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Thursday, June 04, 2009

SwanDog Sees An Inconvenient Truth For Mutual Funds

Reported by Meredith Mazzilli

A recent whitepaper offers a cautionary message for mutual fund executives and marketers. How to Save the Mutual Fund (Before It's Too Late) -- penned by Dave Swanson, founder and managing principal of SwanDog Strategic Marketing -- is a colorful account of the rise (and, Swanson argues, imminent fall) of the mutual fund industry.

Swanson targets what he sees as a weak pricing model for mutual funds that cannot compete with cheaper alternatives along with inefficient taxation and a "wobbly value proposition" (i.e. active management) as markers of a grim future for the fund business.

The paper, Swanson assures, was written out of a huge admiration for the mutual fund as a financial instrument. He intends it as a wake up call to prevent a "slow, but steady decline of assets invested in mutual funds."

A sudden turnaround in the markets will cause AUMs to rise, ("out of habit and convenience", Swanson says), but this will only mask the need for real change.

What are some of Swanson's prescriptions for the ailing fund business? First, he says the value and public image of active management needs to be rebuilt from the inside by marketers and senior management. Second, a higher level of accountability and open communication with the customer should be standard operating procedure. A "newsroom" approach to content development and delivery should be adopted. Finally, fund offerings and processes need to be "buffed up" to match the competitive strengths of product alternatives.

SwanDog also maintains a "Mutual Fund Doomsday Clock" to call attention to the need for proactive action within the mutual fund industry.

According to Swanson's calculations, the PIMCO launch of a short-term treasury ETF this Tuesday (see The MFWire , 6/02/09) has moved the clock forward. The time rests now at 25 minutes to midnight.

The whitepaper is available free of charge on the SwanDog website.

Company Press Release The mutual fund is under duress and fund executives and their marketers need to take steps now to prop it up, that according to a recently released white paper, How to Save the Mutual Fund (Before It's Too Late), authored by Dave Swanson, Founder and Managing Principal of SwanDog Strategic Marketing.

In the paper, Swanson lauds the mutual fund as the financial industry's "Grand Dame" over the past 20 years, but notes that "the old broad" is now 85 years old and in need of an extreme makeover to keep it viable.

According to Swanson, the mutual fund's "worn down parts" include a pricing model that isn't working in today's marketplace, a tax structure that is no longer competitive and a value proposition - active management - that is wobbly and spurring a quest for more reliable performance outcomes.

The free whitepaper is available for download at http://www.swandog.com.

In conjunction with the white paper, SwanDog launched its own Mutual Fund Doomsday Clock to call attention to the need for firms to focus on the problem at hand.

"PIMCO's brilliant brand play, through yesterday's launch of their short-term treasury ETF, sets the Doomsday Clock at 25 minutes to midnight," suggests Swanson. "For investment managers making their living on mutual funds, it's time for some serious discussion about how active asset management is best packaged going forward."

"I wrote this paper out of huge admiration for the mutal fund, one of the most successful financial instruments of all time," said Swanson. "But unless firms start taking these threats seriously and tackle some of the tough issues, there could be a slow, but steady decline of assets invested in mutual funds."

Following are some of the specific recommendations found in How to Save the Mutual Fund

Invest in righting perceptions about active management

Build greater accountability by tying management fees to performance

Use mutual fund transparency to your advantage

Improve shareholder communication through a stem-to-stern redesign of shareholder reports

Chicago-based SwanDog is a strategic consulting and marketing boutique founded by former investment industry executive Dave Swanson. SwanDog services include branding strategy and development; marketing program development; digital strategy consulting and analytics; content strategy consulting; marketing organization audits and design; and training through its interactive Marketing Fuel program. 

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