What mutual fund marketers can learn from tomato farmers

Have you ever grown tomatoes? If so, you know it’s not as simple as just putting seeds in the ground. In fact, passionate tomato farmers often start their seedlings indoors several weeks before planting season. Once outside, they need a good dose of sunshine and the right amount of water, not to mention great soil, shelter from chill winds and a strong trellis. You get the idea.

GROWING A FUND REQUIRES SPECIALIZED KNOWLEDGE AND ATTENTION
According to Morningstar, in the open-end mutual fund industry of over $8 trillion assets currently under management, the top 10 fund firms manage 57%. That’s one big tomato! The next 40 manage 29%, while the remaining 600 plus firms compete for 14%. But, smaller funds have made huge progress in capturing fund flows, increasing to 38% from only 14% a year ago (see chart).

Over the years, I’ve been privileged to speak on panels addressing distribution for smaller and midsized fund firms. I’ve met dozens of smaller fund managers there. Some are managers with unique investment processes. Others are experts in their asset classes, still others have amazing performance. Despite the good news above, they’re frustrated by lack of fund flows, anxious about mounting expenses and hungry for ideas about how to get the recognition they deserve in this crowded market place.

So, how do you differentiate your fund from the others and get discovered?


MAKE THE COMMITMENT TO GROW
As a smaller or midsized firm, you’re competing for attention with firms who spend significant dollars on their sales and marketing activities, both in the advisor market and at the retail level. They invest in sales people (and travel budgets) responsible for building relationships with research groups and advisors around the country.They also spend hundreds of thousands of dollars for TV commercials, glossy magazine style annual reports, sponsorships with major distribution platforms and visibility in public venues.

Distribution is at the heart of the potential for success. But just getting on platforms is the equivalent of tossing your tomato seeds in the dirt and hoping for the best. Successful distribution lies in nurturing the effort. Like adding water and light, protecting from the frost and spraying for bugs, growing your fund requires consistent attention. You have to ensure you’re in the right channels and that advisors and investors know you, know your people and know your products.

We understand smaller and midsized firms are often made up of a handful of people. Not all firms can afford a wholesaling staff or have resources to sustain a significant marketing presence. So, how do you make it work?

DESIGN A DISTRIBUTION STRATEGY
Write it down. Make someone accountable for each step. We all know that what gets measured gets done. Traditional marketing wisdom says you must address the four Ps: Product, Price, Place (Platforms), Promotion. This applies to fund distribution, too. But what about a fifth P, Performance? It’s true, not many investors will flock to a poor performing fund, but relying solely on performance is risky business. While performance may get you your 15 minutes of fame, performance chasers will drop your fund for the next hot item if they don’t really understand your investment philosophy and process or know the fund manager well.

COVER ALL THE BASES

• PRODUCT
• Build a story around your investment process that highlights the opportunities of your asset class and process and differentiates you from your competition.
• Add personality by discussing your current sector strategy and top investment selections. Let investors know about the good decisions you’ve made in the past and the fund’s current positioning.
• And of course, commit to excellent performance.
• PRICE
• Set competitive pricing - You’ll notice I didn’t say lower than average. Many managers think this is important, but many funds with lower-than-average expenses don’t sell. What does matter is how your fund compares overall to other funds that are selling.
• Set your share classes so that you are priced appropriately for the advisor types you are targeting. The preponderance of flows are going to no-load and load-waived shares. For smaller firms without existing relationships or sales teams, no-load may be the way to go.
• PLACE (PLATFORMS)
• Select the distribution channels and share classes that make sense for your fund.
• Get on Schwab, TD Ameritrade, Fidelity, and Pershing – these are the most appropriate for smaller and midsized firms with limited distribution. The no transaction fee side costs more, but also provides more opportunities. Then, establish a relationship with your account manager, who can guide you through the maze of opportunities available to reach platform advisors.
• Be realistic in your expectations. If you have no prior relationships with wirehouse firms, you are likely too small to meet their criteria and if there is no demand from their representatives, it’s unlikely they will add you to the platform in the short term.
• PROMOTION
• Establish relationships with advisor firm research teams to get and stay on their radar. Where applicable, find out and work toward meeting the criteria to be placed on preferred/recommended lists and model portfolios.
• Take advantage of marketing opportunities offered by some platforms. Develop a strong relationship with your account manager so you are alerted to and aware of opportunities for proprietary mailings or sponsorship opportunities at local and national events. Many of these are free.
• Remember research firms such as Morningstar and Lipper. They have a lot of influence. Stay in touch with the analysts who cover you or should.
• Communicate. Regular communication with advisors and other audiences is critical in order to keep your story top of mind. Consistently offering useful, meaningful information using a wide range of media will position you in their minds as the expert on certain topics.
• Proactively engage the media. Let the financial press sell you; third-party endorsed news coverage in national and local business publications adds credibility.
• Leverage third-party endorsed reprints in your other sales and marketing efforts, in print, through social networks and on your website.
• Keep your website up to date with timely commentary and news coverage. Regularly post themes about your fund and the good decisions you made. If your site doesn’t allow you to add timely information, upgrade it. Advisors won’t come back if there is nothing new
• Host webinars or conference calls for advisors on a regular basis. Post the replay on your website.
• Use monthly email marketing programs to drive advisors to new content and fresh ideas on your website such as recent commentaries, webinar promotions and media coverage.
• Repurpose the white papers, research and economic commentary you develop first on your website, then with outside resources like Morningstar, Schwab, Advisor Perspectives and more to position yourself as a thought leader.
• Develop a social media strategy to distribute timely information in the networks investors frequent. Social media allows you to listen to shareholder concerns and become part of the conversation.
• Know your customers. Use the data from the platforms, your transfer agency and other services to track who your investors are. Update the information in a database so you know who your producers are and who used to be. Send personalized communications when you see a new advisor and periodically to remind them you are still there.

GROWTH IS MORE LIKELY IF YOU TAKE THE RIGHT STEPS

Like tomatoes, the more care and attention you provide, the greater the likelihood for success. Healthy growth depends a great deal on creating relationships. With today’s digital opportunities, expanding your reach is easier than ever before. Make a commitment to building strong relationships where advisors and investors can learn to trust and respect your firm and its expertise.

by Dan Sondhelm