By Tom Bradley
ING has a TV ad running right now on their Streetwise mutual funds. I don’t have any issue with ING or the funds (quite the opposite), but I do think the messaging is misleading.
Before I go there, I should provide a little background. Since Neil and I conceived of Steadyhand, we’ve watched ING with interest. The company has been an innovation machine and has shaken up the savings market in Canada. We love how they KEEP IT SIMPLE.
From the beginning, ING got the savings products right, but they have struggled a little in the investment area. Their first attempt was a family of high-fee mutual funds, which didn’t gain much traction. The Streetwise funds, however, have taken them back to their simple, low-fee roots. They offer three balanced funds that cover most investors’ needs. The funds are index-based and have a fixed fee of 1%.
We’ve had some discussion internally as to whether the Streetwise funds are a good product. It revolves around the fact that an investor can easily replicate the funds for about half the cost using established ETFs (exchange-traded funds). Despite that, I’m on the ‘good product’ side of the debate, particularly as it relates to small investors. Yes, the fee is higher than most passive funds, but there are no minimums and no other trading commissions. It’s far superior to what small investors get offered by most other institutions.
Which leads me to the TV ad. It’s the one with the not-particularly-likeable woman walking through the streets of Vancouver telling us about the Streetwise funds.
After referencing active management with words like ‘hunch’ and ‘educated guess’ she says,
“Why take the risk? That’s not you. With the ING Streetwise funds you don’t guess. You invest in the whole market, which reduces risk because you’re diversified.”
There are lots of issues around active versus index investing, but there’s no issue that actively-managed funds are diversified. The reality is, ‘educated guessers’ portfolios are generally less volatile than indexed ones and have no more risk of long-term capital loss (which is minimal in both cases). To leave the impression that the Streetwise funds are safer than other portfolios is a dangerous and misleading message.
She also talks about fees,
“Say you invest $10,000. You can save $170 per year.”
Her math here would imply that investors are paying 2.7% elsewhere for balanced fund management. While I have sympathy with this theme (balanced funds are the most overpriced fund category), the numbers don’t add up. There are few balanced funds that charge that much.
Every time I see this ad, I think that I’d be challenged to get this script past Elaine, our Queen of compliance. It is certainly pushing the facts towards the line. But I digress. My point: A clean, crisp product with a reasonable fee – great! Misrepresenting how it will perform and what the client will save – too much like the industry that ING and Steadyhand are trying to change.