Designer savings
BMW has combined its glamour image with sound financial advice from American giant Frank Russell. The partnership could herald the first in a series of consumer brand-name investments, writes Roxane McMeeken.
Image-conscious high-flyers want designer names on their suits, cars, watches and cigarettes. But could the next must-have item be a Gucci pension fund or Cartier insurance?
In Germany, the trend is kicking off with self-styled “ultimate driving machine” brand BMW, which has turned its hand to selling investment funds in Germany. The funds are run by American investment giant Frank Russell Company, which is almost unknown in Germany. The distribution is handled by BMW, which by contrast, is a name dripping with glamour and reputation.
Could this unlikely pairing prove to be the marketing model of the future?
BMW’s director of investment funds, Holger Bachmann, thinks so. He explains how the Russell deal works: “We are selling Frank Russell’s funds exclusively in Germany and soon we will do the same in Austria. We offer a choice of five products with different risk levels.”
At the low-risk end of the scale, fund number one is 100 per cent bonds. At the other end, fund number five is 100 per cent equities. The funds in-between comprise a mixture of both. Investors can access the funds in two ways. They can put a minimum investment of E5,000 on the table in one hit, or they can open a E100 per month savings plan.
The marketing spiel is simple – the best-of-the-best in car manufacturing brings you the best-of-the-best in investment funds. Frederick Jolly, Russell’s managing director for Europe, Middle East and Africa says: “BMW’s image is about performance, reliability and control of risk and that’s just the same as ours. It’s the perfect fit in terms of image.”
Equally, BMW’s Mr Bachmann says: “Our clients would not believe that BMW had the best expertise to select funds. But Frank Russell does have it.”
BMW’s swerve into asset management is not as far off the autobahn as it sounds. It already offers its customer services such as car financing, car insurance and credit cards.
The firm aims to sign up existing clients using these services and all other BMW drivers for the Russell funds. In addition Mr Bachmann said BMW will target people who are “either self-employed entrepreneurs or professional types – lawyers and doctors. Their typical age is 35–40”.
Mr Bachmann explains that this sets BMW apart from Volkswagen. The fellow German car manufacturer is less focused on affluent people and correspondingly, Volkswagen Bank is targeted at all types of German investor.
The fact that BMW is already a huge brand means it need barely change gear when it comes to marketing. July, the month of the launch, saw advertisements in Germany’s national newspapers and top magazines such as Der Spiegel and Focus. The front load fee was also scrapped for the period. But from then on a mailing campaign and advertising online to existing customers has sufficed alongside a 40 per cent discount on the front load.
And it is having the desired effect. In less than six months the Russell funds have already netted e43m. This means it is on track to meet its target of e120m and 10,000 accounts within a year of launch.
The most popular product is the number three fund, which is split 50/50 equities and fixed income. Mr Bachmann says this shows that “investors are on the fence when it comes to equities and bonds”.
Besides risk and return factors, German investors also make choices based on tax considerations, Mr Bachmann says. Equities can pay off in the long term because after they have been held for a year they are tax-free. With bonds the amount held is more important than the length of time they are held for, because dividends over a certain amount will be taxed.
BMW is on the lookout for further investment products that will appeal to its exclusive client base, and the firm is considering entering the pensions and life insurance business. In addition, it plans to offer existing financial services further afield.
The multi-manager concept
BMW is not selling ordinary funds that invest directly in stocks and bonds. The difference is that each fund invests in a cluster of underlying funds. Frank Russell Company designs the clusters and hires the best asset managers it can find to run each of the funds they comprise.
The mix of mandates is fine-tuned by Russell to ensure maximum diversification between the underlying funds and managers. In this way risk is minimised and, at least in theory, customers get the cream of fund managers handling their money.
The 30 fund houses on Russell’s books include such big names as JP Morgan Fleming Asset Management and Fidelity Investments. Together they span multiple asset classes, geographical regions, sectors and styles.
Russell’s “multi-manager” set-up should not be confused with funds of funds. This is where a vehicle invests in underlying pooled funds, as opposed to segregated portfolios tailored to a specific mandate.
BMW’s customers stand to benefit from Russell keeping its expert eye on the underlying fund managers. The idea is that because monitoring the managers is Russell’s full time job, poor performers can be spotted and sacked before any damage is done.
About... Frank Russell
Frank Russell is pioneering the new way to sell financial products to individual investors in Europe. But the firm first made its name as an investment consultant in the US in the 1960s. With a massive $66bn under management, it is safe to say the firm is now an established player in fund management – a game it first entered in 1980.
Having made it in the institutional market, the firm is making a bid for individual investors using a “low maintenance” strategy. Rather than going head-to-head with the likes of Fidelity and Prudential, Russell has gone into partnerships with household-name firms who can do the marketing and distribution on its behalf.
Besides the BMW tie-up, Russell has clinched a distribution deal with the mutual fund arm of Norway’s Den Norske Bank, DnB Investor. In France an alliance with Société Générale and in Italy an agreement with mutual fund provider Acra Sgr in Milan serve the same ends. Most recently the firm has clinched a deal with the Spanish bank Ahorro Corporación.
Russell has similar alliance up its sleeve in the UK, which is soon to be announced, according to Frederick Jolly, the firm’s managing director for Europe, Middle East and Africa.
Alison Ramsdale, Russell’s managing director, partnerships & distribution alliances admits that besides BMW, the alliances revealed so far are pretty conventional. But she hints that less predictable partnerships could be on the cards with such entities as football clubs, some of which already offer savings schemes. She says: “One might consider an alliance with charity groups, where if you were to invest in a fund a donation would be made to say the (UK’s) National Trust.”
The beauty of these partnerships, according to Ms Ramsdale, is that both sides benefit. The investment house gets its products to a wider audience and the distributor cements its relationship with the client through more frequent contact: “A car manufacturer might only see his client once every three years if it only sells him cars.”
But, she stresses, Russell will not be rushing into anything. Thrashing out the BMW deal alone took two years.
