A few modest proposals
by Richard Eats
As we sit among the wreckage of the latest implosion of a bubble of greed in financial markets, maybe we should reflect upon the role that marketing strategy has played in all this.
The current bust is about bankers rather than other players in the financial markets. (And when I say players I mean players.) However, asset mangers cannot in general be proud of what happened in the tech boom, split cap investment trusts, or for those with longer memories, the hype in the bull run of early 1987 including the infamous “Royal Event”.
Some insurance companies have, of course, been serial offenders. Pensions mis-selling, endowment mortgages, precipice bonds.
Of course, there were many asset managers and insurance companies who did not behave irresponsibly. However, this is not the impression of many in the press, the Treasury or, I can say from personal experience, John McFall.
Millwall supporters supposedly chant “People don’t like us. We don’t care.” This how many outside the business regard the financial services industry. It hurts everyone.
From my observation, these investment or product trends often start benignly as a new idea (or old idea revisited) which then becomes popular. Sometimes this is for a good reason, but sometimes because a product has been designed where you can’t spot the risks or the costs or because the government has fiddled about with the tax system.
Whatever the spark, early on it’s the concept that gets promoted as we are in a phase of market growth. “Get the power of the internet working for you.” “Saving for your old age and save tax.”
But then as the market matures, we find we can’t all keep growing our sales. We have to fight for more brand share. So we stop saying we have a good product. We start saying our fund has better numbers than X or Y or Z. Our income bond yields more. We pay higher commission
So the manager with the highest risk strategy wins. Or if we are selling a guaranteed bond we try to edge up the rate we quote by investing in second tier assets. Or if we are offering mortgages we offer to lend you more money at lower cost than the guy down the road. With results that we can now all see.
For a marketer this makes things a bit depressing. No one is interested in building a brand. Just shove a bigger percentage number in the ad and the job is done. No one is worried about service, just jack up the commissions. It’s hard to resist when the sales team come round to your office waving your competitors ads just showing crude shouty numbers that seem to be getting a response.
I know that in the world of funds, we are not supposed to be focussing on past performance in our national press ads. However, few fund firms bother with direct advertising. As an industry, we so pissed off the consumers in the tech boom that they have stayed away since. So we rely on IFAs – to whom we can plug perfor
By Richard Eats - Former head of communications at Threadneedle Investments
Tue, 18 Nov 2008
