Recent investment performance is the number one driver of mutual fund investor satisfaction, but consistent performance drives investor loyalty, according to a national study of 4,000 affluent Americans by Cogent Research, a Cambridge, Mass.-based market research firm.
The Cogent Investor Brandscape: 2007 study examines three broad outcomes associated with mutual fund customer experience-overall satisfaction, likelihood to recommend, and future purchase intent-and the underlying drivers affecting these outcomes.
Analysis of the findings reveals that the primary driver of overall investor satisfaction is recent investment performance; however, the leading driver of future investment and likelihood to recommend a mutual fund company to friends and family is consistent investment performance, followed by company investment philosophy and management style, and individual fund managers. As perceptions of a firm's performance consistency rise, so too does client loyalty, leading to improved client retention and profitability.
"This illustrates that while strong short term investment performance is vital to attract new clients, in order to retain these clients and secure additional investment dollars from them fund firms must also communicate how their investment philosophy and style will enable them to generate these returns consistently over time," said Chris Brown, Cogent's managing director of the Wealth Management Practice.
Among the top 38 mutual fund companies included in the study, the firms that receive the highest ratings for consistency of fund performance among affluent and high net worth investors are Dodge & Cox, American Funds, and Schwab/Laudus Funds, with 78 percent, 66 percent, and 65 percent of investors rating the firms eight or higher on a 10 point scale, respectively. Dodge & Cox also ranks highest in recent investment performance with 77 percent of investors rating the firm eight or higher.
Using intent to recommend as a proxy for loyalty, Cogent computed customer loyalty scores for the leading mutual fund companies. Based on their intent to recommend the firm to friends and family, clients were grouped into three categories - supporters, detractors and those that are ambivalent. The mutual fund company loyalty scores are a variance measurement of client supporters versus detractors.
More than two-thirds of the mutual fund companies analyzed received negative loyalty scores, meaning these firms have more detractors than supporters.
"The fact that the average mutual fund customer loyalty score is negative reflects a highly competitive industry in which only a handful of fund groups have been able to produce the kind of consistent long-term performance required to earn client loyalty," said Brown.
The study includes a survey conducted online of a representative cross section of 4,000 U.S. adults with at least $100,000 in investable assets, with significant participation of high net worth investors with more than $2 million in investable assets. Cogent Research LLC conducted the survey between October 6 and November 1, 2006. The survey has a sampling error of +/1.55 percentage points at the 95% confidence level.