There, I said it. Someone had to. Asset management firms have reached a new low – in their fees. Every week there is a new headline announcing the latest launch of a no-cost ETF, ultra-low cost mutual fund or even the latest – a negative-fee ETF that will pay investors to invest.
And investors have taken notice. According to Bloomberg data, 97% of the $400 billion in passive flows in 2018 went to products with an expense ratio of 0.20% or less.
For marketing and communications professionals, the fee war has spilled into an all out PR war, with firms fighting for the latest headline announcing their product is the “cheapest ever!”
The race to the bottom is taking everyone down with it. When “free” is in play across the board, how do smart firms differentiate themselves?
Define your strategy
In a market where fees are leveling out, what is the difference in a couple basis points in capturing meaningful flows? Firms should shift communications strategies to focus more on defining their investment strategies and the opportunity for investors, and less on cost.
Asset flows suggest that investors agree. For the first time in almost five years, actively managed U.S. equity funds had greater inflows than their passive counterparts, taking in $5 million in January compared against $3.8 billion in outflows, according to Morningstar.
Price is important, but people still want a product with a smart strategy that they can get behind.
Be transparent and honest about fees
We all know the old adage: There is no such thing as a free ETF. If many of these products seem too good to be true, it is because they likely are. While they may capture short-term flows, investors may not stick around for long after they look under the hood or realize free products only show up as part of a bigger, more expensive relationship.
Honesty and transparency will always win in the long run. Fund communication strategies should be built around conveying exactly what differentiates your fund from the competition, and exactly what investors are paying in the beginning and over time.
Lean into brand purpose
If your firm hasn’t at least started to think about how to cater to #millennials then you are behind the curve. These young professionals, now aged 18 to 37, are capturing a large portion of the Great Wealth Transfer – the $68 trillion in wealth passed down from baby boomers over the next 25 years. Millennials also have most spending power of any generation.
And for millennials, brand purpose is the most important consideration when deciding where to buy. Brand purpose can often be a large and nebulous term, but one good definition is ‘a higher order reason for a brand to exist than just making a profit.’ It may simply be working to make the world, or investment industry, a better place.
What are firms messaging now? A recent analysis done by DeSantis Breindel, a branding and marketing agency, found that 57 percent of the top 30 institutional asset managers described themselves as “client focused,” followed by “global” and having “strong risk management.”
It's important to make sure your brand is differentiated to your consumers – whether they are financial advisors, retail or institutional investors. They need to have a clear understanding of what your brand is what it stands for and why they are investing.
For asset management firms eager to slash prices and declare victory, instead consider building campaigns that have convictions over what you do, are honest in explaining how you do it, and offer your audience a compelling narrative as to why you do it.
Jon Brubaker is a vice president in Cognito’s New York office