In the frenzy to compete for the business of America’s 79 million baby boomers, mutual fund companies, including those that are bank-owned, might be missing the next big business segment, the Hispanic market.
The Hispanic population is growing exponentially in numbers and affluence, observers say, and a handful of investment companies have shown it is possible to win their business by addressing them in Spanish through community-based marketing programs and offering investment vehicles that appeal to their cultural loyalty.
In 2004, Hispanics had $686 billion of disposable income. By 2009, economists expect the total to be $1 trillion, or 9% of U.S. buying power, according to the Selig Center for Economic Growth at the University of Georgia.
“This is the most important source of demographic growth in the United States,” said Rakesh Kochhar, an associate research director at 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 able to invest. “That part of the market is not the sweet spot, at least not today,” said Jeffrey M. Humphreys, the Selig Center’s director.
Yet the Hispanic community is growing in numbers, wealth, and clout, and marketing and demographic specialists say fund companies will miss a rich opportunity to build brand recognition and foster loyalties if they do not begin preparing now.
“It’s a matter of having foresight,” said Jorge Reynardus, a partner in Reynardus & Moya Advertising in New York who specializes in financial services marketing.
From 13% to 15% of U.S. residents identify themselves as Hispanic, according to Pew research. By 2030, this share is expected to be closer to 25%.
The Hispanic population, on average, is also young, which makes it a prime target for investment companies seeking a successor group to the aging baby boomers.
The number of Hispanic-owned small businesses is also soaring, which means more Hispanic entrepreneurs deciding whether to offer 401(k) programs and how to invest their profits.
Yet Hispanics remain undersold on the investment world, according to a 2004 Pew Hispanic Center study. In 2002, for example, 18.5% of Hispanic households participated in a 401(k) or thrift savings program, compared with 34.5% of non-Hispanic white and 21.9% of non-Hispanic black households. About 9.4% of Hispanic households owned stocks or mutual funds, compared with 35% of non-Hispanic white and 11.7% of non-Hispanic black households.
An April conference in Oklahoma City addressed Hispanics’ financial needs, ranging from the most basic to the most complex products. This could mean acquainting low-wage workers with direct deposit, educating employees about the benefits of 401(k) programs, or teaching people about the difference between money market accounts and mutual funds, speakers said.
“Firms [that] move quickly will gain a competitive advantage and reap rewards in improved customer acquisition and retention among ethnic consumers,” said a 2003 report by Celent Communications, a Boston research firm.
[Sovereign Bancorp Inc. in Philadelphia said last week that it would pursue Hispanics, a “faster-growing market” that currently is 14.5% of its customer base.]
In 1999, several companies began Spanish-language outreach programs. State Street Research in Boston started a Spanish version of its Web site and made prospectuses available in Spanish.
By 2003, T. Rowe Price, a Baltimore mutual fund company, had Spanish-speaking phone representatives and prospectuses in Spanish for at least 15 of its funds. And Wachovia Corp., Citigroup Inc., and Bank of America Corp. all had Spanish-language advertising campaigns by 2003.
Language is important. Celent, citing U.S. Census data, has reported that more than 60% of Hispanic-Americans prefer to communicate in Spanish; just 21% prefer English. But researchers believe it will take more than Spanish-speaking operators and a special Web site to really crack the market.
Companies that want the Hispanic market to tune in to their products should try radio spots, which have proven the most effective means of reaching the largest swath of this community, said Omar Velarde-Wong, a spokesman for the Pew Institute.
“In the general market, people tend to be jaded,” said Mr. Reynardus, the ad executive. 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 advertising, appearances on programs let company representatives explain products or field questions and help build familiarity in the market.
Building trust is a key component of winning this business, said Matthew Josefwicz, the author of Celent’s report. And it requires turning to people with reputations and faces familiar in the community.
Because there are few Hispanic financial advisers, asset management companies could form alliances with insurance agents, Mr. 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 partnerships with payroll providers who can work with business owners to develop 401(k) plans and serve as front-line educators for the employees.
“Every small business has a gatekeeper,” Mr. Reynardus said, and increasingly, these business owners are Hispanic, too.
Though they share a language, Latino communities are distinguished by myriad cultural traits, and companies must be careful not to treat the Hispanic community as monolithic.
An effective way to penetrate an ethnic community is through product design, according to Stephen T. Washington, a managing director and partner in SBK-Brooks Investment Corp. in Cleveland.
Mr. Washington, who is also a co-founder of the Black Wealth Network, said funds that are managed by African-Americans or that invest in African-American companies have been effective affinity-generators in the African-American market. Perhaps for the Latino market, funds that invest in Hispanic-owned businesses or companies in Latin America may be useful, he said.
Another idea 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, Mr. Washington said, “and using financial product innovation is the way to do it. You have to go beyond what is essentially PR.”
