Discount brokers find advice wins clients Anxious amateur investors demand personal service

Mutual funds

November 08, 1998|By Bill Barnhart | Bill Barnhart,CHICAGO TRIBUNE

The summer sell-off in financial markets, which provided many mutual fund investors sticker shock when they received their third-quarter reports, should prompt investors to conduct a year-end review of their fund holdings -- and in many cases it will be for the first time.

Even if you held steadfastly to your strategy through the recent market decline, you're smart to lift your head above the foxhole, survey the damage and look for new targets as the year draws to a close and a new one beckons.

Mutual fund companies and brokerage firms realize that after the July to September turmoil thousands of investors will be focusing on their portfolios in the weeks ahead. They see this period of intense investor interest as a great marketing opportunity.

"In July, we were seeing a few people who said, 'Sell my entire portfolio,' " said Mary Hwang, manager of a Charles Schwab branch office in downtown Chicago. "I don't see a lot of selling of mutual funds right now. People were sitting back, trying to understand."

Recent stock market losses have shifted the marketing message of many mutual fund sellers from investment performance to what Jeffrey Lyons, senior vice president for mutual funds marketing at Schwab, calls "the process of investing."

That process will intensify with the marketing message in the weeks ahead as investors undertake their year-end reviews.

If trend-setter Schwab's strategies are any clue, the fund and brokerage industries sense that the market-share battle for investor assets has shifted.

A recent television advertising campaign by Fidelity Investments, for example, touts Fidelity as a source of information and advice, not of investment products.

Similarly, Schwab, which established itself as a discount broker, promotes personal service as the ticket to expansion.

"Our emphasis is on building our capabilities in the way of help and advice," Lyons said. "We want to be able to attract the investors who aren't strictly self-serve. We want to be able to serve the customers who have been served by the big wire houses," a reference to brokerages like Merrill Lynch and Paine Webber.

A mid-September survey of mutual fund investors buying through Schwab found that 45 percent held fast during the recent market decline and volatility and would be unflustered by a similar episode in the future. Thirty-five percent saw the action as a buying opportunity.

Just as important, the survey found that half of mutual fund holders said they believe that comparing one fund to another is a useful way to assess where they stand.

As obvious as it may seem, comparative performance analysis is a big step for many mutual fund shareholders, who in the past relied solely on their instinctive reaction to the absolute gains or losses on strictly the investments they owned.

Schwab has formed its own mutual fund research team and has established what Lyons called a growing relationship with privately held Morningstar, an independent mutual fund research firm in Chicago, to help compile exclusive mutual fund analysis for Schwab customers.

The latest twist supplements another novel tack by Schwab brokers -- phone calls to customers.

"We've been doing a lot of relationship building, and that's one question we ask: 'How's your Merrill Lynch mutual fund doing? Has your broker told you how it's performing? I can tell you how it's performing. Send me a list of your mutual funds.' "

Using Morningstar data, Schwab sends customers a sheet analyzing all their mutual fund holdings with recommendations for buying funds available from Schwab's Select List.

The goal, of course, is to encourage investors to consolidate their investments in a single Schwab account.

The competitive strategy is clear -- to establish Schwab as an objective source of information and advice across the full range of investments and brokerage relationships that a customer or potential customer may have.

"I have 23,000 accounts in my branch," Hwang said. "It works for my clients for me to call them up and say, 'How's it going?' If you have a mutual fund and you don't know how it's performing, I can send this out to you. Clients call us for information. We need to call them back."

Pub Date: 11/08/98

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