In the frenzy to compete for the attention of America's 79 million Baby Boomers, mutual fund companies might be missing the next big business bang: the Hispanic market.
In 2004, Hispanics wielded $686 billion in disposable income. By 2009, economists expect that figure to hit $1 trillion, or 9% of total U.S. buying power, according to the Selig Center for Economic Growth at the University of Georgia.
If mutual fund companies want to capture their share of this fast-growing, increasingly affluent market, it's going to take more than bilingual billboards.
"This is the most important source of demographic growth in the United States," said Rakesh Kochhar, associate director of research for the Pew Hispanic Center in Washington. "You can't ignore it."
But to date, many companies have done just that. The most often cited reason is that on average, Hispanic households earn less than the median American household, and therefore may be less inclined to invest. "That part of the market is not the sweet spot, at least not today," said Jeffrey M. Humphreys, director of the Selig Center.
Yet, the Hispanic community is growing in numbers, wealth and clout, and experts say that if companies don't begin preparing now, they will miss a rich opportunity to build brand recognition and foster loyalties.
"It's a matter of having [marketing] foresight," said Jorge Reynardus, a partner with Reynardus & Moya Advertising in New York, who specializes in financial services marketing. "Rather than invest a few million dollars today, they will have to invest 10 times as much [later]."
The Next Big Thing
Presently, between 13% and 15% of U.S. residents identify themselves as Hispanic, according to Pew Research. By 2030, that figure will be closer to 25%.
The Hispanic population, on average, is also young, which makes it a prime target for companies concerned about what will happen when Baby Boomers stop investing, and start drawing down their assets.
Most importantly, the market is also an increasingly affluent one. In 2004, 40% of Hispanic households reported incomes of more than $40,000 per year, and between 1990 and 2004, the number of households earning more than $100,000 annually grew by 125% to 3.7 million, according to the Hispanic Association on Corporate Responsibility in Washington. Meanwhile, poverty rates within the community are dropping, and buying power has grown 362% over the past 20 years, compared to 162% for non-Hispanic households.
The number of Hispanic-owned small businesses is also soaring, which means more and more Hispanics are making decisions about whether to offer 401(k) programs and how to invest their profits.
"Like any small business, these people are looking for places to park their money," Reynardus said.
What's more, Hispanic communities have moved out of the concentrated pockets, such as New York, Miami, Los Angeles and Texas, into places like Georgia, North Carolina, Kansas and Missouri. "The market has reached a critical mass," Humphreys said.
Yet, Hispanics remain underrepresented in the investment world, according to a 2004 Pew Hispanic Center Study. In 2002, for example, 18.5% of Hispanic households participated in 401(k) or thrift savings programs, compared to 34.5% of non-Hispanic white and 21.9% of non-Hispanic black households. Meanwhile, 9.4% of Hispanic households hold stocks or mutual funds, compared to 35% of non-Hispanic white and 11.7% of non-Hispanic black households.
At a presentation in Oklahoma City late last month, Eric Robbins of the Federal Reserve Bank of Kansas City, Oklahoma City Branch, addressed a conference about the need for financial institutions to reach out to the Hispanic community.
Financial needs of this growing community range from the most basic to the most complex products. This means tasks from acquainting low-wage workers with direct deposit, to educating employees about the benefits of 401(k) programs, to teaching people about the difference between money market accounts and mutual funds, Robbins and other speakers said.
"Firms [that] move quickly will gain a competitive advantage and reap rewards in improved customer acquisition and retention among ethnic consumers," notes a 2003 report entitled "Ethnic Minorities, Financial Services, and the Web" by Celent Communication of Boston.
Besides, capturing a new market is always easier than luring market share from a competitor, Humphreys said.
Conozca a La Comunidad
In 1999, several companies began what appeared to be a ramp-up in Spanish language outreach. Boston-based State Street Research launched a Spanish version of its website and made prospectuses available in Spanish. By 2003, Baltimore-based T. Rowe Price, likewise, had Spanish-speaking phone representatives and had translated prospectuses for at least 15 of their funds. Wachovia, Citigroup and Bank of America also all had Spanish-language advertising campaigns by 2003.
Language is important. Celent, citing U.S. Census data, noted that more than 60% of Hispanic-Americans prefer to communicate in Spanish, compared to 21% who prefer English.
But it is going to take more than Spanish-speaking operators and a special website to really crack the market, experts agree.
Companies that really want the Hispanic market to tune in to their products should turn to radio spots, which are proven to be the most effective means of reaching the largest swath of the community, said Omar Velarde-Wong, spokesman for the Pew Center.
"In the general market, people tend to be jaded," Reynardus agreed. "If you see it on NBC or ABC, you know they're trying to sell you something." Latino communities look at their media differently, he said. "Hispanic media plays an advocacy role." And Spanish-format radio stations are more effective than television or print, he added.
Besides ads, appearing on programs in which representatives explain products or field questions will help increase familiarity within the market, and possibly win trust, Reynardus said.
Building trust is a key component to winning business, said Matthew Josefwicz, author of the Celent report. And that means turning to people with reputations and faces familiar to the community.
Because there are few Hispanic financial advisers, asset management firms could partner with insurance agents, Josefwicz said. "Certainly in terms of moving basic mutual funds, insurance companies with on-the-ground networks will have the advantage," he said.
For retirement products, companies should focus on partnering with payroll providers, who can work with business owners to develop 401(k) plans, and serve as front-line educators for their employees.
"Every small business has a gatekeeper," Reynardus said, and increasingly, these business owners are Hispanic, too. Establishing a relationship with that gatekeeper offers entree to his or her staff.
Although they share a common language, there are a myriad of cultural distinctions and contexts between Tijuana, Mexico, and Tierra del Fuego, Argentina, and companies must be careful not to treat the Hispanic community as a monolith.
"In reality, there are a number of sub-markets," Humphreys said. Hispanic immigrants who have been in the country a few decades may be more comfortable, or well positioned to invest, while second-generation Hispanics typically are better educated and earn more than their parents' peers. Furthermore, those from politically unstable Peru, Communist Cuba, or economically troubled Ecuador, may be more skeptical of investment programs than those from Puerto Rico or even Mexico.
"There is always that need to differentiate your message from the noise," Humphreys said.
An effective way to do that is through the products themselves, according to Stephen T. Washington, managing director and partner with SBK-Brooks Investment Corp. in Cleveland. "The best way to go after those segments is to build an affinity within the community," said Washington, who is also the co-founder of the Black Wealth Network.
In the African-American market, for example, such affinity-generating products have been funds that are managed by African-Americans, or funds that invest in African-American companies. Perhaps in the Hispanic and Latino markets, there may be funds that invest in Hispanic-owned businesses, or even companies in Latin America, he said.
Washington also described a fund that invests in 13 industries where African-Americas overwhelmingly represent the largest proportion of the customer base. Selig Center statistics show that Hispanics spend more than other ethnic or racial sub-sets on transportation (20.5% of disposable income), food for the home (10.7%) and apparel (6.3%).
"First, the population is growing, so there may be growth in those industries, and second, a good way to recoup consumption is to invest in the areas you are consuming," Washington said. "Recycle those dollars."
Other ideas might be exchange-traded funds that deal in South American debt, or Latin American publicly traded companies.
Asset management firms have a tremendous opportunity to segment ethnic markets even further, Washington said, "and using financial product innovation is the way to do it. You have to go beyond what is essentially PR."
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