Banks a double-edged sword for fund sales

PUBLISHED : Thursday, 27 June, 1996, 12:00am
UPDATED : Thursday, 27 June, 1996, 12:00am

Are you university educated, white collar and earning more than $15,000 a month? Then you are likely to be actively involved in the stock market or investment funds.

The problem for the financial services industry is that there are simply not enough of your type.

So in the absence of some spectacular, genetic engineering the issue for the industry is how to find more customers.

This apparently simple exercise has had some of the territory's finest marketing mandarins tugging - if not tearing - at their hair.

It has been even worse for the unit trust/mutual fund industry which make claims of only between four and seven per cent of the potential market.

The investing public still sees the products as risky and highly speculative despite the industry's best attempts to get across the message that fund's lower risk by diversifying across asset classes and securities.

An investor could also be forgiven for a feeling of being overwhelmed by the more than 1,000 authorised funds on offer.

Then there is the flotilla of unauthorised offshore funds.

The traditional outlets have been through direct sales and on the recommendation of advisers.

Fund companies such as Fidelity Investments, Guinness Flight and Jardine Fleming also have established investment shops.

Each has their place in a highly diversified market, but each also has failed to generate the mass appeal so desired by the industry.

The financial institutions that clearly have the profile and distribution network to fulfil that niche are the territory's banks.

Early experiences from fund management houses justify some of the optimism.

HSBC Asset Management is claiming some spectacular sales growth from its 200 branches.

A 10-fold increase in sales following a fledgling pilot programme in 1993 has the company planning to expand the range of products on offer to medical, general and life insurance.

Fidelity Investments, which 21 banks and 600 branches, claims about 75 per cent of its sales are being generated by banks.

Hardly a week goes buy without one of the major companies announcing some new distribution deal with a bank.

So a clear pattern has been set which begins to pose a new set of questions for the industry.

Is this a battle for the wall space and product literature shelves of bank branches dotted around the territory? Or is it a campaign for the hearts and minds of the territory's investors? Banks clearly have the best distribution network of any financial institution in the territory.

Unlike many financial advisers, they also are generally trusted by their clients.

Simply using branches to flog the latest flavour-of-the-month fund to clients will not be doing the would-be buyer any favours.

Encouraging investors to pile in at the peak of a cycle also will do more to damage then enhance the industry's image.

Clearly a question is how to ensure that the type of fund being sold is the most suitable. This will involve determining the investors' appetite for risk, their investment objectives, and educating them that equity investments are for the medium to long term.

Banks and the industry clearly will have to work together on establishing the resources needed to achieve this.

Anecdotal evidence would suggest that the most successful banks have been those committing the most resources to the sale of unit trusts/mutual funds.

Standard Chartered, Citibank and others have set up dedicated teams to help profile the investor and their needs.

Banks not willing to commit the resources - despite the generous three per cent commission payment on sales - could perhaps exercise some restraint as to the types of funds that can be sold.

If not, the industry's high-risk image will continue to dog its prospects.