Mutual Funds endured a lot of attacks in 2015. Predictions of their demise have been more than just premature. Yes, many have suffered huge outflows, but many have experienced inflows. In fact, based on ICI data, Mutual Funds were basically flat for 2016 (latest data as of November).
Prediction #1
The dirty little secret continues to enrich the industry.
Almost all 401Ks and so many retirement vehicles are primarily comprised of Mutual Funds. This means that regardless of the march of ETFs, trading accounts and other newer entrants into this enormous treasure chest of the investment world, every two weeks, that payroll deduction occurs. This translates into fresh money, new AUM and real dollars entering the coffers of Mutual Funds. Even most rollover accounts remain in Mutual Funds. Until this changes, and we don’t predict it will in 2016, this massive flow will continue.
Prediction #2
The “ticket” remains their ticket to continued success.
This is a simple fact of sales and sales compensation. Mutual Fund flows are trackable. Therefore, when a fund salesperson convinces a financial advisor or institution to allocate, they are paid – cause and effect, plain and simple. It also means that marketing and ad tracking attribution can be more closely tied. Achieving this with competitive products is more complex, but not impossible. But until firms invest in data and base their marketing budgets based on ROI, this won’t change. This direct correlation to wholesaler compensation brings strategic sales advantage to Mutual Funds that have strong investment theses or track records, keeping them as the products of choice.
Prediction #3
Mutual Fund Companies continue to lead the branding war.
This is standard bifurcation that can occur in any industry. The big get bigger due to having the firepower.
Opportunity: will it be with the same old ideas? Can new firms be far more efficient and effective with 1/10th of the budget? Absolutely. Ad technology levels the playing field. Watch some surges for disrupting firms and some others to accelerate.
Prediction #4
They’re everywhere.
Variable annuities, 401Ks, model portfolios… The entrenchment goes far beyond long standing relationships. They are contractually known as selling agreements. Firms need to embrace these and focus their marketing only among the firms that can move the needle. Inefficiency will become a thing of the past. Again, we do not see this changing this year, but those with laser focus can leverage their marketing budgets to empower sales, to materially increase AUM.
Prediction #5
Emotional connections and big TV will take a backseat in advertising.
Only kidding, the agency / marketing department relationship supersedes the actual fact of what is effective with each channel and why. However, some firms will really learn digital marketing. We enjoy watching firms measure opens, clicks, and click through rates, thinking they are optimizing. Well, they are optimizing revenue for Google and their ad agency. 2016 will see a few firms learn attribution and link it to actual sales.
Some more progressive firms will learn (through partnerships) to optimize, to AUM gains and enhancing selling channels. Very few, but some, will breakthrough the data maze and succeed. All campaigns are predictable (yes all), and adding in offline metrics only makes them more accurate, not complex. Sigh, I wish their were more data geeks in marketing.
Prediction #6
Dirty little secret #2 – sometimes they are less expensive, especially when passive.
It is actually less expensive for the long-term investor to own the S&P 500 through the institutional version (only $500K minimum) of a major firm’s Mutual Fund. This is the high profile example. There are numerous others. The question for the firms is which way they make more in overall fees. If a firm offers multiple products and structures to allow investors and advisors choices, then by all means, optimize to your own P&L. This is America!
Prediction #7
They have sales machines, and that won’t change.
When meeting a new firm with six salespeople, it is hard for them to truly go head-to-head against the machine with 20 internal and 60 external wholesalers. This machine appears unstoppable. It takes a strategy on a product-by-product basis to beat the machine. It is being accomplished through smarter and more strategic marketing combined with selling.
Keeping up the battle with a focus on just a few funds every six months or every investment cycle makes great sense for messaging, budget and the time needed for a campaign to do its work to be well-coordinated with sales.
Prediction #8
There is no messaging confusion as the big brands launch ETFs.
The point of a big brand is trust. Advisors, smaller institutions and retail investors will embrace these new products faster from big brands. It’s not just the sales channel, it’s the long-term relationship. It means little to no diligence when the new product is from a big, well-established brand.
The only confusion will be internally. Do product sets compete? If the fees are lower from ETFs, how will that affect budgets, comp and bonuses? What do we do about higher AUM with deteriorating fees? McKinsey, BCG and Bain will have a field day!
Prediction #9
New products will continue to enter the marketplace. Yes, innovation remains at Mutual Funds.
The disrupters (structure, technology or other innovation) enter the market and can take material marketshare. Keep in mind that the big firms are already designing, and perhaps incubating, a track record for new products to compete and dominate. That won’t stop real entrepreneurs. Innovation can win, when it’s combined with great marketing.
Prediction #10
Liquid alts save the fee day.
Although they are not accepted at the rates many firms predicted, market volatility makes them a must to “dip their toe in the water” for advisors, almost universally. These low AUM numbers are still great news for the industry, as higher fee products proliferate. Other innovations also dampen price sensitivity. This will set the industry up for a banner 2017.
Stats for our fellow data junkies
The combined assets of the nation’s Mutual Funds decreased by $23.65 billion, or 0.1 percent, to $15.94 trillion in November, according to the Investment Company Institute’s official survey of the Mutual Fund industry.
Data Source
https://www.ici.org/research/stats/trends/trends_11_15