This past Saturday, the annual Barron’s Mutual Fund rankings came out. I used to joke with a former colleague that these rankings were somewhat useless, but you wanted to make sure you were on the left side of the rankings and not on the right. And, the “kiss of death” was being ranked number one, given it is not sustainable. Even though it is the “kiss of death,” it still wouldn’t have stopped me from producing a gazillion laminated reprints and carper-bombing every office. Anyway, I reviewed Barron’s list, and it’s the same cast of characters. This me made me ask, “what’s their value proposition.” Does anything distinguish one of these firms from the others? Seriously?
Back in the day, each firm had a unique identity driven by its product line-up. Some brands were driven by an investment specialty: Nuveen and Eaton Vance were known as fixed income shops. Some were driven by a specific Funds: MFS’ Total Return Fund, Putnam’s Voyager Fund. Some even tried to be all things to all people such as American Funds and Franklin (after the Templeton and Mutual Series acquisitions). But know, there is no real brand identity, no value proposition driven through product offerings. So, again, what’s the value proposition?
I am currently getting my MBA and have done a lot of work studying Amazon.com. Specifically, what is their value proposition that makes them so successful? After all, many platforms offer access to lots of products at discount prices. So, what makes them so different? Amazon’s value proposition is not access to cheap stuff, but rather their delivery system. As a user, you know you can order any product, get it delivered within 48 hours (for free), and if not completely satisfied, you can return with no shipping costs. It is very difficult to replicate this on the scale they do it.
Amazon spends an excessive amount of time and money to ensure they are leveraging this value proposition? Did you know, in many instances, Amazon starts the shipping process BEFORE you order the product. They spend a tremendous amount of time analyzing user-data and know how long, on average, you look at a screen before you put the product into the checkout cart. They use this algorithm to speed up the shipping process, thus enhancing the service. In 2014 they received an “anticipatory shipping” patent that gives them exclusive rights to this service. Believe me, they know their value proposition.
Going back to Mutual Fund companies, what’s their value proposition? Performance? Fees? Breath of product offerings? Brand recognition? “No,” to all of these. So, what is left? The client experience is really the only opportunity to truly distinguish yourself in the industry. Specifically, how are you making your clients feel special? Certain luxury brands (Ritz Carlton, American Express, etc.) have embraced this concept, and they dedicate a lot of resources to support it. Most mutual fund companies do not dedicate the needed resources to provide exceptional service. They do not allocate the needed budgets to ensure their sales folks are appropriately trained and coached. They do not give them the tools needed to deliver a unique client experience. What makes matters even worse is that wholesalers tend to fall into a repetitive rut where they are merely going through the motions without being challenged on how to get better from a service standpoint.
If I were to ever oversee a mutual fund company, I would carve out a budget and dedicate resources to ensure that my sales folks were able to offer a unique client experience. I would set up a very unique platform that trained the sales folks to offer a repetitive, distinctive relationship with their FAs. The mutual fund industry is beyond the commoditization phase, given that everything looks the same. Sales folks have now become the product that Financial Advisors are buying. Yes, you are the product! The sooner management recognizes this, the less they will question, “why are we in net redemptions if we have strong performance?”