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Mutual Funds Should Heed Hispanic Market


In the frenzy to compete for the attention of America's 79 million Baby Boomers, mutual fund companies might be missing the next big business bang: the Hispanic market.

In 2004, Hispanics wielded $686 billion in disposable income. By 2009, economists expect that figure to hit $1 trillion, or 9% of total U.S. buying power, according to the Selig Center for Economic Growth at the University of Georgia.

If mutual fund companies want to capture their share of this fast-growing, increasingly affluent market, it's going to take more than bilingual billboards.

"This is the most important source of demographic growth in the United States," said Rakesh Kochhar, associate director of research for the Pew Hispanic Center in Washington. "You can't ignore it."

But to date, many companies have done just that. The most often cited reason is that on average, Hispanic households earn less than the median American household, and therefore may be less inclined to invest. "That part of the market is not the sweet spot, at least not today," said Jeffrey M. Humphreys, director of the Selig Center.

Yet, the Hispanic community is growing in numbers, wealth and clout, and experts say that if companies don't begin preparing now, they will miss a rich opportunity to build brand recognition and foster loyalties.

"It's a matter of having [marketing] foresight," said Jorge Reynardus, a partner with Reynardus & Moya Advertising in New York, who specializes in financial services marketing. "Rather than invest a few million dollars today, they will have to invest 10 times as much [later]."

The Next Big Thing

Presently, between 13% and 15% of U.S. residents identify themselves as Hispanic, according to Pew Research. By 2030, that figure will be closer to 25%.

The Hispanic population, on average, is also young, which makes it a prime target for companies concerned about what will happen when Baby Boomers stop investing, and start drawing down their assets.

Most importantly, the market is also an increasingly affluent one. In 2004, 40% of Hispanic households reported incomes of more than $40,000 per year, and between 1990 and 2004, the number of households earning more than $100,000 annually grew by 125% to 3.7 million, according to the Hispanic Association on Corporate Responsibility in Washington. Meanwhile, poverty rates within the community are dropping, and buying power has grown 362% over the past 20 years, compared to 162% for non-Hispanic households.

The number of Hispanic-owned small businesses is also soaring, which means more and more Hispanics are making decisions about whether to offer 401(k) programs and how to invest their profits.

"Like any small business, these people are looking for places to park their money," Reynardus said.

What's more, Hispanic communities have moved out of the concentrated pockets, such as New York, Miami, Los Angeles and Texas, into places like Georgia, North Carolina, Kansas and Missouri. "The market has reached a critical mass," Humphreys said.

Yet, Hispanics remain underrepresented in the investment world, according to a 2004 Pew Hispanic Center Study. In 2002, for example, 18.5% of Hispanic households participated in 401(k) or thrift savings programs, compared to 34.5% of non-Hispanic white and 21.9% of non-Hispanic black households. Meanwhile, 9.4% of Hispanic households hold stocks or mutual funds, compared to 35% of non-Hispanic white and 11.7% of non-Hispanic black households.

At a presentation in Oklahoma City late last month, Eric Robbins of the Federal Reserve Bank of Kansas City, Oklahoma City Branch, addressed a conference about the need for financial institutions to reach out to the Hispanic community.

Financial needs of this growing community range from the most basic to the most complex products. This means tasks from acquainting low-wage workers with direct deposit, to educating employees about the benefits of 401(k) programs, to teaching people about the difference between money market accounts and mutual funds, Robbins and other speakers said.

"Firms [that] move quickly will gain a competitive advantage and reap rewards in improved customer acquisition and retention among ethnic consumers," notes a 2003 report entitled "Ethnic Minorities, Financial Services, and the Web" by Celent Communication of Boston.

Besides, capturing a new market is always easier than luring market share from a competitor, Humphreys said.

Conozca a La Comunidad

In 1999, several companies began what appeared to be a ramp-up in Spanish language outreach. Boston-based State Street Research launched a Spanish version of its website and made prospectuses available in Spanish. By 2003, Baltimore-based T. Rowe Price, likewise, had Spanish-speaking phone representatives and had translated prospectuses for at least 15 of their funds. Wachovia, Citigroup and Bank of America also all had Spanish-language advertising campaigns by 2003.

Language is important. Celent, citing U.S. Census data, noted that more than 60% of Hispanic-Americans prefer to communicate in Spanish, compared to 21% who prefer English.

But it is going to take more than Spanish-speaking operators and a special website to really crack the market, experts agree.