can – not even a marketing campaign. But at its core, this saga has been about a lack of focus on the brand’s loyal customer and what the brand means to them. Beer is a very competitive business with an extremely large shelf of options. Customers tend to be loyal to their brands but with so many new products on offer, each of which have their own marketing campaigns, finding a comparable product and switching brands is easier than ever. Bud Light gave their customers – and critics who may never have had a Bud Light in their lives – ample reason to find out just how easy it is.

There are already signs that Bud Light’s market share is stabilizing, although its unlikely that it will ever reach its previous frothy heights. The silver lining for Anheuser-Busch InBev is that Bud Light is just one – although a very important one – of over 500 brands the company owns, giving the firm lots of different levers to gain back sales and overall market share. This highlights the power of product connection and further emphasizes the importance of diversification in all types of portfolios.

Sources: ₁Reuters, FactSet

What’s your relationship with money?

Russ MacKay, CIM®
Private Wealth Advisor, Portfolio Manager, CWB Wealth Partners

There’s no shortage of research showing that strong, healthy relationships are linked to living a longer and happier life. While this connection is usually based on interpersonal relationships, we know that our relationship with money is important as well. We all have a money relationship style. It begins at an early age and is formed by our childhood experiences with, and learnings about, money.

Ken Honda, author of Happy Money, identifies seven distinct money personality types and believes we each have a combination of more than one.¹ Identifying which types you fall under, and understanding the pitfalls of each, can significantly improve your relationship with money and help you make better financial choices.

The 7 Money Personality Types

Much like personal relationships, our relationship with money evolves over time. When I think back on my own experience, I was very much a COMPULSIVE SAVER as a young person. I would squirrel away all the money I could. Whether it was from jobs I had in secondary school or money I received from Christmas or birthdays, I reveled seeing my savings account grow.

After high school, I spent five years working before I eventually went to university. During that time, I developed a different relationship with money, as I was more carefree and liberal with my spending. These were my INDIFFERENT-TO-MONEY years. In my late teens and early 20s I dropped my fair share of money on “Electric Avenue” in Calgary. I also skied every weekend in the winter and spent my
summers windsurfing, waterskiing and mountain biking. Saving for a home, let alone my retirement, was the least of my worries then.

In my mid-twenties, when I decided to go to university, my money relationship shifted to SAVER-SPLURGER. I became more frugal and budget minded, but still allowed myself to enjoy some of life’s opportunities.

I got married after graduating university, and together my wife and I planned for our life ahead. My relationship with money shifted again, but this time it wasn’t just my relationship. I now had to take my wife’s unique relationship with money into account too, as we pooled our resources and shared in saving, investing, and spending to help live the life we wanted (and could afford). Collectively, we became COMPULSIVE SAVERS & SAVER-SPLURGERS.

As I prepare for celebrating my 60th birthday this year, I’m already anticipating further changes ahead in my relationship with money. My wife and I will be making a dramatic shift from years of accumulating wealth to one day using it to support our lifestyle in retirement. While that may still be years ahead, I know from seeing clients go through the same evolution that me and my wife will likely need to shift our relationship with money. Which leads me to a final and important aspect of one’s relationship with money. I’m at the tail end of the baby boom generation, being born in 1963. That means I’ll be part of the massive transfer of wealth in North America that’s well under way, with members of this generation set to pass on over $53 trillion.

In my experience working with affluent families for over 30 years, wealth transfers can be a contentious topic. Especially when the people passing along that wealth aren’t confident their beneficiaries are prepared and capable of managing their inheritance. I think back to my relationship with money in my early twenties (remember the INDIFFERENT-TO-MONEY guy?), and I probably wouldn’t have been capable of dealing with a large inheritance myself at that age.

So, a tip for parents – start talking to your kids about estate planning now! The longer you wait, and the more people that get involved, the harder it is for everyone affected to reconcile their respective relationships with money.

How to improve your relationship with money

According to Ramit Sethi, author of I Will Teach You to Be Rich, there are three steps to creating a healthier and happier relationship with
money.²

1. Know that emotions are okay. You don’t have to remove them from your financial decisions. Tap into those emotions to understand your values, fears, needs, and wants.
   
   
2. Become fluent in the language of money. Understand what things like compound interest and capital gains mean by educating yourself about these and other wealth management concepts. Money often seems scary because we don’t understand it. Ask questions to learn more so you can get conformable talking about money.
   
   
3. Try to be inspired by money. It doesn’t have to be a thing that worries you! It can also motivate you and help you create more joyful opportunities.

We all have a relationship with money and there’s no right or wrong one to have. In our quest to help our clients live their best lives, we believe there are four key ways that we can help support you in having a healthy relationship with your money – whatever your type may be.

1. Sharing your goals, objectives, and even your worries with your Private Wealth Advisor through ongoing open and honest dialogue lets them offer an objective perspective. They can provide a healthy dose of education and clarity, to help keep you from being sidetracked by the media and shorter-term influences that can strain your relationship with money.
   
   
2. Creating a comprehensive financial plan which considers all the important aspects of your life, including cash flow needs, taxes, and estate planning, ensures you have safeguards in place to mitigate risk to your wealth. CWB Wealth and CWB Wealth Partners now have added resources to help clients in this regard.
   
   
3. Ensuring your portfolio is well positioned, using the full spectrum of investing and wealth solutions that best align with your goals, can support the type of relationship you want to have with your money.
   
   
4. Extending our services to other family members, including multigenerational ones, can help them create a healthy relationship with money and teach them how to adapt as time goes on. Understanding your relationship to money is the first step towards having a healthier one. We’re here with you as your life evolves, so that your money is positioned to achieve its purpose no matter what your relationship to it is.

Understanding your relationship to money is the first step towards having a healthier one.

We’re here with you as your life evolves, so that your money is positioned to achieve its purpose no matter what your relationship to it is.

Sources: ¹ Ken Honda, Happy Money, ² Ramit Sethi, I Will Teach You to Be Rich

Advising the whole human - understanding bias in the investor experience

Kayla Ferreira, B.Sc, CFP®, CIM®

Private Wealth Associate

As Private Wealth Advisors, we view our clients’ portfolios primarily through the lens of purpose. A portfolio without a purpose is like a journey without a destination – potentially entertaining, but ultimately aimless. When it comes to wealth management, it’s the duty of an advisor to align portfolios with their intended purpose.

To that end, we spend considerable time and energy fleshing out the objectives of a client’s financial plan by exploring questions like:

• What do you envision for your future?
• Who is important to you, and how do you want to take care of them?
• What do you want your legacy to be?

With the core objectives articulated, we can build portfolios designed to fulfill them. But what happens when objectivity is lost? 

Emotional encounters

The word human does not frequent the pages of most economics textbooks. Economists tend to describe economic actors in terms of the productive outcomes they seek from a given transaction. Terms like market participant, buyer, and seller are common – but rarely human. In such a framework, it’s easy to forget that behind every economic decision lies a human mind. And bias, fuelled by emotion, can sometimes cloud our objectivity.

Consider something that happens frequently – investors developing psychological attachments to their investments. 

At first blush, the idea of becoming attached to something as banal as an investable asset may sound absurd. But then imagine someone you love dearly – a spouse, parent, or close friend – passing away suddenly, leaving to you a large bequest of shares that are ill-suited to your portfolio. What do you do with them? If you sell, are you heartlessly disposing of this last gift from your loved one? Or do you hold onto those assets even if they don’t align with your own investment strategy?

Other, less emotionally charged, instances of investment attachments abound. For instance, when GIC rates rise, some growth-oriented investors feel compelled to “lock in” for fear of missing out before rates fall. In so doing, they must disregard the history of GICs failing to keep pace with inflation. Others seek to maximize dividend yields, investing everything they have into a single high-yielding stock without accounting for concentration risk. Further yet, an investor’s desire to flock to, or divest of, whole regions, sectors or companies following a news release – or even a tip from a neighbour or family member – is common.

These are all real-life examples encountered by our advisors in practice. Such attachments are fascinating because they suggest that investors prefer psychologically compelling outcomes over empirical evidence.

Consider the context

The concept of human bias has amassed considerable negativity in today’s culture, though it’s worth pausing to examine its nuances.
Whether bias is regarded as harmful or helpful depends on context. Psychology Today defines bias as, “A natural inclination for or against an idea, object, group, or individual.”¹ In behavioural finance, it’s common to categorize bias as either emotional or cognitive. Emotional biases are based on an investor’s personal feelings. Cognitive biases generally involve decision-making based on established concepts that may or may not be accurate – rules of thumb, in essence.²

These tendencies form the basis of human judgement, decision-making and behaviour, and are largely the result of limitations on processing power and access to information.³ In short, to eliminate bias completely we would need to remove all limits on the capacity of human brains to access and process information.

As advisors, how then, should we proceed? We cannot simply throw up our hands and accept bias as universal and unalterable. Rather, we
must remain aware that bias will permeate the investor experience and leverage this awareness as another tool for supporting our
clients.

Balancing bias

When investors express their biases to us, we’re faced with a tradeoff. On one hand, we have a fiduciary duty to our clients to do what’s
in their best interest. If certain transactions are likely to bring about financial harm – such as allocating whole portfolios to speculative hype investments – we must discourage the bias through education and discussion. However, depending on the client’s other assets, overall level of diversification and risk profile, accommodating biases (or psychological preferences) to an extent can sometimes be feasible.

For instance, in the case of the bereaved investor mentioned earlier, it may be appropriate to retain a portion of the position – especially if the client is spared undue emotional distress and can still achieve their goals.

In a more everyday example, we work with investor bias when we assess a client’s risk profile. Here, we evaluate two key components: risk capacity and risk tolerance. While risk capacity (ability to bear risk) comes from the balance sheet, risk tolerance (willingness to bear risk) is primarily a function of investor psychology.

Although greater long-term returns are more likely with higher equity exposure (assuming adequate capacity), sufficient risk tolerance is needed to reduce the probability that volatility-induced panic will move the investor to sell everything at the worst possible moment. Recognizing a client’s appetite for risk, which is highly personal, from the start can help prevent this sort of wealth destruction. This underscores the importance of understanding every client’s unique circumstances, examining each investment attachment on a case-by-case basis and placing it into the correct context.

To have bias is to be human. Developing emotional attachments to investments at one time or another is nearly universal. As advisors, we must understand that our clients are not just investors, they are also human beings, and to do our jobs well we must connect with both.

From biases to beliefs, getting to know our clients personally, as well as on paper, allows us to take the investing journey together, leading them forward with the destination clearly in sight.

Sources: ¹ Psychology Today, ² Investopedia, ³ ScienceDirect

 

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of CWB Wealth or its affiliates. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant or other advisor before making any financial decision. Quoted yields should not be construed as an amount an investor would receive from the Fund and are subject to change. Investors should consult their financial advisor before making a decision as to whether mutual funds are a suitable investment for them. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.

Please read the prospectus, which contains detailed investment information, before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. CWB Wealth uses third parties to provide certain data used to produce this report. We believe the data to be accurate, however, cannot guarantee its accuracy. Visit cwbwealth.com/disclosures for our full disclaimer.