Ep. #7: Diversification through Managed Futures

CTAs who market “diversification through managed futures” often struggle with sales because they overcomplicate the message and require customers to make multiple decisions before they can buy. Listen to this episode to learn an easier and more effective approach.


Welcome to The Profitable CTA, the only podcast that helps commodity trading advisors grow their businesses and boost their bottom lines. I’m Kelly Hollingsworth and I’m very glad you’re here because CTA profitability is suffering, and in this show we talk about how to fix that.

In every episode, we discuss a common problem that undermines CTA profitability, and the problem for today is the marketing approach that many CTAs use, and I’m going to call it “Diversification through Managed Futures.”

Why is this a profitability problem for CTAs? A couple of reasons that we’re going to discuss today.

“Diversification through Managed Futures” requires too many decisions

But first let’s talk about how the “diversification through managed futures” message typically goes.

It’s a three-step argument. The first is that the prospective customer needs diversification. That’s one sale the CTA must make when using this marketing approach. In today’s stock market, that can be a very tough sale because everyone’s making money and in their minds it seems like that may never end. Also working against CTAs is the readily accepted idea that over time, the stock market is always going to go up, and those who buy into the idea know that a downturn may be coming, but they’re prepared to hang in anyway, so diversification doesn’t matter to these folks. This is why CTAs who take this marketing approach of “diversification through management futures” lose a lot of would-be buyers at step one.

The second step in this marketing approach is that the diversification the customers should acquire, if they buy into that idea, should be obtained through managed futures. That’s the appropriate tool or the proper place to get diversification. This is a second sale that CTAs must make under the “diversification through managed futures” marketing approach.  And this, too, is a tough road. Diversification is a safety argument—the customer is laying off risk if he adds managed futures programs or managed forex programs to his or her portfolio. But then the customer starts looking into managed futures and managed forex as an asset class, and risk is front and center in that asset class. If he asks his accountant, lawyer, or financial advisor, what’s the answer going to be? Usually it’s a grimace. “Well, that’s risky.” And then Take a look at the documents a customer must sign to step into a managed futures or forex program. It’s speculative. It’s risky. Definitely not for everyone. That is al over all of those documents.

All of this flies in the face of a safety argument, so this 2nd step in the “diversification through managed futures” sales process is another spot where CTAs lose a lot of customers.

Then there’s the third sale, if the beleaguered customer gets this far, past the first two hurdles, then you have to convince the customer that you are the right CTA for the job. Not some other CTA but the one they’re talking to right now.

This is a whole lot of selling, my friends. At any step of the way, CTAs who take this marketing approach, this three-step marketing approach, can confuse, and therefore lose, the customer. Decision fatigue is a real thing. People don’t like to make multiple decisions, and if the process of allocating to a CTA is that complicated, if it involves that many decisions, many if not most people are going to throw up their hands and stick with the stock market.

People buy based on emotion, not logic

The other thing that works against CTAs with this marketing approach is that it’s grounded in logic. It’s based on things like the efficient frontier. Correlation analysis. Charts and graphs and stats that show when the stock market zigs, we zag, and why that’s a good thing.

What Madison Avenue knows, and what CTAs, struggling CTAs particularly, would do well to observe, is that people don’t buy for logical reasons. They buy for emotional reasons. They may justify their emotional decision with logic after the fact, but when buying is on the table, it’s emotion that rules the day, and “diversification through managed futures” doesn’t appeal to their emotional triggers.

This approach is very rational and logical, but no one stayed up all night worried that their portfolio wasn’t optimally constructed to achieve the highest expected return. Why do people stay awake at night? Because they’re worried about their very survival. Will they have enough to retire? What if someone gets sick or loses a job? How are they going to get the house paid off and cover college?

Diversification is now how they language their fears, they think in terms of money, and that’s how CTAs should speak to them. IN other words, people stay up at night because they’re worried, not about diversification, but about money. And too few CTAs are selling the profit potential of their trading programs. This is a shame, because profit is what attracts the customers. It’s a single decision, and it’s an easy decision. The message, we’re making money over here, would you like to join us, is a no-brainer.

A good track record is all you need

Conveying this message, by the way, in a compliant fashion is a very easy thing to do. All you have to do is slide a track record across the table that shows a long and lovely stream of positive returns, and you’ve made the sale.

Few CTAs want to believe this, but the truth is that customers don’t need to be convinced to make money. If your trading program is profitable. and you have the returns to show it, there’s no convincing required. There’s no logic necessary. People just buy. They will act in their own best interest every single time when you bring their emotions into play. When you bring the money they want for their survival into the discussion. Where they don’t buy is where we run them through a multi-step gauntlet of logical decisions in the sales process.

So that’s what I have for you this week, my friends. If you’re thinking you need fancy graphs and charts and stats to make a sale, think again. Keep it simple, focus on your trading, focus on generating the good returns that you are capable of generating, and let the track record speak for itself. Profit is the only message anyone needs to hear. It’s the most compelling message, and it’s far less that confusing than “diversification through managed futures.”

Before I close for today, I’d like to clarify that I’m an attorney so this podcast may constitute attorney advertising. Also, although we discuss general business principles against a legal backdrop, you shouldn’t take anything I say here as legal advice that’s applicable to your situation unless you actually hire me as your attorney. If you want to talk to me about doing that, email me at kelly@profitablecta.com, or go to profitablecta.com where you can access my calendar and schedule a call with me. Thanks! I look forward to speaking with you if you’d like some help with your CTA and getting it to profabiity, and I look forward to connecting with you in the next episode.

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