In the long run, the current financial crisis will support growth in the mutual fund industry, according to the report, because investors will want to go back to the investing basics. After many sophisticated instruments—such as derivatives—have flooded the market and blown up completely, “the inherent benefit of the mutual fund is much more apparent right now,” said Daniel Enskat, head of global consulting at Strategic Insight and author of the report, speaking with PLANADVISER.com.
The opportunity in the mutual fund business also has obvious obstacles, for instance, the challenge of effectively communicating in today’s environment to help clients see long-term benefits. Enskat emphasized that advisers must continue communicating effectively to calm clients down and put them in perspective for the long-term. It is a potentially great opportunity for companies and advisers who are able to communicate effectively “despite the current challenges,” he said.
“This [crisis] is a huge disruption of what people have seen in the past. It’s normal that there’s sort of a panic approach for investors,” Enskat said. For financial institutions and advisers, it is important to be very proactive and communicate more, rather than having an inertia response, he added. “The short-term is really just connecting with clients and making them feel safe in their investment relationships, and making them feel catered to,” he said. In addition to calming investors down and putting them in perspective, Enskat suggested that advisers reemphasize the importance of mutual funds in a portfolio as part of a long-term plan.
Registered independent advisers (RIA), a growing distribution channel among advisers, are positioned to make the most of the opportunity in this crisis (see “Mutual Funds Continue Shift to Fee-Based Sales“). As many larger institutions are currently unstable, clients appreciate the more regional, independent advisers, Enskat said. The present opportunity for independent advisers is a rare window in the U.S., which is traditionally more based on larger institutions, he noted. Independent advisers can capitalize on this by differentiating from others and establishing trust with clients right now.
The Strategic Insight report, Global Fund Distribution—Best Practices, Key Trends, and Opportunities to Grow Sales Worldwide, also says that many fund distributors, including banks and brokerages, are taking on increased fiduciary responsibilities and that will accelerate in light of the financial crisis. Enskat said that the trend toward more fiduciary responsibility increased after the 2003 late trading and market-timing scandal, and we can expect to see the trend continue as investors wonder, “Is my money safe or do I have to take it out and put it under the mattress?”