Are Fund Companies Becoming Invisible To Investors?

What if fund companies have been going about this all wrong?

What if the decision to focus on distribution as opposed to end-users has been a mistake?

What if years of business-to-business brand-building should have been directed at building a consumer brand?

What’s the future for product manufacturers whose users don’t know their names?

These are a few questions raised by research released Monday by Hearts & Wallets, a financial research platform for consumer savings and investing insights working with its database of 5,500 U.S. households augmented by focus group work.

“In a grave strategic error, investment product managers have allowed their offerings to become commoditized,” Laura Varas, Hearts & Wallets partner and co-founder, said.

Hearts And Wallets Product Awareness.png

Varas gets to this conclusion by pointing to data that shows a decline in product awareness across all lifestages. At the same time, awareness of asset allocation—something distributors provide—is increasing.

In 2010, 76% of U.S. households knew what investment products they owned.This year, 66% do—a 10 percentage point drop in five years.

The study Product Trends: Ownership, Allocations & Competitive Metrics, whichdetails product ownership trends and opportunities within all lifestage, wealth and age segments, finds that only 54% of the Mass Market could say what types of investment products—mutual funds, ETFs, individual bonds etc.—they own. That’s down 14 points from 68% in 2010.

“This trend is yet another sign of how product manager attentiveness to distributor needs, while ignoring consumers, has allowed retail financial distributors to gain the upper hand in satisfying the needs of the ultimate decision-makers–consumers,” says the press release headlined “Wake-Up Call for Investment Product Managers.”

Oh and also, the firm adds, “the loss of power among manufacturers is exacerbated by the white labeling trend in the defined contribution space. Investment menus are shifting from manager-branded portfolios to generically named options in which money management firms are virtually hidden from participants.”

Meanwhile, Distribution Awareness Is High

“We believe it behooves major investment companies for consumers to be aware whether or not they are shareholders, even if the products were selected by an advisor,” said Hearts & Wallets.

The firm measures this with a Shareholder Awareness score.Vanguard and Fidelity have the most aware shareholders—two-thirds of all shareholders are certain that they are those firms' shareholders. Among purely third-party distributed funds, American Funds leads with a 50% awareness score followed by BlackRock, which has built its score up to 47% from 41% in 2011.

Hearts & Wallets Toothpaste.png

By contrast, 90% of consumers nationally can answer questions about at least one “store”—which is how Hearts & Wallets refers to retail and defined contribution providers that work directly with investors. Just as a Cuisinart blender is available from Bloomingdale's, an American Funds fund might be available from an Edward Jones store or a BlackRock product from the Fidelity store, it explains to focus groups.

The focus group discussions yielded additional troubling insights.

"Participants said they once had expectations for product, but no longer did. And they said they felt most products are the same; products are not perceived as adding as much value as stores," the firm reports.

Even for a third-party distributed fund company, an “extreme degree of disconnection with the consumer” has many disadvantages, according to this explanation from Hearts & Wallets:

  • It puts the product managers entirely at the mercy of the “store.”
  • It deprives the consumer of knowing that the manager cares about them; many, if not all, of the managers care deeply about their shareholders.
  • It deprives product managers of the opportunity to engage with people who are aware of, and presumably interested in, their brand.

Making The Invisible Visible


On the flipside, marketers could no doubt list several arguments in favor of having a strong connection with users of their products.

Think of the legendary "Intel Inside" branding campaign that dates back more than 20 years. Its success in promoting the importance of a branded semiconductor chip (a commodity if there ever was one) in other manufacturers' computers powerfully drove sales and built brand loyalty.

Intel Inside inspired multiple subsequent “ingredient branding" efforts—what marketing professor Philip Kotler referred to as “making the invisible visible.”

You and your firm may want to review the Hearts & Wallets data. See whether it piques your curiosity about the level of your shareholder/investor awareness and its potential impact on your prospects for growth. The research prompted the following random thoughts from me this week.

The role of the relationship. As fascinating as I find the work and the conclusions, Hearts & Wallets' comparison of retail investment product distribution to consumer products and stores isn’t apples to apples. Toothpaste isn’t sold by anyone who seeks to have a relationship with the buyer. There’s a difference between the context of a consumer product transaction and an investment product selected for an outcome-oriented investment portfolio.

That said, I'm reacting to what I’ve seen that the firm has shared publicly. There’s more in the full study, which also includes “insight into innovative product solutions to help product manufacturers regain some balance with distributors.”

Content requires distribution, too. Embedded in asset managers’ reliance on others for product distribution is a reliance on others for content distribution. Every brand needs to distribute their content but investment brands especially so.

As I’ve commented on previously, mutual fund and ETF sites are product manufacturers’ sites. Their full product specs include information that other sites won’t. But, most product-related traffic goes to distributors’ and others’ domains.

It's just a consequence of today’s business model that when using thought leadership and other content to raise awareness and to demonstrate relevance, asset managers rely on others’ platforms to reach others’ audiences. As with product distribution, this makes firms dependent, can be costly and complicated, and subordinates the fund company brand.

A two-track approach. Let’s suppose that that you find a slide in your retail investor awareness and your firm is determined to reverse it. The effort would take at least two tracks: reaching current investors and reaching the public in general.

Together, omnibus accounts and overall intermediary pushback (i.e., who’s relationship is this, anyway?) present practical challenges to the prospect of elevating the brand to current investors. The greater opportunity will be with whatever marketing, media, public and community relations can accomplish.

Hearts & Wallets’ release recalled the 1990s when “high product awareness prompted consumers to seek out products like the Magellan Fund ofFidelity Investments, which was once the world’s best-known mutual fund.” That was the fund managed by iconic manager Peter Lynch.

For 2015—a disruptive time for every piece of retail investing from the products to the distributors/advisors to the users themselves—effective awareness-building would need to go beyond the promotion of a star manager or two.

Budget-busting. Any strategic decision to reach out to the retail investor would be an expensive one across the board. Brand and advertising is already the largest percentage of asset management marketing budgets, according to SwanDog Strategic Marketing benchmarking work. But most firms today focus on media that helps them reach 300,000 financial advisors. Add retail investor-focused ad buys, inbound marketing, analytics, etc. and you are talking big money.

An ETF advantage? This data would seem to temper what we can expect from mutual fund firms that are getting into the exchange-traded fund (ETF) business. Product awareness is a prerequisite to brand loyalty or brand affinity. If awareness is low, the fund company new to marketing ETFs, whether to advisor-assisted or self-directed investors, may be diversifying product lines with less of an advantage than it realizes.  

A shift in the power dynamic. Who in the typical intermediary-focused organization best knows the consumer? The people who answer shareholder inquiries and (wait for it) those who've recently become involved with the listening and responding responsibilities of social media. A serious commitment to pay attention to consumers would require the building out of resources, conceivably shrinking—even if just a bit—the influence of the wholesale sales organization.

Regarding social media, specifically: Given access to platforms with millions of consumers, is it a miscalculation for firms to instinctively want to fence off an account or area with content directed at advisors? I'm beginning to wonder.

Your thoughts?

The Marketing Tech That’s Enabling Sales: Personalized Emails, Pitchbooks

My first encounter years ago with John Toepfer of Chicago-based Synthesis Technology triggered some conflicting emotions.

Naturally, I welcomed him and his technology that promised to free marketing communications from the shackles of the mutual fund performance data quarterly updating process.

john toepfer

john toepfer

“With this, we’ll have time to do what marketers should be doing,” I remember saying and, as far as I remember, all nodded in agreement. Yep, none of us fully grasped what we were in for.

Things got uncomfortable when it became clear that Synthesis wasn’t just going to help Fund Accounting, Investment and Compliance get their acts together—Toepfer and team intended to impose standardization and processes on Marketing.

Well, it all turned out just fine in the end. A 45-day all-hands-on-deck updating process (!) was whittled down to 10-ish days. The work helped form my conviction that Marketing benefits from exposure to the structured thinking that technology requires.

My path has crossed with Toepfer’s a few times since that first gig. The automation of fund performance communications is standard practice at fund companies now. But Synthesis and other vendors continue to find new ways to improve upon the efficiency and accuracy (“wouldn’t it be nice to review that data just once?”) of what can be soul-crushing work for marketers.

Here’s a quick catch-up with Toepfer. It's difficult to ask any tech provider what's going on without getting the answer framed in the company's latest solutions. I expect that, I appreciate the free peek at what firms are doing, and hope you do, too. Know, though, that I have no business relationship with Synthesis.

For Synthesis’ ongoing views about investment management and technology, by the way, read the firm’s excellent blog.

Q. So, John, what’s new? What are the smartest mutual fund and exchange-traded fund (ETF) marketers working on lately?

Marketing for investment management firms these days is all about two things: personalization—making sure that you’re communicating with the client in a highly personalized and relevant manner, and content—showing those clients that both the sales team and the firm are thought leaders in the industry. Any technologies that support these goals are hot. 

Q. Such as…?

For example, we are developing a solution for a client that enables sales teams to construct highly personalized emails to their clients. The benefit of this tool is that it blends the branding, promotion and compliance aspects of a marketing email program with the advanced personalization aspects of a sales email. 

Email marketing trends point to this idea of advanced personalization that goes beyond just first name merge tags and list segmentation. Marketing teams have the tools and expertise to create compelling email campaigns, run tests, analyze and optimize. What they’re lacking is the familiarity that comes with face-to-face exposure to the client. Wholesalers have more qualitative information about their clients’ unique interests, needs and goals.

This solution is a perfect opportunity to combine the qualitative and quantitative expertise of both the marketing and sales teams to deliver valuable content to the recipient. Advanced personalization that leverages the unique talents of the sales team will no doubt increase the effectiveness of these email campaigns.

Q. John, it sounds as if you’re branching out—from enabling Marketing to enabling Sales.

That’s right, and there is a lot of buzz about sales enablement right now.

As another example, smart firms are making room in their budgets for sales enablement technologies like pitchbook automation, if they haven’t already.

A centralized presentation management system that allows marketing teams to develop a library of presentation slides that automatically update and refresh with the receipt of new data or disclosures can take the chaos out of updating slides. Ideally, this system should be flexible enough to incorporate a firm’s unique business rules and processes for quality control.

Sales teams should be able to access this system from any geographic location and device to very quickly and easily build presentations that are highly targeted to their audience, while also compliant and on-brand. A system like this saves the marketing team a lot of time and empowers the sales organization to create highly personalized presentations that drive more sales.

Over the past few months, we’ve seen a surge in pitchbook automation inquiries. I think there are a few reasons for this:

  • First, there is heightened awareness that this technology exists. More than a handful of technology companies are popping up that focus solely on sales enablement tools. This has brought a lot of healthy competition as well as validity to this business.   
  • Second, the industry expects a mobile aspect to the solution at this point. Although many salespeople (and clients for that matter) still prefer the tangibility of printed documents, the trend is clearly going paperless with the ability to push presentations to a wholesaler’s mobile device.
  • The third trend is that software providers are realizing the value of providing data management services in addition to the content management and publishing solution. Many clients still struggle with getting the data into one clean, consistent form and location. 

Q. Are there any other examples you can talk about?

One of our pitchbook clients is a private banking group of a major New York-based asset management firm. A three-person marketing team is efficiently managing a very large catalog of sales materials to meet the content needs of 900 users in 20 branch offices. 

With a few clicks of the mouse, financial advisors can access a constantly updated catalog of sales materials and any account-specific data, personalize their presentations, and be assured that the material is compliant from branding, disclosure and data perspectives.

One of the largest factors in the success of the system is its single sign-on connection with the firm's CRM. The two primary measures of success for systems like this are system adoption rate and efficacy of materials. Both of these are improved when the solution is well connected and aligned with the CRM.

These screenshots show the capability within SalesForce but similar integrations with other CRMs are possible as long as the platform has a good API and can support single sign-on.


Once the presentation has been created and finalized, it is stored and recorded at the account record level. This is advantageous to the sales professional because it allows him or her to associate a specific presentation with a specific pitch to go back and refer to later without having to access two different systems. (For more on the pitchbook strategy, check out Synthesis' whitepaper.) 

Q. So, what would you identify as the obstacles for marketers eager to deliver both personalization and content?

No industry is immune to the challenge of aligning Sales and Marketing. In the investment management industry, you add in the compliance aspect, which makes it even more difficult for firms to align their strategies.

In our experience, the big issue for marketing teams is managing and producing all of their content in a way that satisfies the needs of both Sales and Compliance. Marketing communications need to be highly effective and accurate. Salespeople want the right materials right when they need it and they also want customization.

Typically, it is a major challenge for marketing teams to provide a high level of customization on sales materials due to time and resource constraints. Thus, we see companies either limiting customization by size of opportunity (only the big deals get custom slide decks) or turning a blind eye to how the sales force might be customizing things in the field.

The first solution is a bad idea from a sales efficacy standpoint. The second solution is a compliance nightmare. Compliance departments are very conservative, which makes it difficult for Marketing to even mutter the words, “customized” or “automated.”

The trick to getting these three groups into alignment is to find a way to effectively manage their content (and product data) in a centralized location that allows for controlled, shared, and reusable content.

E-Delivery Disappointment: Investors Aren't Budging And Advisors Don’t Care Enough

If the IRS, family physicians and commercial banks all are managing to convince their clients to adopt e-delivery, why has the brokerage business so far come up short?

That’s a focus of research released last week by Pershing. Its “Closing the E-Delivery Gap” whitepaper bemoans the truly disappointing rate of electronic document adoption within the securities industry.

As a whole, the investment business is behind. In 2011, the broader Dalbar, Inc.’s e-Delivery Benchmarks study, which surveyed mutual fund, variable annuity, life insurance, employer-sponsored retirement plan firms and brokerage firms, reported less than 10% adoption—see my post at that time).

Pershing’s report discusses research that it commissioned from Beacon Strategies, a research and consulting firm. The Beacon work identified a gap between expectations of the brokerage firms it surveyed and what is the status quo.

Almost nine out of 10 (88%) survey respondents called e-delivery an important initiative. More than half (53%) expect investors to sign up for e-delivery of at least one communication. But, as the below graphic distributed by Pershing shows, “no service yet achieves adoption equal to even half of the expected level.”

These findings were published in a press release. They're expanded on in a whitepaper available by registering on Pershing’s site. Read it yourself and you’ll get the sense that the custodians are just about at their wits’ end.

Who's On The Team

The paper includes extensive discussion about why investors would adopt e-delivery (it's not for environmental reasons—just 21% care about that) and why they would decline it (security is a concern). Incentives and best practices to drive adoption are reviewed.

Here’s how Beacon assesses the involved parties:

  • Custodians are the group with the greatest economic incentive to promote e-delivery. And yet, Beacon says the best practices that custodians have in place to support the initiative are “not totally on target.” They base this on consumer response data and the overall adoption rate.

  • While acknowledging the technophiles who know firsthand the benefits of adopting new technologies, the report calls out advisors who are lagging behind in promoting e-delivery because they’re “constrained by technical and behavioral reasons.” Financial professionals' "lack of knowledge or support" tops the list of obstacles to e-delivery adoption, cited by almost half of the Beacon survey respondents (46%). Apathetic advisors rank higher than security issues.

  • Investors are described as the least committed group, characterized by their “lack of knowledge, overall indifference and the inability to change old habits by both advisors and investors.”

Paper Isn’t Free

“Someone should have to pay for the paper.” That, the report says, is the position that custodians and other financial organizations are taking.

The cost of a paper securities business is enormous. The all-in cost of printing, mailing, handling, filing and disposing of a (full version) 40 plus-page prospectus or semi-annual report is estimated in the range of about $13 to $18 per piece. Such a waste of money, time, effort and resources.

Today, according to the report, custodians use three methods to encourage e-delivery adoption: charging retail investors (58%), charging advisors (33%), and offering a financial incentive to retail investors (42%). But again, the status quo has yet to make an impression.

In the context of slow and lagging electronic document adoption, what’s going to light the fire? Will it be a shift of more cost to investors and/or advisors?

“Charging investors for paper delivery—as little as a few cents per document—could go a long way to increase their cost-consciousness. If an investor were charged even a few cents for a physically delivered paper statement, or even more radically, charged for a 40 plus-page prospectus, then the investor would be presented with a choice. Pay a small amount to deliver by paper, or zero to deliver electronically. Paper would no longer be free,” says the report.

Beacon acknowledges “relationship pressures” that could keep the nuisance charge from ever hitting certain clients. Instead, it would be absorbed by the advisor or broker-dealer. At $13 a piece? Right, that could hurt.

It seems inevitable that one way or another and, probably with increasing urgency, the investment business will be weaned from paper.

After all, the industry has distinguished itself in all manner of ways as innovators on the product side.

And, one rarely hears that the electronic delivery alternatives are inferior to paper. (Although the Pershing report says “firms’ disparate user interfaces, processes and forms create challenges for learning and user experience. The outcome is that investors often find e-delivery more trouble than it is worth.”)

It will be an interesting transition—likely to be characterized by both carrot and stick approaches—to watch. Or, if you’re a digital marketer who believes that creative communicators have more to contribute to the team, to play a role in hastening.

Funds Celebrating Birthdays? Cheers To That

It’s silly, isn’t it, to wish a mutual fund, exchange-traded fund (ETF) or some other investment product a happy birthday?

Courtesy of Will Clayton, CC-BY

Courtesy of Will Clayton, CC-BY

Back in the day, when I was responsible for a fund company shareholder newsletter, I used to hate it when product managers suggested that we celebrate a fund birthday. Can you say “party of one”?

But I’m not rolling my eyes so much anymore, and for two reasons.

1. Old Funds Can Be Shareholder-Friendly

There's more awareness now of the “survivorship” of funds and, in contrast, the effect that fund closings have on shareholders.

Of the mutual funds in operation in 1995, less than 40% still existed in 2013. The remaining funds were either closed or merged into other funds. This is according to a study by CFAs Daniel Kern and Gerard Cronin with Tim McCarthy, featured in a December BrightTalk presentation called “Mutual Fund Roulette: Will Your Clients Outlive Their Mutual Funds?” McCarthy’s book, The Safe Investor, was published this week and you may see mention of this study in book reviews.

If you have a venerable old fund coming up on an anniversary—and the study results suggest that it’s a reasonably good fund to still be in existence—it wouldn't hurt to show it a little love. In the best case, you're throwing a spotlight on a fund whose age gives it a certain gravitas. At the very least, a birthday message would remind your clients (advisors and shareholders) that investors in this fund were spared a closing. 

2. The Partying Can Be Purposeful

The communication surrounding a product milestone is able to be much richer today. While all we had space for in the quarterly print newsletter was images of confetti and balloons, there's so much more that can be done online.

Let's take a look at how a few funds have been celebrated.

ETF Providers Get Nostalgic

When you consider that a mutual fund needs a three-year performance record (a Morningstar evaluation threshold) just to be taken seriously, an ETF turning five may not seem like much of an accomplishment.

But many ETFs have legitimate bragging rights when it comes to innovating and opening up access to various markets. In the coming years, you may be drafted into taking part in quite a few ETF birthday celebrations.

In April 2012, iShares wrote a blog post celebrating five years of HYG (the iShares iBoxx High Yield Fund) without overcheering. It was a proportionate remembrance of the environment when the ETF launched.

"...A number of investors were skeptical. The lack of liquidity in the high yield bond space made it an asset class no ETF had dared to enter before. A Seeking Alpha article at the time declared the fund was 'effectively an experiment that can only be judged over time.'”

Today on, you’ll still see this quiet image, which is linked to a 2012 whitepaper that recalls the 10-year anniversary and launch of the iBoxx Investment Grade Corporate Bond Fund (LQD), and with it the beginning of fixed-income ETFs.

Demonstrating Conviction And Consistency

When the ClearBridge Aggressive Growth Fund turned 30 last year, it received a full tribute on a Web page, and related communications materials all bear a Celebrating 30 Years seal.

One of the portfolio managers appeared in a natural-seeming video and made a few points about consistency—"So, I'm the new guy on the team and I've been here 17 years...." Below is a screenshot of the video, you'd have to click on it to go to the site to see it.

Reliving The Old Moves

This year is the 25th for BlackRock Global Allocation Fund, and the firm is showing its pride in a few ways. There’s a video, embedded below.

Also take a look at this interactive chart, which displays explanations of the fund’s positioning along a timeline while at the same time adjusting its risk and return chart. Slick.

If a "Celebrate Fund XYZ" meeting pops up on your calendar, don't go with a bad attitude. The party planners will be looking to you to bring the digital fireworks.         

Are Asset Managers Taking The Gloves Off?

After financial services, technology is the industry that I follow most closely. Over the years, I’ve envied much of what technology communicators did that investment managers couldn’t or wouldn’t.

For example, tech companies aren’t content to leave the ranking and evaluating to the media, analysts and other third parties—it’s common for vendors to publish their own comparisons. They want a say in how their company is being positioned vis-à-vis their competitors.

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