What changing consumer preferences mean for IM firm brands

QuickLook Blog

Investment management (IM) firms are finding a constantly evolving landscape is complicating efforts to acquire new assets to place under management. Winning requires presenting the right investment portfolio to the right investor at the right time with a message that resonates. These factors are always changing, which increases the difficulty for IM firms.

May 16, 2018

A blog post by Doug Dannemiller, investment management research leader, Deloitte Services LP.

How do leading investment management firms manage their brand to contend with the moving parts in this landscape? Is it possible to sustain a brand through the evolution of customer preferences, regulatory changes, and technological advancements? If it seems difficult to accomplish, it is. So let’s explore just one of these pressures on IM distribution: changing customer preferences.

There are two types of customer-driven changes to consider:

  1. The evolution of existing customers’ preferences drives incremental change
  2. New customer segments can drive either incremental change or more complex quantum change.

The nature of quantum change required to meet new customer segment expectations raises the question about the potential need for dual (or even multiple) brands.

In IM, both incremental and quantum customer-driven change presents difficulties for incumbent firms. They may not perceive changes in evolving customer preferences, which may move at a glacial pace and therefore are more difficult to spot. Additionally, in the early stages firms may not see certain customer changes as particularly lucrative. For example, some mutual fund managers looked at the emerging consumer preferences for exchange-traded funds (ETFs) in this light. It is understandable that an incumbent would not want to transition to a lower revenue business model in its early stages. The problem is gauging the timing of a potential transition, which is hopefully before the early adopters are entrenched.

Keys to capturing new customer segments in investment management

New segments are even harder to capture. IM brand strategies typically involve waiting until investor preferences shift to the firm’s values, which often coincides with the development of investable assets that match the existing customer base. Trust and perseverance over time are standard messages conveyed by investment management brands. These messages are often depicted visually as pillars, Roman arches, Egyptian icons, and mighty oak trees. The approach makes sense as long as firms can win over customers when they mature into the brand. Winning those customers at the appropriate time is critical to success.

However, this approach may be under attack. New entrants are finding ways to engage customers earlier in their investment life cycle and to offer services that resonate with existing customer preferences, such as low-cost, transparency, peer-to-peer interaction, collaboration, and social responsibility. Investors with relationships that meet these needs are less likely to switch to traditional brands at life events or with the accumulation of wealth. Conversely, existing customers may disdain the services emerging customer segments prefer. The chatbot is the perfect example of this type of preference difference. Millennials may prefer the 24/7 access and keyboard interface of a chatbot, while baby boomers may loath its impersonal nature, no matter how well executed. Can one brand resonate with both audiences?

Incumbent firms must have a vision that looks to the next generation. Once a long term vision is in place, firms can develop a strategy to achieve the vision. An IM firm might want to look outside financial services to learn how similar problems have been solved.

Incumbent firms must have a vision that looks to the next generation. Once a long term vision is in place, firms can develop a strategy to achieve the vision. An IM firm might want to look outside financial services to learn how similar problems have been solved. One such example is the auto industry. Some auto manufacturers maintain a premium quality brand for certain customer segments while simultaneously targeting another segment with a value-focused or sporty brand. In combination, this strategy enables them to engage with a broader market.

IM firms could employ dual branding by similarly targeting existing customers with the current brand, allowing it to evolve with its current customers. Simultaneously, firms could target new segments with a different brand that is focused on digital, peer-to-peer interaction, or some other factor that appeals to the new target segment. The two brands could have differences on par with the quantum differences in segment preferences.

What are your thoughts on changing customer preferences?

Is one brand the best way to manage all of the change, or might dual branding make sense for investment management in a similar way to the auto industry? Join the conversation on Twitter: @DeloitteFinSvcs.

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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