No Limit Seen on Numbers of Funds
October 16, 2000
BOSTON - Although the mutual fund industry, with 10,000 funds on the market, has been called glutted, some fund consultants say that fund companies must introduce yet more mutual funds if they want to continue to attract assets.
"Being in the fund industry is like being a shark," said Charlie Carr, executive vice president and director of national sales for Funds Distributor, a mutual fund consulting and research firm in Boston. "You either swim or you die." Carr was one of a number of executives who said developing ever more funds was necessary at a conference sponsored by Graylyn Associates of Boston on market trends and competitive issues in the mutual fund industry here early this month.
Financial Research Corp. of Boston, another mutual fund consulting and research company, "is a big believer in product development," said Neil Bathon, president of FRC. "It's something [a fund company] should seriously look at, regardless of [whatever] channel it sells into."
The financial planning and registered investment advisor channels are also much easier channels to break into than supermarkets or broker/dealer wire-house networks, Carr and other executives said. To make an impact in the supermarket or the broker/dealer channel, a fund company would have to have a lot of capital, Carr said.
Therefore, a fund company starting out should launch a few carefully selected funds and draw on the company's core strength to develop one-on-one wholesaling and channel relationships, Bathon and Carr said.
"Traditional wholesaling is dead," said William White, practice leader of the investments product practice with Spectrem Group of New York. "The industry is more mature and favors more segmented strategies rather than a mass market approach.
"Traditional forms of competition centered on performance, cost, ease and convenience, are being replaced by assurance, or advice, experience and a new focus on ego, or lifestyle," White said.
Public relations, advertising and marketing are required to succeed in the new competitive environment, Bathon said.
"We think public relations is the highest-producing investment a firm can make," Bathon said.
When dealing with intermediaries in this one-on-one environment, a mutual fund company's ownership structure is also an important selling point, executives said. Wholesalers and outside salespeople look most favorably on a fund company that is privately owned. They are skeptical of one that is part of a large conglomerate or that has just been involved in a merger or acquisition, fund executives said.
"We think we are going to see another [spate] of M&A's, mostly by mid-sized companies" that have been left out of the mergers and acquisitions so far, Bathon said.
The Internet is key to distribution strategy, Bathon said.
Fund marketing executives believe the Internet is critical, said Bill Seymour, senior vice president of Market Facts, a market research firm in Natick, Mass. Market Facts recently asked 200 mutual fund marketing executives how they will spend their marketing budgets.
Nearly three-quarters listed website content as their number- one spending priority, Seymour said.
That was followed by 68 percent citing website design, 47 percent citing product development, and 42 percent saying solidifying ties with intermediaries, Seymour said.
While the fund industry has been focusing on baby boomers and the wealth that is expected to be transferred to them, it has been missing an important new growing market, said Stephen Gresham, principal with The Gresham Company LLC of Madison, Conn.
"There's a changing demographic among investors that is not being taken seriously by the fund industry," said Graham. "There's a whole wave of younger, more affluent investors on the way."
"Provide a differentiated client experience," said White of Spectrem. "Understand who the client really is. You cannot start with your product anymore and then ask where is your business." To be successful, a fund company must concentrate on the client first, and then provide products and services to meet his needs, White said.
Successful fund companies should aggressively pursue the advisors with whom they do business, White said.
Inventory with your advisor where they are in their personal and professional development and do what you can to help them, White said.