NUL Senior Editor Warren S. Hersch recently interviewed Meredith Rice, a senior project director of Cambridge, Mass.-based Cogent Research. The interview explored the results of the research firm’s latest “Investor Brandscape” study, which measures the impact of brand and customer loyalty on revenue in the affluent marketplace. The following are excerpts.
Hersch: What were Cogent Research’s objectives in conducting the Investor Brandscape survey of investors?
Rice: One objective was to determine how affluent and high net worth investors make investment decisions. We also wanted to learn about high net worth investors’ perceptions of, and loyalty to, the companies with which they entrust their assets, among them providers of mutual funds, ETFs and variable annuities.
The online survey, which we’ve conducted annually since 2006, polled more than 4,100 U.S. investors holding a minimum of $100,000 in investable assets.
Hersch: What results from the new survey stand out for you? Were there any surprises?
Rice: Average investor net worth and average investable assets were actually up this year, coinciding with a 1,600-point improvement in the Dow. As a result, investors have renewed confidence: We’re seeing increased allocations of mutual funds, the money coming from cash, CDs and fixed annuities, which many risk-averse investors turned to following the financial crisis beginning in 2008.
Investors have also been consolidating the providers they work with, particularly in respect to distributors and mutual fund providers. Contributing to this trend is an aging population, as boomers shifting into their retirement years are looking to simplify their planning.
Hersch: How has the more risk-tolerant investment orientation impacted sales of variable annuities?
Rice: Investors’ purchases of variable annuities remains relatively strong, despite a dwindling supply of providers that remain committed to the product. Investors are still interested in protecting their assets from volatility. However, awareness and consideration of VA providers is low and declining—brand recognition of leading providers dropped sharply this past year.
We typically see a very strong correlation between ad spending and aided awareness—consumers’ recognition of a brand or product from a list of names. So the dip in brand recognition, we believe, is due to providers setting aside more dollars to meet capital reserve requirements and fewer dollars to promote their VA products. VA providers also are capping the number of products they market.
That said, it will take time to see the full impact of these changes. While purchases of VAs are down a bit this year, sales remain roughly on a par with prior years. Just over 2 in 10 investors—22 percent—report owning a VA. That’s down slightly from the 25 percent we reported a year ago.
Ownership of fixed indexed annuities also declined somewhat, which isn’t surprising given currently low interest rates. As a proportion of all investor-owned assets, fixed annuities declined to 11 percent this year from 13 percent last year.
Hersch: Tell me about the exhibit in the Investor Brandscape study referencing VA brand equity scores.
Rice: Brand equity rolls three variables—unaided consideration, aided awareness and brand impression—into an indexed score. The first variable comprises VA providers that first come to mind for prospective buyers. Generally, unaided consideration is very low among investors and was low again this year. That’s probably because most of the products are sold through advisors.