Today, mutual fund firms are not only facing heightened regulatory scrutiny, they are navigating a highly digital media world moving at breakneck speed. Combustion between the two can be devastating to a brand.
Reputational risk can cause irreversible harm to these firms, resulting in considerable losses to both the firms themselves and their investors.
The Securities and Exchange Commission recently singled out reputational risk as one of its examination focus areas in its 2013 priority list. It is not a new focus, but one that has become increasingly vital to mutual fund firms trying to stay abreast of new rules and regulations and remain above the enforcement fray. And while this risk often feels unmanageable, there are steps firms can take-from skilled crisis management to coordinated messaging-to avoid the disaster and contain the damage when it does happen.
The mutual fund late trading scandal, which made headlines in 2003, inflicted serious fiduciary reputational damage on the industry. Today, mutual fund firms in the post-2008 Dodd-Frank world face new regulatory and law enforcement pressures, which dramatically increase their reputational risk.
Mutual fund firms are increasingly becoming targets of insider trading investigations. Some were clients of MF Global. SEC examinations on everything from valuation methods to alternative use by mutual funds can result in brand damage. Subadvisers also pose a separate reputational risk for mutual fund firms. And in the wake of the Reserve Primary Fund's "breaking the buck" in 2008, money market funds-among the most conservative investments-have taken on their own reputational risk. They can be viewed as a liability by asset managers who might be in the position of having to replenish any funds facing a run on redemptions. Negative Morningstar fund ratings also can wreak havoc on mutual funds and their reputations.
Reputational risk can come from something less defined too, such as competition from exchange-traded funds or the perception among some investors that mutual fund companies are becoming "product factories."
Brand repair centers on ensuring accurate information is reported and that incorrect information is corrected as quickly as possible. But it is part of a much larger, integrated strategy that works on multiple fronts. Brand specialists can quickly script crisis management plans that are not only fluid, but work within the legal and compliance parameters of the firm. Plans can include talking points, press outreach, and investor outreach-all tracked in real time-with the objective of syncing messaging and positioning with a positive reputation management campaign.
While there is any number of triggers for reputational risk, actual brand damage often progresses through social media channels. That's why it's important to use those channels to build brand strength before a crisis hits. There are many proactive steps firms can take. Firms can start by evaluating which audiences they reach and how they reach them. It's better, for example, to target smaller, engaged audiences than larger ones who rarely take action. It is also imperative to learn the science of keywords, SEO and Google analytics. The future, however, lies not just with technology and the generation of clicks, impressions and searches, but with the ability to compellingly tell a digital story. Press reports should not be viewed as final products, but as launching points.
Of course, firms need strict internal controls with their risk managers and compliance officers, but having reputation specialists on board, internal or external, can sometimes mean the difference between brand death and survival. Those specialists can help determine what the risks are, isolate the ones a firm is prepared to assume and manage, then locate the blind spots and help train employees how to react.
To attain brand resilience, it's necessary to have employees who can serve as sentinels to detect risk. Specialists will know the firm's key differentiators and how to position a brand rather than recreate it. They also understand the nuances of the compliance program and where a firm might have a broader interpretation of those controls than its competitors-and what that broader interpretation might mean during a crisis.
But in order to accomplish all that, they need to be at the table from the beginning. They need to be intimately familiar with the enforcement landscape, the firm's business objectives and the industry in which the firm operates.
They need to know what the brand is, what it has been in the past, what it aims to be and what it should aim to be. Expanding a client base often depends on a firm's ability to build consumer trust. Firms should work to build that trust, but also work to understand why an investor seeks out a particular fund.
That is the longterm foundation brand specialists can help create. It's much more difficult to explain negative behavior, perceived or not, if a firm doesn't already have a history of demonstrating positive behavior. The idea is to have a plan in place and be transparent about it. Those who aren't are the ones who appear they're trying to hide something-even if they're not.
Jennifer Connelly is the CEO of Jennifer Connelly Public Relations.
