The mutual fund industry may be waiting in vain for inflows to return once the stock market shows steady signs of life, Dave Swanson, founder and managing principal of SwanDog Strategic Marketing, warns in a new whitepaper, “How to Save the Mutual Fund Before It’s Too Late.”

As he rationalizes it, “In terms of rebuilding lost trust, here we come again, asking fund investors and sellers for another chance for the second time in the last seven years.”

At age 85, the mutual fund value proposition needs revisiting. Otherwise, it will continue to lose market share to exchange-traded funds and other index and passively managed products, along with quantitative models and guaranteed investments “where investors and advisers have more control over the outcome.”

The most important thing that fund companies can do, Swanson says, is give back portfolio managers their stock picking powers, so that they are not constrained by strict and narrow investment mandates that tie them to style and capitalization constraints.

Second, he calls upon fund companies to revisit risk management and make this an important part of every customer communication.

Fund companies need to make a case for active management by demonstrating greater accountability through performance fees that tie management fees directly to results, he adds.

In addition, the tax structure is no longer competitive compared to managed money and ETFs. “Years like 2008, when many investors faced a taxable event despite deep losses, only further undermine investor trust and confidence in funds,” he said. “Now is the time to push for change, while we have capital losses on the books.”

In conclusion, Swanson calls upon fund companies to respond in real time to market and economic conditions and to overhaul their shareholder communications completely. “Demand that your marketers and product team put forth a plan for how they are going to adapt their efforts to today’s environment and how they will start telling your story more effectively,” he says.