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Fund Affinity Programs Gain in Popularity


Tie-in special promotions, no matter how gimmicky, can help a mutual fund company sell. That is the conclusion of a recent report on promotions, or "affinity programs," from kasina, an electronic-commerce consulting firm in New York that specializes in mutual funds.

How beneficial a tie-in promotion, such as with a hotel or a credit card, can be depends on the program, said Lee Kowarski, a consultant with kasina.

At a minimum, it builds some loyalty and optimally it creates an extremely loyal customer who will have a deep relationship with the firm, Kowarski said.

"When executed correctly, affinity programs can be very successful in increasing customer loyalty, as well as attracting new customers," the kasina report said.

Fund companies, both large and small, have begun offering a wide variety of special promotions in the past year.

"Because building brand is so important, affinity programs have sprung up all over the Internet," according to the kasina report.

One example of an affinity program is the arrangement by which Fidelity Investments of Boston absorbs the American Express gold card $75 annual fee for brokerage customers with $30,000 or more in their account. (MFMN 5/10/99) Baron Funds of New York offers its shareholders discounts for products of the companies in which Baron funds invest. (MFMN 3/13/00) These investments include Vail Resorts of Avon, Colo., Sotheby's of New York and Sun Atlantis Resorts of Paradise Island, The Bahamas.

ING Funds of West Chester, Pa. recently teamed up with Starwood Hotels & Resorts Worldwide of White Plains, N.Y., which runs the St. Regis and W Hotels, among others. (MFMN 5/16/00) ING offers "guest points" to investors who buy ING mutual funds.

Loomis Sayles & Co. of Boston in April awarded a $30,000 Loomis Sayles mutual fund portfolio to the winner of the James Joyce Ramble, a 10-kilometer road race in Boston. (MFMN 4/14/00) And Vanguard is now launching a new, "Admiral" share class carrying a variety of lower fees for customers with accounts of $50,000 or more. (MFMN 7/31/00)

There have also been a number of web-based special promotions, according to kasina. SaveDaily.com, which allows mutual fund investors to invest as little as $5 in their accounts, offers customers rebates as high as 50 percent on a variety of goods and services, including from Barnes & Noble and OfficeMax, the study said. (MFMN 12/21/00) This provides an incentive for users to do all of their shopping through SaveDaily.com affiliates, so they continue to add money to their investment portfolio, the kasina study said.

American Skandia of Shelton, Conn. holds an annual investing contest with a top prize of $1 million for the financial professionals who sell its funds, the kasina study said. Called MarketMa$ter, it attracted 4,200 participants in 1999 to invest a fictitious $10,000, apportioned as the advisors chose, between a designated group of mutual funds and annuities in an effort to achieve the highest gain.

"Last year's winners reported that they enjoyed familiarizing themselves with American Skandia's mutual fund offerings," the kasina report said. "Winners also reported moving some of their client's money to mutual funds they learned about during the contest." Additional benefits included increased traffic to American Skandia's website and publicity, the report said.

In developing a special promotion, cash points program or tie-in plan, a mutual fund company should focus either on expanding the loyalty of its existing customers, or trying to attract new customers, according to the kasina study.

A fund company should also decide at the outside whether the program can be sustained for a long time, or whether it is a one-time deal, according to the study. To make the distinction, marketing executives at the fund company should ask themselves, Is the program commoditized, or does it offer a sustainable competitive advantage (i.e. can competitors quickly offer the same program)?' according to the report.

Kasina also recommends companies ask themselves whether the costs associated with the program are worth the potential reward and whether the affinity program is consistent with the overall strategy of the company.