Porter morgan's failing as a parent became his greatest professional success-and forever changed the way other parents viewed their kids and finance.
As Morgan's eldest son made his way into adulthood, he kept returning to his father with financial questions about buying a house, planning for retirement and borrowing money for other needs. "It dawned on me that here was a kid who grew up in the house of a so-called expert and he had not learned about money," says Morgan, senior vice president of marketing for Liberty Financial Companies, a Boston-based diversified asset management company. "He wasn't alone and neither were other parents."
Prompted by his instinct that other parents needed help teaching their kids about money, Morgan commissioned a national study by Lou Harris Associates to find out what American teens knew about money and the economy. Learning that U.S. teens had little knowledge, but plenty of interest in the subject, Liberty created a brochure to address the topic.
Promoted by little more than a press release, 150,000 copies quickly vanished. Amazed at the response, Morgan decided there was an opportunity to build a business around this hunger for information.
This experience led to the 1994 creation of the Young Investor Fund through Liberty's subsidiary, Chicago-based Stein Roe Mutual Funds. In an industry where funds often require years of strong performance or a superstar fund manager, the Young Investor Fund was an instant hit, despite the absence of a big-dollar ad campaign.
Without traditional market research, Morgan championed a plan to create a special growth-oriented mutual fund designed to help parents and their kids save for college while giving them regular doses of educational materials explaining what the stock market is and how companies operate. "While retirement is clearly the number one motivation people have for investing, funding education is number two," says Morgan. "This was pure gut instinct."
His instinct was dead-on. The fund invests largely in kid-friendly stocks like Coke, Disney and others who target the underage crowd. The sheer novelty of the fund drew scores of national headlines as financial writers seized the uniqueness of such a tool to help parents teach their kids to not repeat their mistakes. "This became the darling of the media," recalls Morgan. "The press found that it was hard to be against teaching kids about money." The more they wrote, the more the money poured in. "People realized that this fund had the potential to bridge the (knowledge) gap," says Tom Butch, president of Chicago-based Stein Roe Mutual Funds. "If that part was science, then the art is that virtually every parent is looking for a way to invest for their kids."
Today, the fund has 122,511 investors-with an average age of nine. With $708 million in assets under management, the Young Investor Fund has the highest ratings possible for a four-year-old fund and the kind of performance-45 percent annually since inception versus 28 percent for the S&P 500-that attracts investors likes bees to honey. "We have a product that isn't dependent on always being a top performer," says Morgan. But, adds Butch, "I don't think any fund is entirely immune from having to perform. While this fund has a truly unique value proposition, we still have to deliver."
So far, Stein Roe Young Investor Fund has retained 94 percent of its shareholders. That number is considerably better than market turnover that can average 25 percent or more. "People have clearly bought this fund for more than just its performance," says a marketing executive at a rival mutual fund company. "(It's) rare in our business where new products are built around sectors in the market and the only cult is built around personality."
getting them to do more
Others have copied the focus of the fund. USAA launched its own First Start Fund. American Express and AIG have also offered product packages targeting college savings needs. To date, none have achieved the success of the Stein Roe Young Investor Fund, sources say.
Now the challenge is to broaden the market for Young Investor, while finding ways to convince thousands of new clients to move more money into funds managed by Stein Roe. Butch is tight-lipped about his plans, but, in recent months, the company has begun intensive data mining efforts to offer other Stein Roe products to customers.
With $28 billion in assets under management-much of that for high-net- worth individuals-the goal is to turn new Young Investor shareholders into life-long customers. "This fund has been a very good in-the-door product for us, and it has brought us considerable new households," Butch says. "Now it's up to us to convince customers to do more with us."