By D. Bruce Johnston, President, DBJ Associates 

At least that was my take-away from a recent poll conducted by Ignites during their Exchange: Social Media’s Role for Mutual Funds.  Ignites is the pre-eminent source for news about the mutual fund industry, and their sponsored session offered two different perspectives on the use of social media at mutual fund firms.

According to the Ignites poll – What do you think is the greatest benefit of social media marketing efforts? – conducted during the event, social media’s greatest contribution maybe a “spike in direct communication with potential fund customers”.  Roughly 32% of respondents saw this as the greatest contribution of Web 2.0 tools.

Enhanced “direct communication with potential fund customers” (32%), was followed by:  “reaching a younger audience” (25%), “ building brand loyalty” (23%), “building product awareness” (17%), “generating sales” (3%) and “I don’t see much benefit” (2%) where the other findings of the poll.

The data suggests that slightly less than 60% of respondents view social media as a means to access a new and younger audience of potential investors.  The balance of the votes goes to brand loyalty, product awareness and generating sales.  What about existing clients or client loyalty?

Doesn’t it make sense that firms should be communicating “with the one that brought them to the dance?”  Firms need to view customer acquisition and customer retention as part of the same equation with customer retention holding a heavier weighing.

Remember, the $10 Trillion existing shareholders have with mutual fund companies generates roughly $100 billion a year in revenue to your firm or $2,000 per household.  To ignore this group is to ignore the disproportionately weighed part of the equation:  profitability is built on customer retention! 

If profitability is built on customer retention, why then do mutual fund companies resist investing in the shareholders who have invested in their products and services?

As counter-intuitive as this may sound, there probably isn’t a group riper for a well thought out and executed social media campaign then existing shareholders.   Social media would provide mutual fund companies the unique opportunity to both listen and communicate with existing clients directly.  

Would this audience respond to social media? Recent data from Engage: Boomers shows that roughly 95.3% of baby boomers travel with computers, while 91% to 92% have access to the internet all the time.  They dislike generalization and personalization, customization and service are important to them.

Twenty-five percent of this group has Facebook accounts.  Is that important?  Total minutes spent on Facebook increased nearly 700% from April, 2008 to April, 2009… that translates into $10 BILLION in sales just LAST WEEK. 

What strategies would you enlist to keep existing shareholders loyal? Start with…

Exceptional Customer Service.  I’m sorry, but a majority of mutual fund companies cover the Morningstar style boxes.  You may not think so, but to the customer your Large Cap Growth fund is no different in their eyes then the other 3,500 it competes against.  It is well known that in other industry when firms compete against companies that offer similar products and services “exceptional customer service” is a key differentiator.

It’s not complicated.  Shareholders have problems; they want them solved. Shareholders have questions; they want them answered. Companies that provide shareholders access to an internal customer service representative with the authority to resolve shareholder issues win.  When shareholders have questions about their investments and future financial well-being they don’t have time nor want an interactive voice response system.

Reduce call volume and improve your bottom line by designing a website that answers most customers FAQs.  Performance is important but most customers are looking for statement information, the firm’s current thinking on the economy, portfolio moves and adherence to investment style.

Customer retention is a profit center – start viewing it as such.  In the commoditized world of mutual funds get the Exceptional Customer Service part right and you will experience marked improvement in your customer retention scores and profitability. 

Once you have the Exceptional Customer Service part right then social media campaign discussions can begin.  This discussion needs to take into account the shift occurring in customer consumption habits.  Not only do customers have the power to access, consume, customize and forward information, they can do it however, wherever and whenever they want.  By actively listening, watching, gathering and learning from your customers you will know this and will be able to convert this information into customer advocacy, brand building and inspire loyalty. 

Let’s hope the slightly less than 60% of the mutual fund executives polled are wrong and will rethink their position with regard to existing customers and social media’s benefit’s to their organizations.