Retire Rich

June 4, 2007

Rule 22c-2 Offers Funds Great Marketing Prospects

While the mutual fund industry has wrangled over, and largely resisted, the logistics and the estimated $617 million cost of complying with Rule 22c-2 for the past three years, funds should actually view the perceived regulatory onus in a new light: As a tremendous marketing opportunity.

Since the rule is designed to require fund companies to partner with sales intermediaries to monitor for market timing, it could give them, for the first time ever, details on the 145 million underlying shareholder accounts, representing 35% of the mutual fund industry, held in the omnibus accounts that these brokerages, 401(k) plan sponsors, registered investment advisers and bank trust departments handle.

After all, Rule 22c-2 essentially gives fund companies the rights to investors' names and addresses, taxpayer identification numbers, the amount and dates of purchases, redemptions, transfers and exchanges. It would be foolish of them to rescind these rights and let them rest just beyond their reach.

A new report on outsourcing from PricewaterhouseCoopers makes the point, noting that Rule 22c-2 gives funds access to "a treasure trove of data they can mine to market directly to customers."

The information could be a fantastic stimulus for the mutual fund industry-but no one seems to be talking about it. Thus, rather than simply comply with the Securities and Exchange Commission's amended version of the rule, which permits fund companies to go half the distance and obtain information-sharing agreements with first-tier intermediaries and leave the burden of monitoring the underlining shareholder accounts to them-it might be worth the time and trouble for fund companies to go the extra mile and tap into that information so that they can build customer relationship management (CRM) software, advertising campaigns and direct marketing tools.

So far, the industry's trade processing partners seem to have been focusing on the ability of their systems to merely comply with the letter of the law. If they don't have the imagination or the ability to market the power of the information they possess, perhaps they should partner with a software or CRM company to highlight its value.

After all, the end intermediaries probably don't want to share their valuable customer information with mutual fund companies. They also don't want to incur the added cost of doing so.

Thus, it's up to fund companies' trade processing partners, or the mutual fund industry itself, to pursue it.

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