Agents

One marketing consideration that generally affects fund groups attempting international retail sales is a need for agents in various countries.

Making contact with such agents has, in the past, normally been achieved by advertising (often classified) in such publications as The Economist or the International Herald Tribune supported by editorial coverage of a fund group’s ambitions in agents‘ trade magazines (of which there are a growing number).

There are three principal messages that need to be put across. The first, most obviously, is the size of the upfront sales commission and of the so-called ‘trail’ or ‘trailing commission’ (the ongoing income to an agent whose clients stay with the fund). Quite reasonably, fund companies have become uncomfortable with an exclusive focus on upfront commissions since certain groups found themselves being burnt by commission earning money coming into a fund and then, mysteriously, moving on somewhere else.

The second message is support. Agents increasingly respond well to formal training sessions — both about the managed derivatives market in general as well as about the specific product on offer. Supplementing such events, many fund groups also put together specific agents packages which include simplified written explanations of aspects of the derivatives industry and on the historical/academic arguments often used to promote derivatives funds—Portfolio Diversification^,Futures as a Separate Asset Class, Modern Portfolio Theory and so on. Read more »

Posted: February 12th, 2008 under Managed Futures.
Comments: 4

Advertising

Beyond the requirement for agents (discussed below), fund groups undertaking retail sales tend to support their marketing efforts with fund advertising. Advertising regulations are both complex and highly variable between different countries but that does not mean that effective campaigns cannot be developed.

One problem to be faced here is that the most effective marketing statement— the expected performance of a new fund—is the one most difficult to get past the regulations. (Past performance is no guarantee of future results, for example.)

Fund Structure

Retail orientated managed derivatives funds may often differ from their institutional counterparts. The best example of this is in the employment of guarantees of return of capital. So-called guaranteed funds appeared in the mid-1980s and have thus far escaped the best efforts of numbers of regulators (outside the USA) to force a name change to something less overtly promotional (assured capital funds and so on).

Guarantees have their supporters and detractors but they do sell to retail investors and investors who (in most, but not all, countries) like the assurance of a guarantee when trying a new type of investment vehicle and are less swayed by comments about performance dilution than are the institutions. Furthermore, from a marketing standpoint, the presence of a guarantee or more accurately a guarantor creates the opportunity to include the name of a bank (often a major bank) as an additional sales incentive.

Marketing Materials

There is no proof of the assertion that retail investors are more swayed by brightly coloured marketing materials than are institutions. What is clear, however, is that the content of such materials should spend time introducing the concepts of derivatives and of managed derivatives at a more basic level. One worry expressed by many fund groups is the inclusion of the notorious word commodities within documentation about a diversified fund and various awkward attempts have been made at euphemism.

In fact it is probable that commodities — pictured rather than discussed— have a positive rather than negative sales impact since they are much more readily comprehensible than certain classes of financial instruments. When a retail investor understands that the natural way to invest in oil or (tax-free) gold is through derivatives he or she is often on the way to becoming the purchaser of a certain type of fund.

Joint Ventures

Creating joint venture arrangements between a fund group and a financial group capable of distributing product is one of the most efficient ways to obtain investment capital, but at a price. The key requirement in arranging joint ventures is not marketing but having a clear understanding of the financial structure of the proposed fund and the income consequences of various splits of the managed or sales fees or brokerage commissions.

Marketing can help initiate discussions, however. Here, a high profile in the press is desirable, particularly if supported by occasional conference platform speeches (see below). It may also be helpful for a member of the fund management team to be an active member of a derivatives or managed derivatives trade association—to give more strings to the marketing bow.

Posted: February 12th, 2008 under Future Fund, Future Management, Futures Spreads, Futures Trading System.
Comments: 4