The Pit - IMI Trust

The newspapers and investment magazines around Australia seems to be hooked on trading CFD’s (Contracts For Difference) on the ASX (Australian Stock Exchange). Actually, there is very little editorial coverage of the CFD ‘phenomenon’. Most of the ink is on advertising the platforms on which to trade this relatively new instrument.

An analyst on CNBC claimed that approximately 50% of trades on the London Stock Exchange are CFD trades now dwarfing all the other instruments in the multi-billion dollar derivatives market. Australian investors are trading just a fraction of that number but the figures are anticipated to explode over the coming months.

Because of this, many players are scrambling for market position. How do you get ahead when there are so many people vying for market share?

We have recently been engaged by The Sharemarket College to assist marketing the SMC Trader online trading platform. One of the challenges we have is competing in a very competitive market.

A few months ago at the Melbourne Traders Expo there are booths 3×3 in size with companies all attempting to sign you up. As an investor how do you choose which CFD provider to go for?

The Sharemarket College is fortunate enough to have a brilliant product that offers investors state-of-the-art tools to facilitate their investment. In addition, they have over a decade worth of testimonials from their clients that have been through their investment education courses. But how else can you appeal to the average investor?

Do you look at the advertisements in Personal Investor, AFR Smart Investor and Intelligent Investor and think ‘That deal looks good, where do I sign up’? Do you read the ‘advertorials’ in Wealth Creator Magazine or Your Trading Edge and think they contain the right information to make an informed buying decision. Do you ask the man standing in the middle of the Sydney Investment Expo wearing an ‘I Hate CMC Markets’ T-shirt what his opinion on who’s the best CFD provider? I don’t think he will be trading CFD’s with CMC.

As an investor, the choice can be difficult. As a CFD provider trying to claim ‘that’ investor, the road is even more treacherous.

IG Markets, judging by their front-page advertisement on the Australian Financial Review, are offering a good deal. Low commissions on trading they advertise. Low commissions sound good but you’ll find that the discounted rates only apply if certain trading criteria are met. They are making a cut somewhere that’s for sure. They have to. That one advertisement would have cost around $15,000.

There are a dozen other entities all trying to earn your dollar and most show great examples of how NOT to go about your marketing. If you ever want to see poor marketing in action, you will commonly find these two elements.

1. Reduce trading commissions.
2. Throw amazing amounts of money at blanket marketing which offers no real benefits, but mentions your discount trading.

Sounds similar to the IG Markets marketing plan. Effective? Probably. But it may not be as efficient as it should be.

Other domestic players like Macquarie, Sonray Capital Markets and Tricom use a more corporate model. Day trading, online trading, full service brokerage and whitelabelling and referral plans. This is in own right is effective and profitable but they want a slice of the ‘mum-and-dad’ pie too.

The CFD trading revolution has fully hit Australia. Funnily enough, the centre of global trading, the US, doesn’t allow its citizens to trade CFD’s. The rest of the world can trade CFD’s on the New York Stock Exchange and Nasdaq with no problems.

And we will… The Online Trading industry in Australia is going to massively expand over the next few years. CFD’s are going to play a major role in that expansion and we look forward to enjoying the ride.

We’ll be working on promoting the SMC Trader until the end of 2007 so we’ll definitely give you updates on how it goes. If Commsec and ETrade, start issuing statements that they’re numbers are falling then assume we are doing well.
That should happen anyway as both are really limited in both functionality and product offerings. It’s true.

To view the SMC Trader go to http://www.smctrader.com  and to view the SMC Cafe, where traders meet, go to http://cafe.smctrader.net  

Job applicants that want a job where they can ‘travel’ can send their applications right here.  What a 10 days.

• Gold Coast (our hub) to Brisbane, then back to base
• Gold Coast to Sydney
• Sydney up to Cairns via Gold Coast
• Cairns back to the Gold Coast (for a change of clothing)
• Then, finally, Gold Coast to Melbourne and back 

I really must learn the art of appointment booking. This also explains the lack of blogging recently.  Sorry.

Please Note That Trips Were Longer Than 5cms In Real Life 

Brisbane
We met with clients to discuss processes they need to implement to streamline their services and become more efficient.   Their processes were too ‘key person’ specific.

Technology allows businesses to provide consistency. Relying solely on humans for the support of your clients can cause serious problems.  Do not remove the human element completely but support your staff by underpinning their role with strong systems.

The reason.  The potential impact of losing just ONE client is:

• You can lose the upfront profit a sale will generate
• You can lose any ongoing trails or commissions that sale will generate
• You can lose any referrals that client can provide
• You can lose the sales, trails & commissions from those referrals and their referrals
• You lose the potential to upsell any new products
• That ONE unhappy client will tell lots of other people and ruin your reputation amongst their peers

Can it be emphasized enough the amount of loss suffered from weaknesses in company processes? 

Sydney
The point regarding loss of reputation leads me nicely onto the next stop of the trip, Sydney for the “Banking & Financial Services Reputation Management Summit”. Hosted by Frocomm Australia, the event was focused around “Trust and the Impact on Reputation”. 

One of the speakers at the event was John Brogden, CEO of Manchester Unity and former Opposition leader in NSW.

This event confirmed for the direction we’ve been taking with our clients. Building trust & loyalty through community & support and communicating this clearly.

John Brogden was so accurate when he said the key to retaining clients is developing loyalty through service and information as the public can access your competition in seconds online.

In line with our philosophy, he noted that the power of the internet in developing their business.  When he started with Manchester Unity, he was of the belief that the internet would provide a lower quality, less loyal client base. What he has found is precisely the opposite.

His reasoning was the client who purchase online have developed a lot stronger product knowledge before making their decision. Exactly the way we have been working with our clients.

The line-up of speakers was second to none and a thank you must be extended to Glen Frost at Frocomm for organizing the event and Mark Hollands from Factiva for being a superb MC.  Also I won an iPod mini for my troubles.  Bonus!

Cairns
The trip to Cairns ended up being like a weekend away. I would have to say thank you to the Shangri-la Hotel for the fantastic stay. Cocktails and Wedges (not in the same glass) by the pool topped a perfect weekend.

Another One Of Those Texas Planes Landing

Melbourne
The road trip ended with Melbourne, which included a meeting with one of the big four banks to improve their marketing and distribution. It is amazing how the largest organisations in Australia can be ‘old school’ in their marketing approach. Get on the phones, sell, sell hard and quickly. We offered a few solutions and soon we’ll see if we’re allowed on board.  The signs so far are good.

The road trip was a great success, next time though I need to allow more time for sleep.

Donald Trump’s The Apprentice, is a great show as it offers education, insight and for those fighting to get to the top, it highlights Donald’s business genius. The Donald is a master of self-promotion and has been for over two decades.

He is also a master of promoting his friends. Every single week, the challenges in The Apprentice tie in to ‘a good friend of mine’, their company and the products they are selling. When The Don does the summary he sells them brilliantly. Short, sharp and too the point. Because of the delivery and the context it is difficult to doubt his words for a second.

This form of sponsorship is a sophisticated form of product placement.   At the start of one show, you see the eager contestants waiting for Donald to arrive.  The camera then tracks across to show his arrival in a SL55 AMG.  The faces of the contestants are in awe. Note: Most contestants in The Apprentice are self-made millionaire in their own right so the looks of awe are probably flattering, false and fit for purpose, like everything they do on the show. 

As soon as the car pulled in, you can be sure that Donald had done a deal with Mercedes.  What other car would be suitable to be the carriage of choice for Donald at future engagements?  You guessed it.  As is always the case, when you are one of the richest people, you don’t have to stick your hand too far in your pocket.

Don’t be naive to think that product placement is a rare occurance. Do yourself a favour when you are watching TV. If there is ever a computer showing have a look at the brand. Top marks to the marketing team of Apple. Very effective product placement!  Again, for music players, credit Apple for putting iPods absolutely everywhere.  Don’t forget, mobile phones by Sony Ericsson and Nokia, landlines by Lucent, PDA’s by Blackberry.  

But it is not technology cornering this market, look at positioning of other household products like detergents or toothpaste.  The practice of product placement is rife.

Product Placement Is Prevelant. But Too Much Can Be Ineffective

Die Another Day was the first movie to have its production cost completely covered by product placement.  It works away subconsciously. Obviously, the marketing departments of corporates thinks it works because they are throwing money at it. 

What are some great examples of product placement you have seen recently?  Or better still, any poor examples, that make you say, NO?!

Flying back from Sydney on Tuesday night I flicked through the Virgin inflight magazine. An advertisement caught my eye for an investment strategy.   

The advert proudly displayed that if I purchased a Crude Oil bull warrant at US$66.00, then every US$1 increase equated to over AUD$31,000 profit on each movement. Wow-wa-wee-wa! As the global hype machine Borat would say. 

The fine print said this.  You have to initatially invest $57,500.  Well, that’s disappointing because the hook of the headline was about a $1 movement on a $66 warrant.  Better yet, the text continues that if, and it’s a big IF, the price of oil shoots to $72 from $66, you make $200,000.  Sounds great. Triple digit percentage returns in a matter of days. 

Better still, that $57,000 controls over $2m of assets in the commodity.  Did anyone use the words ’Hideously Leveraged’.  Better again, the advertisement mentions that this scenario is hypothetical.  Cool.  So hypothetically, what would happen if oil went from $66 to $57 as it stands today?

Unsurprisingly there is no mention of this.

In advertising, use real trading scenarios. These frame the investment for the client.  Then present different scenarios to demonstrate typical gains and losses.  An advantageous strategy to use would be to highlight potential hedging positions.  This shows that you have the nous to protect investments.  As this is a lot of information to impart most companies use historical data in their advertising as a safe method of demonstrating the ‘potential’ of an investment. 

All hype, no risk.  When you see that you should be suspicious.  Especially in unfamiliar investments. In your marketing, are you safe, balanced and present the facts?  And have you seen examples of ‘glossy’ presentation? 

With all the popularity surrounded the Davinci Code, we thought this would be a post most would enjoy.

This has nothing to do with anything regarding the movie, but it is designed to guide you through what made Leonardo Da Vinci, a man that will be remembered throughout time.

I do not believe I have seen anyone refer to DaVinci as a businessman… and yet he was!

Leonardo was a genius in many different ways. He was an inventor, an artist, an exhibitionist, an engineer, a scientist and a brilliant sales person.

The Mona Lisa is one of the most famous paintings on the planet, and is a priceless piece of art. There are so many things I could write about Leonardo Da Vinci, but I want to stick to his incredible ability to sell and market himself.

To fund his work, Leonard had to generate an income which would be able to pay for himself, his students and his side projects in which he would work on.

DaVinci knew exactly where to go! He went to the “Warloards” of his era and propositioned them. His idea was simple ‘Go where the money is!’ Now you may ask… how does an artist get a gig with power hungry and ruthless “warlord.”

One of his employers killed his own brother, committed incest with his sister and would regularly poison his dinner guests. A meal to savour to say the least! This man was the most hated, feared and envied man of his time and known for his blod thirsty mentality.

And beside him, working for him was one of histories greatest men. Imagine one of Adolf Hitlers artists being regarded, as one of the greatest that ever lived. This same man was that deluded, that he would hire historians to search his bloodline, to prove he was from the bloodline of the Gods.

Leonardo was smart… he knew what the “Warlords” valued and he gave it to them! Leonardo would not pitch them on his ability as a painter! No… He would pitch them on his ability to create War Weapons and then artwork which would appeal to their Vainity.

He was able to satisfy some very powerful motives! He was able to satisfy the desire for Power, Wealth, Social Status and through his art… their vainity.

He also created for his employer one of the most powerful tools he could ever offer a war lord. It was absolutely revolutionary for his day. This tool came in the form of a detailed and exact “MAP”. This gave his employer vision and power… and for Leonardo… it gave him money!

He would play stage manager and conductor to some of the greatest parties of his era. He became renowned throughout the wealthy and powerful as the master orchestrator of parties.

He moved to Venice… a city of new money at the time and also a city in crisis.

Leonardo used this opportunity to sell his invention (the idea of an underwater army complete with armour). Yes… the first recording of the idea of scuba diving equipment.

He used his ideas and art to generate income, as well as to protect his own interests! This idea was far fetched, but studies today on his exact designs have been tried, tested and successful.

What was brilliant about this is that without his ability to promote his services, he would not have garnered the reputation he did. The interesting thing is that Leonardo was completely against war, but yet he designed some of the most brilliant war weapons. He actually designed the first tank. Something which was not first used until the first world war.

Now this was not designed to be a motor powered tank, but a man powered tank! His design is ingenious! It wasn’t until World War 1, that a tank would be designed and used in a war.

This work allowed him to fund his studies into nature and the human body! More then that, it allowed him to create art pieces which are now recorded in history. Whilst working for the Vatican during the day, Leonardo would be performing autopsy’s of the evening. One of his discoveries was that the aging process was linked to excessive nutrition of the blood. We know this today as cholesterol.

The ability to prmote your service is a powerful skill. The ability to market your services and products determines how your clients remember you. Sometimes… you need to sacrifice for the sake of your long term vision, exactly as Leonardo did. Leonardo always tried to make sure that everything he did, generated a uniqueness.

Even though he painted objects, scenes or portraits which had been done many times before… Leonardos unique touch would not be rushed, and would have him known by millions of people after his mortal death.

So as business owners, how can we make what we do unique? How can we have our clients remember us? How can be satisfy the desires of our cleints through our business and through our website?

Leonardo mastered this nearly 500 years ago!

What are some of your ideas about how you build loyalty with your clients?

OK, who in their right mind would spend that amount? Which company has this as their marketing budget?

Is it Berkshire Hathaway? Maybe Warren Buffet has opened up his purse and decided let the Benjamins run free. After all, their stock price recently cracked US$100,000 per ‘A’ Share. Yes… 1 single share will be a nice $100K investment for you, but of course you can’t buy shares in 1’s, you would need to buy 100 shares. D’Oh!  Maybe it is Microsoft, as they have US$50Bn kicking around in their coffers. Maybe Telstra, have lost it and decided to plough that money back into promoting their Next Gen network service/T3 share offer. (Note:  Next Gen = 3G - but because they are a year behind schedule Next Gen sounds cooler).

On Friday, the largest IPO the world has seen will occur on the Hong Kong and Shanghai Stock Exchanges.

The company is the Industrial and Commercial Bank of China (ICBC). As China’s largest lender, institutional and retail investors are scrambling to become a part of the world’s largest IPO, especially with all the hype surrounding the stunning economic growth of China.

Here’s some impressive statistics…

• The ICBC has 18,000 branches (Australia’s largest banking corporation, NAB has under 800)
• Accounts for 15.4% of all loans in Chinese banks
• More than US$1 trillion in assets.

The ICBC has also admitted to some other impressive statistics…

• The ICBC has publicly admitted to over 50 substantial fraud cases per year over the last few years.
• Its critical default loans total sit around 10% of their portfolio.
• 80% of its loans are to the corporate sector which is dominated by state-owned companies
• Of the 80%, 40% of those companies are in the red.
• The Bank is rapidly increasing its loans to this sector by almost 25% a year (as reported in The Australian - Oct 23).

If an Australian bank admitted to this level of imprudent banking it would be under serious investigation and would have few investors risking their money. 

New Target Market With Growth Potential Identified

However, more astonishingly… 

• The float is now 270x over subscribed for the retail portion (as an informal guide, bankers are normally happy with 20x oversubscription or above).
• Investors have placed orders for over US$500bn dollars of ICBC stock.
• Goldman Sachs who invested $2.6bn 6 months ago, now stand to make nearly $4bn from the IPO. This is the largest profit from a transaction since the company was formed in 1869.

From every angle, this IPO is spectacular. Keep an eye out for the listing on Friday. At current value they will be among the largest banks on the planet. You can be assured that investors around the world will have their attention focused on Hong Kong and Shanghai.

Either that, or it may just end up being a deal which is hype over substance, however, we very much doubt it.

After commenting on AAMI and Zyrtec on their mixed messages, one of the top Australian banks, the ANZ Bank have out-clevered everyone, even themselves, to deliver the worst message to their customers - the result can be viewed here.

For those not inclined to download the video, here’s a quick summary.  The theme of the advert is to demonstrate the lengths ANZ go to, to provide security for their clients.

The nerdy, secure banking guy goes through an eye scanner, a finger print scanner, has to smash open a small glass cabinet to press a button and so on, just to get into his office.  At the end of this sequence this is where the advertisement goes pear-shaped. 

After all the security measures, the door to the office does not open. So the nerdy looking character knocks on the door and a lady lets him in.  What the advertisement is saying that the security checks are pointless, technology doesn’t work and human intervention will resolve the issue.  It is clear that ’no matter what security measures we implement, there are always ways around the system’.

I seriously hope this is not the case.  Of course, adverts are supposed to be humourous but I am sure there are many people who viewed this in the same way.  This means lost customers and lost revenue.

At the moment it seems, the advertising industry does not have its values aligned with the finance sector.  Financial groups not to continue reassure clients and build relationships that their money is safe.  An advert like this could cause a lot of damage.  If ANZ was your company, would you allow your reputation to be harmed in this way?

There are a couple of advertisements playing on Australian television which are played in reverse.  As visually appealing as they look they are poorly conceived and can do more harm than good.

Example I: 

The insurance company AAMI has a house fire played in reverse with the couple escaped at end and as the advert goes on you can see the fire spread, then at the beginning you see the how the fire starts.  The voiceover claims that AAMI will pay out regardless of the situation.  That all sounds fine but halfway through the ad the main man, throws a scotch over the fire to put it out which causes the fire to spread.  This indicates to me that it is OK to throw an accelerant over a fire and AAMI will pay out.  Is that right AAMI?  Can I throw alcohol on a fire and it is all OK?

Example II:

Zyrtec, the antihistimine that helps you with common allergies starts with the lady at the end looking puffy and allergic and as the ad plays backwards she goes through a host of situations that can cause allergies, she takes a Zyrtec and then at the end of the advert, she looks fine.  So, what the ad is saying that if you are fine then take a Zyrtec you will be allergic if exposed to an allergen.  Not a very good testimonial for medicine.  I’d rather have a Claratyne.

The darling of the internet has bought the hype of the internet.  Google and You Tube unite!  The fallout of this is that Facebook, who was an acquisition target is now the red-hot favourite to be purchased by Yahoo who needs to make a strong movement in response to Google.  It’s like the turn of the century all over again. 

The question most people ask themselves when they heard about this potential deal, is why would Google invest US$1.6bn in a company which is a year old, has not made 1 cent in profit and has content that violates copyright law?

It doesn’t fit with the list of Google acquisitions to date.  Google had spent under US$150m in total over the past few years.  Pyra Labs (Blogger), Picasa, Writely, Keyhole (Google Earth), Sprinks (Contextual Ads in AdSense), Where 2 (Google Maps) as well as a whole host of semantic and analytical companies were acquired for practically nothing in comparison and have delivered massive value.  How can You Tube compete?

Goo-ba Tube-ing Jr Shouts ‘Show Me The Money’

Well it is simple really. Google has a market cap of around $130bn.  $1.6bn represents a small chunk of that company and the benefits far outweigh the negatives.  The impact on stock price alone should increase by more than the cost of the transaction.  1.5% is all the stock needs to increase by to make up that cost.   Of course, there are other reasons for the takeover. 

You Tube gets three times the traffic that Google Video does, and when people search on Google, they are looking for You Tube segments and not Google Video.

The CEO of Google Eric Schmidt, has announced that the purchase is in alignment with the Vision of the company for organising information.  Now from an entrepreneurial point of view, you have to take your hat off to the directors of You Tube. Co-founders Chad Hurley and Steve Chen has sold their company for US$1.6Bn within a year of launching their company. They have cashed in on the social media phenomenon.

Social Media seems to be the difference between the success of You Tube and Google Video. The ability to build a community around their service is one of the major factors behind the amazing success of this company. This success being defined by their 20m visitors to their website each month and 72.1m unique visitors per year. 

Rapport-building communication seems to be key when appealing to the masses.  Although these are huge numbers, you can take the principles of the You Tube and incorporate them into your business.

Once again to the bear and bulls in The Pit, look at how you can incorporate Social Media into your company structure.  In financial planning, communicating new offerings through a newsletter or a blog or a periodic podcast would have massive value and will draw in more people.  Accountants can communicate at crucial points of the year through these forms of media.  Engage your client base.  It’s called Social media for a reason.