Targeted Musings on Financial Marketing

Are You Too Close to Your Fund? Bridging the Education Gap With Retail Investors

18 Jul 2017

It’s an unavoidable fact of nearly any profession: in order to become an expert, it’s necessary to learn to speak the trade’s specific language. In the financial world, this is doubly true, with entire websites devoted to explaining the meanings of arcane financial terms in plain English to laypeople and retail investors. Generally speaking, the greater your comfort with financial jargon, the closer you are to your product, and the more difficult it becomes to articulate your fund’s selling points to a relative novice or retail investor.

This disconnect can prove very problematic. Simply put, an investor is unlikely to put their money into a product that they cannot understand. On the issuer’s side, the closer you are to your product, the harder it becomes to put yourself “in the shoes” of the retail investor, who may not have the time or inclination to acquaint themselves with the minutiae of the fund, or the financial jargon that defines its value proposition.

Related: 4 Ways Fund Issuers are “Missing the Mark” with Millenials (Part 1)

It’s hard to believe, but even as the ETF marketplace has swelled to an incredible $2.8 trillion in assets under management,¹ there is still a sizable chunk of the public who hasn’t the faintest idea of what “ETF” even stands for, much less the structure’s benefits. With this in mind, the first step when creating marketing materials aimed at retail investors is to place yourself firmly in their shoes. As a thought exercise, I find it helps to imagine you’re sitting at your desk and a novice investor is sitting across from you. Explain to them why it’s a good idea to invest in your fund.

What if you’re explaining your new smart beta fund to a retail investor? “Well you see,” you begin, “smart beta is a good way to get some of the benefits of active management, along with—” The investor interjects. “What’s beta? What’s active management?” These are good questions. As with any educational piece, then, it’s important to build from simple to complex.

Start with the foundation. If you’re explaining a smart beta fund, start with beta. Once you’ve covered the basics of beta, only then can you move onto “smart beta.” Once you’ve covered what smart beta is, only then do you move onto the nuances of your particular smart beta fund. Try not to answer the question: “how is my fund different from other funds?” A more productive and illustrative question might be: “what problem is my fund trying to solve?” By starting with foundational concepts, setting up the final explanation as first posing a problem, then offering a solution with your fund, you draw a straight line from the investor’s questions and concerns to your fund—the answer.

The more complex your fund is, the more steps are involved in the educational process. A market-cap weighted large-cap domestic ETF will not require as many steps to explain as a multifactor ETF. In the end, though, no matter the complexity, the goal is the same: education first, sales second. One cannot happen without the other.

¹ As of May 17th, 2017.