Trump-style business

PUBLICLY TRASHING YOUR COMPETITORS: NOT A GOOD LONG-TERM STRATEGY

There’s no merit in simply bashing your competitors – it probably means your house isn’t in order.

Some newer financial product providers seem to use competitor-bashing as their primary marketing strategy. While their intent might be noble (I’m not convinced) the result might be more harmful to them than their competitors.

Consider the tactics of a fund manager when it tries to claim the high ground over more established competitors, by criticising them for their investment selections on moral or ethical grounds. This is always interesting to me: if you have a company promoting index investing, how can you claim any moral superiority when your own products invest in any businesses index (some companies in the index are massive polluters, sellers of alcohol and tobacco and possibly micro-lenders and gambling businesses)? Abdicating your responsibility by saying you don’t create the index stinks of hypocrisy.

Similarly, if you constantly criticise competitors because you believe they overcharge, what happens when you’re no longer the cheapest provider? The criticism’s even more invalid if you actively promote one part of your business (eg. the index-tracking part) and remain quiet about another part with much higher fees. What about companies that brag about their low annual management fees but remain silent about their total investment charges (TIC)? Perhaps their transaction costs are higher than anyone else’s?

When I see CEOs bashing their industry peers on the basis of fees, I always wonder what cars they drive, where they live and how much they earn. Can one really criticise others about fees when you earn R3 million or R7 million in a country where millions of people can’t get a job?

Change things the right way

As someone who’s harped on about fees on Moneyweb since 2009, I’m always happy when more people enter the debate. Collective pressure (and new regulations) has reduced product fees over the last few years. However, pressure needs to be exerted constructively and objectively.

Before dealing with competitor-bashers I ask myself:

• Is their business case so bad they can only grow by criticising others? • Are they trying to deflect attention away from their own weak points by exposing flaws in others – Donald Trump’s tactic. • If they’re so comfortable with hypocrisy, what other moral flaws do they have? • How do they react to valid criticism about their own businesses? Do they change or trash the critics (Donald Trump tactic)? • Are their own products always the best solution to every client’s problem? I used to publicly support some of the newer product providers when they started, as their fees were great and their products good. When they started to trash the competition, they lost my support because they didn’t stack up when I considered these questions.

If we really want to reduce fees, we all need to fight for increased transparency. It should be easy for investors to see all the fees they’re charged and compare them like-for-like with other product fees.

Warren Ingram is a Galileo Capital executive director