THIS PIECE AIMS TO SHED LIGHT ON MUTUAL fund distribution to an American Muslim niche market, while offering some general pointers for sales and marketing professionals at Islamic financial services firms.
THE ISLAMIC MUTUAL FUND LANDSCAPE IN THE US
Mutual funds, or registered investment companies, are investment vehicles created in the United States under the Investment Company Act of 1940 to allow investors of all stripes to pool their money and take advantage of professional management, lower fees and diversification Mutual funds do not hold a portfolio of static investments for a fixed term; rather, fund managers take an active role in trading assets and diversifying the portfolio on a regular basis according to a disclosed investment strategy. Islam and mutual funds have a history in the US dating Back to the 1980s Athough exclusively stock funds in the beginning, Islamic mutual funds have so rapidly developed in the US that in 2010, the Azzad Wise Capital Fund, America’s first Islamic compliant fixed-income fund investing in Sukuk, or Islamic bonds, was launched . As a result, there are several mutual fund options for Shariah-sensitive investors in the country.
ANALYSING THE MUSLIM FINANCE MARKET IN THE US
The American Muslim investor market is notoriously difficult to quantify. Numerous studies and reports have been issued, each offering different indications of magnitude, but no authoritative numbers exist. Government census findings do not report religious affiliation, and private studies yield sometimes conflicting findings. Generally speaking, however, it can be said with a relative degree of confidence that incomes in Muslim households in the United States tend to skew higher than the national average, despite the fact that many of those homes consist of a single income (usually from the husband/father) Muslims in the US are roughly six million or 2% of the total population. Re cent studies analysing the American Muslim experience show:
- Thirty-five percent of American Muslims are converts or children of converts.
- Forty percent are age 30 or younger.
- Two-thirds of Muslim families make more than US$50,000 a year.
- A quarter of Muslim families make more than US$100,000 a year.
Additional research indicates that the American Muslim demographic has approximately US$200 billion in spending power. This information paints a picture of an untapped, undervalued and potentially powerful values-conscious consumer base. Increased demands on the time and mindshare of American Muslim consumers have incentivised them to select convenient financial solutions. This creates both challenges and opportunities for Islamic financial services firms, which can leverage the four P’s to differentiate themselves from the competition.
PRODUCT PLACEMENT STRATEGIES
A major consideration regarding product design is that any Islamic mutual fund should purport to address the specific investing goals of a community for those instances in which needs are not met, innovation has to occur. For instance, Islamic financial firms sought to address the niche need for interest-free fixed-income investing by introducing the Azzad Wise Capital Fund in 2010. This type of fund offers a lower risk/steadier return profile necessary to round out an investor’s asset allocation strategy. Regardless of a niche market, there are, of course, universal standards for product marketing. Among those is crafting a narrative that resonates with the target audience. Islamic asset management firms should create a story around their investment process that highlights the opportunities in their specialised asset class and differentiates them from the competition. Also, it is typically a good idea to enhance the narrative by discussing sector strategy and top holdings, not to mention recent decisions that have made money for clients. When devising a distribution strategy for Islamic financial products in the US, it is also important to occasionally expect a cultural aversion to pooled investments like mutual funds. ‘This is peculiar to certain immigrant communities, some of whom may be more accustomed to putting their money in banks or owning real estate. ’This is at worst a minor annoyance from a distribution perspective, as most acculturated investors, especially second generation children of immigrants, will have no such aversion.
PRICING THE ISLAMIC PRODUCT
Conventional wisdom says that people want what they cannot have ’The American Muslim investor is no exception. Sometimes high pricing can have the counterintuitive effect of increasing demand in the eyes of the target audience. As with any more affluent demographic, exclusivity can create desirability. Similarly, image is an important factor for distribution. Of course, pricing should not be a function of how much a person is willing to pay. No-load mutual fund pricing is largely arrived at using conventional measures. As an industry rule, however, it is important to set competitive pricing, but lower- than-average pricing, though nice to have from a shareholder perspective, can actually harm distribution. Some managers follow a low-costs-at-any-cost approach, but paradoxically, many funds with lower-than-average expenses do not sells. What appears to matter most is how a mutual fund compares overall to other successfully sold funds. Everything is relative in the fund pricing space.
DEVISING PROMOTION STRATEGIES
Brand equity matters there is a reason that a company’s brand value is often listed as an intangible asset on the balance sheets. It is obvious that branding through promotion can translate into sales and deeper penetration of a target market through awareness one increasingly effective means of promoting financial products is through information technology. Social media adoption among the American Muslims is generally high, and the trend towards mobile computing means that Islamic mutual fund companies need to be nimble enough to leverage platforms like YouTube, Twitter and LinkedIn—in addition to conventional advertising tools. Regulations in the US limit the more interactive aspects of social media, like commenting on and “liking” posts (Facebook), but with a sound knowledge of SEC/FINRA guidance, firms can avoid running afoul of regulators and still have a meaningful online presence to aid in brand promotions. With more data and newer ways of analysing it, today’s Chief Marketing Officers can now predict what mix of media will achieve a company’s sales and margin targets. Digital advertising can also make it easier to measure a firm’s return on investment Advertisers can pay per click, for example, with Google Ad Words By focusing efforts on new and emerging media, Islamic financial services firms can better position themselves for long-term growth. Financial media engagement is another effective promotional method. Third party news pieces confer credibility (and free publicity) that even the best public relations firms cannot deliver. Still largely an immigrant community, American Muslims appreciate known brands like The Wall Street Journal and Money magazine. Engaging the financial media and convincing them to pickup a positive story can help create a favourable impression in the consumer’s mind.
PLACES TO PITCH
Last, but certainly not the least, is finding the right distribution channels that make sense for a boutique, or niche fund. An essential first step for smaller funds with limited distribution, irrespective of fund strategy, is getting up and running on the big four platforms: Schwab,TD Ameritrade, Fidelity, and Pershing. Secondly, establishing relationships with advisor firm research teams to get and stay on their radar is key. These steps are important because registered investment advisors are sometimes better equipped to penetrate hard-to-access Muslim markets and often know their clients ‘needs best. They can buy a fund on behalf of their clients, allowing Islamic financial services firms to effectively do more with the same resources. Once a fund or fund family is available on the “big four” platforms, it is time for outreach. With the shift in emphasis away from set-piece campaigns to consumer interaction, sales and marketing departments have come to realize the need for more “boots on the ground,” or personnel. This is putting into reverse, a 20-year trend in financial services as a whole of favouring “working spend” (what consumers see) over “non- working spend” (overhead)’. This dovetails with the immediate concern Islamic mutual funds can face regarding lack of brand recognition in the American Muslim community. For many firms, putting a team of qualified educators out in the field at strategically important locations—mosques, community centres, and local businesses—can be a useful approach.
Developing the American Muslim demographic into a savvy investor class is not a wild dream. In many respects, it has already happened. The challenge for Islamic financial services firms is to educate and motivate these individuals to give Islamic-based solutions a second, or in some cases a first, look. ‘That is where the strategies outlined above come into play. Healthy growth depends a great deal on creating a solid brand that conveys a dedication to customer service and results. Commitment to the Four P’s can help American Muslim investors trust and respect Islamic financial services firms and their unique expertise.