The FSA's decision to introduce rules preventing firms from making past performance the overwhelming feature of ads was widely welcomed at the end of last year.
But as the Isa season app-roaches and groups start implementing marketing strategies, the impact of the rules, which come into force in June, are only now becoming clear.
When the FSA published its requirements last December, fund groups – many of which feared that the use of past performance would be banned altogether – breathed a collective sigh of relief.
The rules did not seem prohibitive – past performance could not dominate an ad but it could be used within certain standardised parameters. But what some groups are just waking up to – especially those which built their brands on performance-focused advertising – is that they need to replace past performance with something else. In most cases, that something is brand.
This is not a significant problem for some of the bigger groups. Fidelity, for inst-ance, can accentuate its size and market-leading position, Invesco Perpetual can do much the same while New Star has never been shy in shouting about its stable of high-profile fund managers.
Perhaps five or six others can hang their advertising hats on other core brand values but go beyond these and the picture becomes murkier.
Groups' performance may be good but, stripped of the ability to emphasise it, their lack of obvious distinguishing features becomes almost emb-arrassing. The result could be the brand equivalent of a land-grab as groups battle to distinguish themselves but, as some of them point out, there is a limited amount of positioning that can be done.
Threadneedle communications director Richard Eats says: “What it will do is put more power in the hands of big companies with strong brands. Fidelity can say it is the biggest, we can emphasise our process and stability. There are others with distinct profiles but how many other brand positions are really available?” Not many, he believes, which is why groups will have to take a hard look at the ways they advertise. New Star bel-ieves many firms will have to come up with alternatives to their traditional brand positioning – based on size, age or performance – to secure their public profile under the new rules.
Marketing director Rob Page says: “The only one that really matters is performance so firms will have to work har-der and think more laterally about how best to show the quality of the managers they have. A whole bunch of them will have to go back to basics and promote collective investment as a concept.”
He argues that the winners will be firms which are best able to show depth in the management team and experience. But what happens to the losers? Does it really matter if they fail to separate themselves from the herd? After all, IFAs, bound by best advice, are highly unlikely to stop recommending a group's funds because it has lost public profile. But the rules will have a major impact on direct marketing and that will hurt not only the fund managers but execution-only brokers and IFAs.
M&G managing director Phil Wagstaff says: “A large part of all this is brand recognition which helps IFAs with their clients. A lot of direct mailshots are not really about getting direct responses or even about product. It is about clients being aware of a company that an IFA might mention to them.”
Many execution-only brokers get business indirectly from groups' mailshots. Often, an investor who has received a mailshot will seek out a discount broker to get a cheaper deal instead of applying direct. According to Credit Suisse, this will soon stop as groups seek ways to circumnavigate the new rules.
Managing director Ian Chimes says: “The changes will have a considerable impact on execution-only business. The more active investors will continue to make decisions but groups will lose the people in bull markets who jump on the bandwagon after receiving direct mail. Direct-mailing lists will not be worth the paper they are written on.”
Chimes believes groups will start advertising on the basis of “soft” issues such as dependability and strength or brainpower and innovation. He says this will result in sharp contrasts in methodology.
Groups will either ape the Threadneedle approach, accentuating processes and the imp-ortance of analysts, or the New Star approach, shining the spotlight on star managers.
Either way, he believes firms will spend more time and money taking the PR road, wheeling out their star managers to journalists and media-friendly IFAs or bombarding them with key messages about processes and risk controls.
Perhaps the extent to which groups are seeking to distance themselves from traditional methods of attracting business can be seen by Jupiter's decision last year to “dramatically” scale back its direct-marketing operation. But execution-only brokers do not necessarily fear a major loss of business as a result of such moves.
Chelsea Financial Services managing director Darius McDermott says: “I suppose we could be hit slightly bec-ause it is from those sorts of ads that we get custom in the busy years. People see a direct ad or mailshot and come to us for a discount. But we are much more concerned about European threats to execution-only business.”
Fund groups, however, are less sanguine. Some will easily comply with the new rules but others will have to radically alter their ads and think hard about how they position their brands. If they fail to carve a successful niche for themselves, they could find their already depleted fund flows dwindling ever further.