Today, Mr Credit Card will be exploring the similarities and differences in the marketing of financial products like mutual funds and etfs versus credit cards.
Since it is my business to read everything about credit cards, I am pretty familiar with how credit cards market their cards. But because I also read a lot about mutual funds and ETFs, I find it fascinating how marketing strategies in the mutual fund industry differs from the credit card industry. Today, I would just like to highlight some of their similarities and differences.
Mutual Funds Market Their Performance – Credit Cards do not! – One of the unique features of the mutual fund industry is that funds are marketed solely based on performance and long term track record. Due to investor behavior, mutual funds tend to seek gather lots of fund inflows from retail investors after a year or years of outperformance. Track records are also used frequently by mutual fund companies. The better the long term average, the better obviously.
Unlike mutual fund companies, credit card companies do not even engage in such practices. One example where this might actually work is the the subprime or “new to credit” categories. I’m sure marketers of secured credit cards could make a statement to the effect that “x percent of our applicants managed to improve their credit scores by xyz and managed to get an unsecured credit card within x number of months? But I do not see that. Or how about cash back credit cards? Surely, credit card companies could say something like ” on average, our cardholders managed to earn x % cash back every year from using our credit card”? Wonder why they do not do that at all? Perhaps it’s regulations, but surely this would be a great selling point.
Credit Card Issuers give teaser deals, Mutual Funds do not – Have you noticed that credit card issuers give teaser deals all the time? It could be in the form of a 0% balance transfer offer, bonus miles or annual fee being waived for a year. But you never see such things in mutual funds. You never see a mutual fund offering to reduce your front end load when you invest. Neither do they waive fund expenses for one year. They are probably not allowed to due to SEC regulations. But maybe there isn’t any marketing restrictions. They just do not do it that way.
Credit Cards make claims that mutual funds cannot – Lots of credit card issuers, especially those marketing credit cards for people with bad credit, make promises like “instant approval”, “no credit checks”, “no employment checks” and in certain cases, “guaranteed approval”. Mutual funds by law, cannot make any performance guarantees. Hence, you do not see any guarantee like marketing language from mutual fund companies.
Both mutual funds and credit card issuers do not highlight their fees – If there is one thing both mutual funds and credit cards have in common, that is they do not advertise their fees. For mutual funds, you need to look through their prospectus or their marketing sheets to find their fees. For credit cards, you have to look through their terms and conditions. The fee “lingo” isn’t exactly intuitive either. Most folks do not understand exactly what an APR is. How many folks know what is a 12-b1 fee? Know the difference between an A share, B share or C shares? What is daily percentage rate?
Unfortunately, for most products, fees are one of the murkiest areas. It pays to be educated in what you are buying and make sure you choose a product that does not hit you with hidden fees. Many credit cards for bad credit folks like First Premier Bank have lots of hidden fees like one-time application fee, monthly maintenance fees on top of annual fees. Most consumers are never aware of these fees, just like they are never aware of 12-b1 fees.
Final Observations – It is interesting to note that both mutual funds and credit cards are financial products. But they are marketing differently. But one thing they have in common is that it is tough to look through their terms and conditions. And most people don’t really know what fees they are paying!