Reps' Perceptions Can Be Clouded by Brand Management

A registered rep’s perceptions of the performance delivered by a fund company’s products may differ substantially from the realities of what that company delivers.

Credo recently conducted an analysis with Canadian investment advisors (the equivalent in Canada of US registered reps.) We compared:

o Canadian advisors’ perceptions of whether or not the asset managers whose products they use produce above average returns; with,

o Whether or not those companies actually produced above average returns in recent years.

As background, Credo surveyed Canadian financial advisors during Dec 2010 and January 2011. To be fair, the results of this research might have been different if we’ had done this research with US registered reps, but we suspect that similar disparities to those described below would have surfaced.

We asked more than 1,500 advisors about their experiences with, and perceptions of, the fund companies and asset managers they have used. What we found is that some companies take full advantage of their brand to affect advisors' perceptions of their performance while other companies don't.

Credo’s study enabled us to benchmark advisor perceptions of (and experiences with) more than 30 fund companies. Many of the advisors we surveyed indicated that they were actively using Fidelity’s products and services to satisfy clients’ needs. (Note that Fidelity’s approach to distribution differs substantially in Canada from its approach in the US; in Canada Fidelity product is distributed through investment advisors.)

A randomly drawn sample of advisors responded with respect to Fidelity when we asked them to agree or disagree with the following statement:

This organization produces above average returns.

Some 64% of the advisors we polled agreed that Fidelity produces above average returns. This resulted in Fidelity receiving a very respectable 5th-place ranking among 34 fund companies that we studied based on advisors’ perceptions of the company’s production of above average returns. When Credo examined the company’s actual production of financial returns, however, we found that slightly fewer than half of Fidelity’s long-term funds produced returns that were above the median within their respective asset categories. Based on this marketplace reality of Fidelity’s products’ performance, the company received a ranking among these 34 firms of 20th.

A simple comparison of the perception-based ranking with the ranking based on a marketplace reality showed that Fidelity was perceived some 15 positions higher in ordinal ranking than was justified by the financial returns delivered by the company’s long term fund products. From this Credo infers that Fidelity’s strong brand actually buoys advisors’ perceptions of the company’s products’ performance.

Similarly, Credo surveyed advisors with respect to the boutique brand Phillips Hager & North, RBC’s brand new jewel. Some 63% of advisors agreed that PH&N produces above average returns. This resulted in a perception-based ranking of 6th among the 34 firms that we focused on in our study. However, with only half of the company’s funds delivering above median results, the marketplace reality was that a ranking of 15th was more appropriate for PH&N. Advisors perceive that the company delivers significantly better returns than it actually does.

Other fund companies, however, miss the mark with respect to leveraging the value of their brand with advisors. A review of AEGON Capital Management in Canada demonstrates this. Credo also surveyed advisors that indicated that they have worked with this company and its products. Only 24% agreed that the company produces above average returns. This resulted in AEGON receiving a 30th-place perception-based ranking. However, when Credo examined the company’s actual production of returns, we found that some 73% of AEGON’s funds produced returns that were above the median within their asset categories. Based on the reality of AEGON’s returns, the company received a marketplace ranking of 6th. Again, simple comparison of the ranking based on perception and the ranking based on reality showed that AEGON is currently perceived some 24 positions lower in rankings than was justified by the relatively strong returns delivered by its products. Based partly on this analysis (we actually look at brand from many other perspectives) Credo contends that AEGON’s brand is currently underdeveloped among Canadian advisors and that the brand has considerable opportunity within the market.

It’s not only small brands that are underleveraged, however. The Canadian behemoth CIBC Asset Management, a.k.a. Renaissance within the advisor community, also has a brand that is substantially underleveraged among advisors. Only 22% of advisors agreed that the company produces above average returns. This resulted in Renaissance receiving a 28th-place ranking among the 34 fund companies, again, based on advisors’ perceptions of the company. Credo’s examination of the company’s actual returns revealed that some 62% of Renaissance’s funds produced returns that were above the median within their asset categories. Based on this marketplace reality, Renaissance deserved a ranking of 6th. Comparison of the perception-based ranking and marketplace reality shows that Renaissance was perceived some 19 positions lower in rankings than was justified by the returns delivered by its products. The Renaissance brand isn’t working well for CIBC Asset Management!

Of course, some companies were perceived quite correctly. More than 72% of the advisors we asked about Dynamic Mutual Funds indicated that this company delivers above average returns. The company’s perception-based ranking was 1st in the industry. And, with almost 82% of the company’s extensive product line delivering above median performance, Credo found that the company’s ranking based on actual results was 3rd behind two boutiques: EdgePoint and Sentry Investments.

More than 64% of advisors indicated that Sentry Investments delivers above average returns. The company’s perception-based ranking was thus 4th among the fund companies we studied. With 92% of the company’s products actually delivering above median returns, the company’s deserved 2nd place ranking based on marketplace reality is not far from its perceived position. Again, this demonstrates that the performance that is being delivered by some companies is correctly perceived by advisors.

Credo’s analysis shows that the perceptions held by financial advisors are not always congruent with the realities of the marketplace. Both small, creative companies and large, powerful companies are able to develop their brands in the minds of financial advisors to their competitive advantage. Other organizations have proven unable to effectively leverage their brands. There can be substantial gaps between advisors’ perceptions and the realities of what companies are truly delivering and Credo’s research shows that many companies leave considerable brand value on the table.

Credo found the correlation between the perceived rankings and the market-justified rankings was a relatively weak r = +0.35. This indicates that advisors are only slightly more likely to be right than wrong with respect to their perceptions of whether or not a fund company’s returns are truly above average. While this might be somewhat disconcerting for advisors and end investors alike, it will produce a high degree of satisfaction among successful communications experts whose roles it is to help build relationships between their fund company’s brand and financial advisors.

Our analysis substantiates the inference that the effective branding of a fund company has a considerable influence on the perceptions that are held by advisors. Credo’s research shows clearly that brand management matters. Credo contends that companies must take an active role in the management of their brands. Those that don’t actively engage in their own effective brand management leave the control of this important intangible asset to competitors.

We would truly be remiss to not point out that our market-based rankings of performance are derived from 1-year returns. This is arguably too simple and short-sighted a construct on which to base a definitive analysis. Advisors’ perceptions of the returns a company delivers are far more complex. Certainly these perceptions will not be limited to 1-year performance. Rather, perceptions will be based on experiences with trusted subsets of a company’s funds. They will also be affected by water cooler discussions...and wholesaler visits...and advertising. But, that’s the important point of this article! This isn’t designed to be a definitive analysis; it’s simply a reminder. Advisors perceptions, however unconscious, are susceptible to undue influence. They are affected by many dimensions beyond performance and it is therefore up to the registered rep to continually weigh and balance his objectivity.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.