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Affluent considered customers of choice


CHICAGO - When Stephen Gibson, the president and ceo of Liberty Funds, looks at the mutual fund industry, he sees a small group of affluent Americans that the industry should be pursuing and a mass of others that the industry is hoping will become affluent.

"I think the future will not be about serving this mass of investors," Gibson said. So, fund companies should not waste their time trying to enlist them as customers, he says.

Gibson delivered this message during a panel discussion on changes in distribution in the mutual fund industry at the Investment Company Institute's Operations Conference here last week.

Gibson says the industry should concentrate on keeping the assets of the richest 10 percent of Americans rather than trying to lure those who one day may become affluent.

The most affluent are also more likely to invest in mutual funds, said Gibson. While some statistics indicate that as many as 30 percent of Americans own mutual funds, Gibson says that 75 percent of affluent Americans invest in funds.

"It's much easier to get the next check from people that have money," Gibson said.

And chasing baby boomers is not enough because many baby boomers are spending up to 40 percent of their discretionary income on housing, Gibson says.

Gibson and others also said that fund companies that succeed will be those who either specialize in certain fund classes or who sell a wide range of financial products.

He says this is why companies like Liberty, which runs the Colonial, Stein Roe Advisor and Newport funds, and United Asset Management, are successful. Specialty products like John Hancock Fund's regional bank fund or Eaton Vance's prime rate fund, also appeal to investors, Gibson said.

"What they've built on is they are a collection of specialty brands," Gibson said.

Other companies that will be successful, Gibson said, are those which can bring together many specialty brands in one company.

"People will pay more for convenience and time versus absolute performance," Gibson said.

Bill Doyle, director of money and technology strategies at Forrester Research, agrees that those financial services companies that will succeed in the future will be those which can provide an aggregate of products and services, including mutual funds, to their customers.

According to research by Forrester, 37 percent of U.S. emerging affluent households said they would switch financial service providers if they could get one-stop shopping. Another 14 percent said they would "likely" do so.

Those who will succeed will be companies like Schwab, Intuit and Microsoft and so-called "affinity groups" which bring people together on the Internet like WomenCONNECT, a website for women, says Doyle. The other financial companies that will succeed will be specialists who create "best-of-breed" products and services, he said.