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What a performance

Amid the current regulatory frenzy, you could be forgiven for overlooking one of the more day-to-day announcements made recently by the FSA.

The so-called task force looking into the use of past performance in investment advertising, has completed its task, and – living up to its name – has made recommendations with some force.

In case you missed it, the key recommendations are:

Past performance should not be the “main message” of an advertisement;

The presentation of information about past performance, price and risk should be standardised and, if possible, presented within a consistent &#39matrix&#39 format.

Plenty of questions about the meaning of these statements remain unanswered. What, for example, is an advertisement? Obviously, it is a press ad. But is it a mailpack? Is it a range brochure? Is it an IFA sales aid? Is it a half-yearly manager&#39s report to investors? Is it a website? Is it a fund supermarket?

What, for that matter, is the main message of an advertisement? Is it the headline? Is it the visual, graphics or any displayed statistics within it?

And finally, what is past performance? Does it include, for example, the winning of investment awards or high scores from ratings agencies? And what about the yields on bond funds, which, you could argue, are historical figures by the time they are printed?

Questions of definitions like these could keep compliance departments busy for years although there must be some hope that they will all be made clearer at the next stage when the FSA puts forward its proposals.

But beyond these semantic quibbles, the really big question remains unanswered – will this initiative lead to a dramatic change in the way that funds are advertised and marketed?

On the basis of the task force&#39s report, it may be that the way forward from here will involve a great deal of fiddling about, with the introduction of the new stand- ardised performance matrix, more prominent warnings and such like but the world as we know it will not change.

But equally, especially if you believe the FSA might actually implement the recommendation about not featuring performance as the main message, it may be that before long we really will be dealing with situation where people involved in promoting funds will have to rethink the basic technique that most have relied on over the years.

It is impossible to over-exaggerate the extent to which past performance claims have dominated the world of fund promotion. It is not just a question of counting the number of individual ads featuring performance claims.

What&#39s more important is the way that such claims have provided the core of almost every major attempt to build distinct investment brands.

Few fund providers have ever gone beyond chapter one in the investment brand-building textbook – the one that says what you need is a bunch of performance claims displayed alongside some kind of icon (mountain, planet, widow) which will aid brand recognition. Not every ad within such campaigns needs to feature a performance claim, the textbook tells us, but the best way to cash in on your achievements is to make sure that at least half of them do.

The fund management groups which have not played this numbers-and-icon game fall into three groups.

The first is those which would have liked to play but could not because their numbers were not good enough. Most of these have responded to their unfortunate situation by not promoting their funds much at all.

The second is those which would have liked to play but have not been able to for some other reason. Sometimes it has been a question of bigpicture corporate events getting in the way.

Invesco, for example, had apparently just decided to make something of their rather peculiar green frog when the Perpetual acqui-sition and consequent reb-randing happened. Presu-mably dismissing the idea of attaching their frog to Perp-etual&#39s mountain, they were forced back to square one.

Sometimes the difficulty is a rather more straightforward one. One obvious difficulty arises when the business is new and has not had time to build a performance record yet. In this situation, the textbook says you feature your fund managers and talk about their past performance records (see SG Asset Management, New Star).

And the third is the very small minority which have gone beyond chapter one and recognised that proper grown-up fund marketing means developing a more rounded brand positioning and delivering a much wider range of propositions than past performance alone.

In truth, over the years, only one fund manager can really be said to have adopted this line of thought voluntarily – and that is Fidelity.

Fidelity&#39s fund performance is excellent but it has always understood that there is more to building an investment brand than performance. More marketing prop- ositions addressed to IFAs and consumers alike, come out of Hildenborough in a year than out of most investment groups in a generation.

The most interesting question about the FSA&#39s past performance review is whether it will require more fund managers to follow Fidelity&#39s example and start going about their marketing the hard way rather than just the easy numbers-and-icon way.

It is not just the experience of Fidelity that demonstrates the potential of making this change. In every other crowded and competitive market where consumers face important, difficult and expensive purchase decisions, hard performance information plays a part but nowhere else does it dominate the marketing and communications landscape to the extent that it does in funds.

In cars, for example, acceleration figures, fuel consumption, service intervals and many other statistics all play a part in the consumer&#39s decision-making. But there is far more to the marketing and communications challenge than typesetting this data alongside a picture of a wombat or an asteroid.

Similarly, in consumer electronics, people want to know how loud a hi-fi will be but that does not mean that Sony&#39s marketing is just a simple matter of presenting output figures in watts alongside a nice photograph of a dandelion.

The fact is that although the numbers-plus-icon formula has worked well for quite a few investment fund providers with good enough numbers and a memorable enough icon. It has also served to stunt the growth of proper consumer marketing in the sector.

If you are either running a numbers-plus-icon campaign or pinning your hopes on the idea that, if only the UK equity performance improves a bit more you will be able to start one, then you have little or no incentive to think about all the much more difficult and complicated things which, taken as a whole, add up to real marketing.

It is this two-dimensional mindset which is challenged by the report of the FSA&#39s working party.

And although the implications are, at first sight, deeply scary ones, it might turn out to be just the challenge that the sector needs.


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