How can mutual fund marketers restore consumer confidence?

In September, net redemptions hit the $1 billion mark, according to the Investment Funds Institute of Canada in Toronto, culminating in six consecutive months of redemptions.

In September, net redemptions hit the $1 billion mark, according to the Investment Funds Institute of Canada in Toronto, culminating in six consecutive months of redemptions.

‘At the beginning, it was short-term Money Market funds, but within the last few months, we’ve noticed people redeeming equity funds,’ reports Erwin Go, acting manager of statistics for the institute. ‘There have been fund mergers of late, as well as changes in mandate. [Companies] are getting rid of the funds that have low assets.’

Exacerbating consumer anxiety is the performance of the Dow Jones industrial average lately, which just recorded its worst September since the Great Depression. The economic doom-and-gloom is having its effect; according to the TD Wealth Management female investor poll, 55% of respondents have lost faith in the stock market.

On the whole, the response of mutual fund firms has been to cut back on marketing budgets. According to Toronto-based Nielsen Media Research, the industry spent $143 million in 1999 on advertising, compared to only $99 million in 2001 – a drop of 30%.

But certainly, some firms are adjusting marketing strategies to deal with the blow. TD Canada Trust, for instance, has turned its advertising spotlight onto income funds, which are seen as more secure. ‘There’s a lot of interest from clients at this time on income funds because they do offer greater stability than some of the more volatile equity funds,’ says Norman Williams, the firm’s Toronto-based VP marketing planning for wealth management. ‘Right now income funds are receiving the attention in advertising.’

Direct mail, from Toronto-based Response Innovations, will communicate detailed messages about the offer, as will advertorials, freestanding inserts, and in-store collateral, produced by Toronto agency McDonnell Haynes. Meanwhile, TD has introduced a TV campaign, from its AOR FCB Toronto, which also highlights mutual funds. ‘It is about helping [investors] choose,’ says Williams. ‘There are as many mutual funds out there as there are stocks. The dilemma is ‘how do I know what’s right for me?’ We’ll help answer those questions.’

Similarly, Toronto-based Fidelity Investments Canada is committed to educating consumers through its target audience – brokers and financial advisors. Last month, the firm launched ‘Lessons in Long Term Investing’ to help ‘put things in perspective,’ says VP, distribution marketing Jennifer Ball. The marketing program will ‘help [investors] see that no matter what is happening short-term, if they have a good long-term plan, they’ll achieve their goals.’

The company, whose Boston-based U.S. headquarters announced it was laying off more than 1,600 staffers earlier this month, has armed advisors with tools, like one-page collateral and information on its Web site that outlines the big picture over the last three decades and clarifies how investors can benefit from dips in the markets.

Recent research that Fidelity conducted in collaboration with Ispos-Reid found consumers want reassurance from advisors, as well as some explanation as to how their portfolio is affected by market movement.

Meanwhile in Vancouver, Ethical Funds views the tumultuous economy opportunistically. In a study, the company discovered that 73% of Canadians felt fund companies should speak out on ethical, environmental and social concerns. ‘We’ve been practising [that] for a number of years,’ says VP Margaret Yee. While other organizations are collapsing funds, Ethical is boosting its offerings by over 50%. ‘That gives us an increase in market coverage by 10 percentage points,’ says Yee, who adds that there is also a strategy to increase distribution channels.

For the first time, the funds will be available to brokers and financial planners, as opposed to solely credit unions as in the past. ‘We’ll be targeting sales representatives to raise their level of awareness – letting them know that ethical funds are available and that the typical investor is a segment of the market they would probably be very interested in.’ Ethical Funds have a slight skew towards women, Yee explains, with a university education and above-average income. In RSP season, marketing will likely focus on a branding campaign from the company’s AOR, Glennie Stamnes Strategy, Vancouver, as it did last year.

Despite this cautious optimism, the current volatility appears to be alarming investors. How can mutual fund companies regain consumer confidence? Strategy asked four pundits to share their thoughts.

Susan Abbott, president, Abbott Research & Consulting, Toronto

While the business was booming, some fund companies still hedged their bets with a pull strategy, ensuring consumers had at least heard of their brand. Now that money is tight, most fund companies seem to have abandoned this approach, and are focusing exclusively on the push channel – the financial advisors. They are working to make the advisors look good to their clients.

In terms of consumer confidence, it’s important to remember that many investors did exactly what the fund companies and banks told them to do. Consumers feel betrayed. There needs to be at least some acknowledgement of what happened. Otherwise, why will consumers listen when RSP season comes around? When your brand is damaged, you can’t just hope the problem will go away. There needs to be an honesty about saying ‘we know you’re hurting.’ It can’t just be a new sales pitch.

There may be a place for testimonials from real people who still trust their provider, who can say how their bank or advisor is helping them through this period. Once there has been some acknowledgement, then communications have to address the ‘what now?’ question. That question is very much tied to life stage, with the most fear among those who have the most money and are closest to retirement.

The recent TD Waterhouse campaign to re-launch the brand captured the emotional issue pretty well, with images of wrinkles and gray hairs caused by various market ups and downs. Another recent Waterhouse piece showed an image of ski hill signage with names like ‘nightmare’ and ‘think again.’ This also captured the fear and uncertainty that consumers feel right now. My caveat is, most financial consumers have a high degree of skepticism about how much real help they are going to get from anyone, so Waterhouse and everyone else in the advice business will need to deliver on their promises.

This may be a time when more intimate communications, such as newsletters, will work better than broadcast media. Inviting customers to hear credible experts probably still has value. When people are feeling unsure, that’s when they really want to look people in the eyes. But the experts need to have rock solid credentials.

John Peloza, independent marketing consultant, Calgary

This [period of time] has been an important lesson for mutual fund marketers: Don’t just take for granted that these people will stay with you. It’s almost like they don’t think there’s any value in developing a deeper relationship. People have relationships with brokers, but to the extent that people buy directly, there have been no attempts to talk to me as a customer or understand what I’m looking for. They just tell me what I want to buy. That leads to a lot of defections when things go south.

I don’t see a whole lot of difference between what everybody says. There’s the ‘make lots of money, invest in the long-term’ [message]. So then it becomes, which company do you hear the most from? I guess you go with them. Over the last couple of years, marketing activities [in this category] haven’t really changed. Can you imagine any other category where you have the type of business climate changes they’ve had, and you don’t do anything different in your marketing? That’s just crazy.

I think people are disillusioned because, notwithstanding corporate scandal, they’ve started to realize that the pickers don’t know what they’re doing a lot of the time. There’s an opportunity to be much less performance-oriented versus education-oriented. Look at the investment choices out there for consumers. Every fund company has 58 different funds. What should I buy? What are income trusts? Why are they so popular? Nobody is telling me this stuff.

With the companies’ current customers, direct marketing is absolutely the best vehicle. That includes seminars and events; giving people an opportunity to ask questions or to learn in a safe, non-sales environment is a good idea.

Carol Parish, partner, Lippincott & Margulies, New York

In the last 10 years, we’ve seen an exponential growth in the number of mutual funds and a real whack of marketing strategy. They’ve commoditized their product, which is the worst situation you can possibly be in during a market downturn.

Mutual fund advertising is down about 50%. But even though they don’t have the same wonderful news to tell, they shouldn’t disappear on people. They need to continue to be a credible and meaningful institution.

Some of these larger firms can offer a customer loyalty program. Investors often get a commissioned discount for very large purchases, but for people who have half a dozen funds within the same family, there should be some way of rewarding those people for connecting to this company and understanding what its overall brand is. There are a million ways to reward people – it can be through better information, or invitations to conferences.

There was a 2001 survey in the Wall Street Journal regarding the single most influential factor that contributes to buying mutual funds, and owning a fund in the same family is almost dead last. Exceptional performance is number one. I think that reinforces the problem mutual fund companies are facing – there’s no loyalty to a particular company.

In the U.S., Oppenheimer is doing a very good job of being open, calm and sticking to their principles. They have an ad where the headline says ‘There are two times when people forget their investment principles – at the top of the market and at the bottom.’ That’s a very honest ad.

Rick Padulo, chairman and CEO, Padulo Integrated, Toronto

When things are good people like to advertise, when things are bad, they have to advertise. That’s the biggest opportunity to pick up market share. We know [the market] is going to come back and you want to be poised to take a quantum leap forward when it turns. So if you let the accountants decide to back off, you’re screwed. If I were a mutual fund company, I’d be advertising my ass off. Even if I’m not getting an immediate return today, I’m top-of-mind. TV is best for establishing top of mind.

All of the companies advertise in one way, shape or form. A lot of it is relational and directional type of advertising. The way to market is to talk to credibility. Everyone’s in deep shit right now, because it’s so bad. The idea is to understand that there is a future and talk about cycles. [Tell customers that] now is a good time to be getting into the markets, because you are at the bottom of a cycle and you’re going to catch the upswing. [Discuss] the history of the last five or 10 years, and look at performance results. Note very candidly that there’s been a drop – ‘the reality is, here’s what we’ve got through.’