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Unconventional Methods

By Ellen Uzelac

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What does terrorism possibly have to do with the future of investment management? A lot, it turns out. With his blog, SelectedWisdom.com, national security expert Clint Watts is bringing fresh, new thinking to the industry’s hottest topic: retirement income planning.

A former U.S. Army Infantry commander and FBI Special Agent, Watts has spent the past decade analyzing terrorism threats across the globe. Now, he is using some of those same analytics to provide a picture of what the winning investment management strategies and products will look like 10 years out.

“Basically, I look for outliers,” says Watts, 39. “I’m not looking for the eight or 10 people who all give the same answer. I’m interested in the person who has made some other choice. Alternatives and new concepts are what I’m after.”

Watts is currently polling people in (or interested in) the financial sector about the future direction of the industry through a six-question online survey sponsored by the Retirement Income Industry Association (RIIA).  Watts is hoping for thousands of responses. Results will be released at a RIIA conference later this year.

“If you think about retirement income in the greater picture of the financial industry, we are the outliers. We’re basically doing stuff nobody else does. That’s the link,” says RIIA chairman François Gadenne. “Clint is used to looking at [terrorist] networks in order to figure who the outliers are. That’s his job. The terrorist who will kill you isn’t the guy who looks like you in the room. It’s the guy that doesn’t.”

Through the survey, which is anonymous, RIIA hopes to identify outlying opinion that will add to the thought leadership in the retirement income space. “Most statistics want to find the average, the mean. Here we’re looking for the tails, the things that are not the measure of central tendency,” adds Gadenne. “We’re looking for the people that are hard to find.”

The Boston-based Watts, a consultant with PA Consulting Group, launched Selected Wisdom in 2010 after becoming frustrated by the counterterrorism opinion discussed in the mainstream media.

“The media coverage was sometimes wildly off-base,” says Watts, a West Point graduate who later served as executive officer at the academy’s Combating Terrorism Center. “I didn’t like how they were treating the threat of terrorism as a whole. It’s not that it won’t occur because it will. My large issue is people’s understanding of it. In certain parts of the country, there is a perception that all these places are crawling with terrorists and that creates panic or fear. You see a lot of this pushed in policy think tanks and academic communities. What’s missing is opinion from practitioners. All of these issues are really complex and I believed the smartest people analyzing these issues were being drowned out by conventional wisdom.”

With Selected Wisdom, Watts strives to identify non-traditional sources of information and analysis on counterterrorism, national security, law enforcement, government policy — and, most recently, business, finance and energy. In August, Watts began blogging about the latter after realizing that the challenges faced by those sectors share a lot of characteristics with terrorist groups and counterterrorism organizations.

“When I was doing analysis work in the intelligence field I would run into people in finance and energy that were doing the same analysis: What’s going on in Country X? How will this affect local markets? If local markets are declining, what does it mean for investment? The other part is security,” says Watts. “How does volatility in a market affect my investment? It’s all very interrelated.”

As an example, in his intelligence work Watts used labor economics modeling to figure out how terrorists were recruiting and what sorts of incentive packages they would give to top performers.  In many respects, he says, Al Qaeda is based upon a franchise model. “Osama bin Laden was a businessman,” he adds. “I’ve looked at their employment records. Why Al Qaeda was successful is more about logistics than ideology.”

As a consultant with PA Consulting, Watts continues to probe. Half of his projects are for the U.S. Department of Defense and involve counterterrorism and investment prioritization. “With budget reductions, you don’t want to cut the wrong thing,” he says. The other part of his work is helping law enforcement agencies develop domestic intelligence programs.

Watts devotes his off hours to Selected Wisdom.  In one recent post, he makes a link between confidence in a counterinsurgency victory and confidence in the financial markets. Here’s how he ends the piece:

“In both cases, conflicts and markets, the tipping point for victory may rest on confidence more than anything. In Iraq, American confidence helped lead to what is perceived by most as a victory of sorts. In Afghanistan, American confidence appears quelled and victory still uncertain. In the markets, I wonder when will investor confidence return and what will make it return? And when comparing conflicts and markets, I wonder which is easier: building American confidence in support of counterinsurgency or restoring American confidence in investing?”