At a recent meeting with a new fund manager client I asked them to list all the features of their company that they use to differentiate against the market. The CEO, Marketing Director and Head of Sales started to list all the things that you would expect: strong investment process, no star managers, performance during the downturn, scalable business, good relationships with clients and a strong management board.
We completed the same process with two of their key competitors and as you might expect the differentiation points for the three businesses were nearly identical. I asked the team if there was anything else they could think of since the company was receiving IFA recommendations for its funds in preference to its competitors.
This is a difficult question to answer since the decision to recommend or buy a fund depends on a number of hard and soft influencers.
The challenge for fund managers is that much of fund distribution is now a faceless process initiated without softer brand values. The platforms and discount brokers have facilitated an entirely efficient trading environment for advisers and retail investors to buy and sell funds. The problem for fund managers is that they are typically described in terms of gross assets under management, comparative historic performance, a biography of the fund manager, a logo and er… that’s it.
You can throw in a chart if you like and a recommendation from a researcher but the basic premise for a fund allocation is filtering. Identify the top performing funds in a sector, take a guess if you think the manager is going to survive (Gartmore anyone?), how many of its other funds are top quartile, what are the charges? You now have five funds, pick the manager you’ve heard of or go for a smaller one to be contrarian and off you go.
Is this too simplistic? Sort of. The analysis to select funds in a sector will obviously be more sophisticated but the final decision is fairly accurate; am I comfortable recommending / buying this company? What are the soft factors associated with its brand that IFAs or retail investors base their decisions on? For a fund manager this is vital information and is where really understanding IFA s and investors is essential.
Understand what they want and you can communicate to specifically change perception about these needs to your benefit. Target what you are saying to each audience through the most effective route and ignore the other channels. Fund managers that are trying to control the soft side of buying and positively differentiate themselves are doing well now and will do even better after the changes of RDR. Those that aren’t might well get through the fund selection filter but may well struggle to consistently turn this into new assets.
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