About two-thirds of Americans know which mutual funds, bonds, ETFs or other financial products they own. That's down from five years ago, when 76% knew the specifics of their investment products, according to a new study by research firm Hearts & Wallets.
The research also found that 20% of investors with between $100,000 and $500,000 in investible assets was unable to identify what investments they own.
“In a grave strategic error, investment product managers have allowed their offerings to become commoditized,” said Laura Varas, co-founder and partner of Hearts & Wallets.
“Industries often have a collaborative power struggle between manufacturers and distributors rather than going direct,” she added, drawing an analogy between a toothbrush manufacturer that relies on distributors to sell toothbrushes.
“The manufacturer makes significant investments to understand brushing trends and develop new products and pricing,” she said. “The toothbrush manufacturer would never let the store gain the upper hand by becoming more knowledgeable than it is about how consumers want to brush their teeth, yet that is precisely what has happened in retail investing that past 10 years.”
It certainly doesn't make it any easier that there are
more than 6,000 individual mutual funds, which swells to more than 20,000 when multiple share classes are included.
With few exceptions, fund companies are losing ground on product awareness, according to the report, which was released Monday.
Fidelity Investments and The Vanguard Group Inc. stand out as firms that are still recognized by consumers, with respective shareholder awareness scores of 66% and 64%. That's up from 55% for Fidelity and 63% for Vanguard in 2011. BlackRock Inc. has also gained some ground with a shareholder awareness score of 47%, up from 41% in 2011.
American Funds and T. Rowe Price Group Inc. have each been holding steady with scores in the 50% range over the past few years.
Putnam Investments, meanwhile, has seen its shareholder awareness score drop to 35% from 40% in 2011. Wells Fargo Advantage Funds dropped to 38% from 43%.
“Fund companies are not doing a good enough job in understanding the end consumer,” Ms. Varas said. “The fact that consumers don't know what they own is one example that product manufacturers have lost touch with their consumers.”
Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ, agreed that the disconnect down to the investor level is not a good thing, but attributed some of it to the commoditization of products and some to the
increased influence of financial intermediaries.
“If people are increasingly working with financial advisers that they are giving discretion to, then they are trusting that they are making those decisions for them,” he said. “I'm betting that if you went out and did it all yourself, you would remember what you own.”
One big problem with not knowing what's in your portfolio, he added, is that it becomes more difficult to make informed decisions based on specific changes at specific fund companies.
“Bill Gross' departure from Pimco last year is a good example,” Mr. Rosenbluth said. “If you don't know that you own the Pimco Total Return Fund, you might not know if you should care that Bill Gross stopped managing that fund.”
The Hearts & Wallets report is based on 40-minute interviews conducted with 5,500 investors during the first three months of the year.
