Stephen Cone is the head of global marketing for Citigroup Asset Management and Private Banking at Citigroup of New York and formerly the president of customer marketing and development at Fidelity Investments of Boston. Cone recently discussed his goals for Citigroup Asset Management as well as overall mutual fund marketing with Mutual Fund Market News reporter Andrew Brent. An edited account of their conversation follows.
MFMN: What is your background in the financial industry? How did you come to Citigroup Asset Management?
Cone: I've been in the financial services industry since 1987. Before that I ran a database marketing company with some colleagues of mine for 15 years called Epsilon. I worked for the last 15 years at American Express, Citibank in the early 90s, KeyCorp, Fidelity, and I came here about a year and a half ago from Fidelity.
MFMN: Why did you leave Fidelity?
Cone: One reason is that Fidelity is the pinnacle of this business. Citigroup, on the other hand, is a relatively new company based upon the merger between Citibank and Travelers, which occurred about two years ago. So I viewed this as an opportunity to come into a work in progress and really help develop the asset management business around the world. I viewed it as really a neat challenge. Fidelity has been, for many years, extremely successful. I had a great time there, but this looked like a big opportunity and challenge for me.
MFMN: Regarding that challenge, what have you done and what are your goals for Citigroup Asset Management?
Cone: Well, we've got a few. One is, over the past year and a half, we've rationalized our brand strategy with regard to what brands we use in the asset management business in which parts of the world. That's number one, and that was very important to do. Number two, we have an internal goal of doubling the size of our asset management business around the world over the next four to five years. And number three has been to make sure that we do as much as we can in the cross-selling arena within Citigroup with our investment products. We are very pleased with the progress we've made over the past couple of years.
MFMN: How has your experience at Fidelity helped in conducting marketing for Citigroup?
Cone: Just more years in the industry really. The interesting thing about Fidelity versus my current position is that I've seen both sides of the business. Fidelity is really, for the most part, in the direct business, with the exception that they do have a decent part of their business where they sell through third parties. But still, the majority of their business is direct to the consumer, either on the retirement side or the normal investing side, whereas we don't sell products, for the most part, direct to consumers. We sell through intermediaries, both our own as well as other people. It's really two distinctive parts of the industry. I think that direct business is always a good business to understand because you can learn a lot from both sides.
MFMN: How do the strategies differ between marketing for direct sales and to intermediaries?
Cone: One of the biggest differences is that you definitely need to spend more money promoting your products in general media if you're going to your consumers directly. There's no way around that. And you see that evidenced in what direct companies, like Fidelity, spend on promotion. Whether it's Fidelity or Schwab or Janus or other companies that have a significant portion of their sales in the direct channel. Vanguard is an example. Vanguard says they don't advertise much. Well, they spend $40 to $50 million a year. I think that's a reasonable much.'
MFMN: How much does Citigroup Asset Management spend annually?
Cone: At the moment we're spending way below $10 million a year. Worldwide, we're spending $10 million ... and that's not just general media [TV, radio, print and outdoor advertising]. General media doesn't include brochures or collateral pieces.
MFMN: Does marketing to intermediaries require more of that other type of spending, on things like brochures and data materials?
Cone: That's correct. The intermediaries will also get their clients involved in conferences, video conferences or telephone conferences to listen to our fund managers directly on the state of the economy or on their philosophy or on both, which is something we've been doing a lot of during the first five months of the year.
MFMN: How has the downturn in the market affected mutual fund marketing?
Cone: In our case, we've seen an increase in market share, which we're delighted with. I think that means two things. It means that you've seen a flight to quality, for lack of a better term. [A flight] from growth to value. But I think that's not really an accurate statement because I think growth' and value' are fuzzy terms. I think what you've seen is a shift in the consumers' minds, which people like us have been talking about all along, from short-term investing to long-term investing. We are a long-term investing shop. So is Fidelity. We're both, in our own ways, trying to get people to understand that if they need money in the short term, they shouldn't be in the market. If they're in the market, they should be in the market for the long term. And they should understand the fundamentals of investing, which aren't all that difficult to understand. And they should live by them. And that's our philosophy from start to finish. So we've seen a tremendous boost in market share, and a shift from stocks into our mutual funds and our managed accounts in record numbers over the last three months. We've been very gratified by that.
MFMN: Nonetheless, has the downturn affected advertising spending?
Cone: We've never been a big spender. In fact, we just started advertising mutual funds to the general public a year ago this coming June, so we've only been in it a year. We are roughly spending the same this year that we spent last year.
MFMN: Do you think it has affected industry marketing in general?
Cone: It depends on the company. From what I can see, some companies have increased their spending, some have cut back. It really depends on the management of the company. I would say that people whose primary business comes from direct interaction with the customer certainly haven't dramatically reduced, and I would say, in some cases, have probably increased their advertising.
MFMN: How does the marketing of mutual funds fit in with the marketing for an asset management company overall, especially in light of the recent emphasis on alternative products? Is marketing mutual funds becoming more or less important?
Cone: There's a lot of talk about the supposed decline of mutual funds. I don't really see it. I think people who talk to that issue don't understand or may just not remember about the breadth of the mutual fund industry. It basically owns the 401(k) market and that's a market that's increasing. And in fact, with government pending legislation that, I think looks like will get passed, that will do nothing but increase mutual fund business in the 401(k) channel. So that's an area where the growth seems to be ongoing.
I think with regard to non-retirement accounts, mutual funds are still the dominant way to invest as an alternative to stocks and bonds, but there are other alternatives that, depending on how affluent you are, are also attractive as an add-on, like managed accounts or hedge funds. The managed accounts area is one that we're a leader in really, and we've clearly seen that grow. It makes a lot of sense to a lot of people who want something in addition to mutual funds or who want individual stock holdings as opposed to a mutual holding. So, I view it as mutual funds are alive and well, they're dominant in the retirement channel, and they're going to be around for a long, long time.
I would also say that outside the United States, mutual funds are still pretty much in their infancy and the growth there, I think, is proceeding fairly briskly. I don't see the importance [of mutual funds] decreasing. I see it as about the same going forward. Mutual funds are a very important part of the investment culture on a global basis today, particularly in the retirement area.