Most soft drinks and cosmetics would bomb if they had monikers as unsexy as financial products
Unlike automobiles, shampoo and other consumer goods, a personal-finance product doesn't need a catchy name to succeed. You can see that with a glance at the merchandise found in any brokerage office. Variable annuities. Unit trusts. Or would you like to see something in a closed-end fund?
If you tried to sell cosmetics or soft drinks with clunky monikers like those, you'd be out of business in a week. When investing is involved, different principles apply. Indeed, whoever picks the names for new money-management vehicles seems to delight in pushing the limits of insipidity.
What may have been the all-time low in financial-product naming occurred in the early 1980s, when the idea first arose of self-directed retirement plans sponsored by employers for their employees. If the namers had been content with dull mediocrity, they could have gone with some variation on defined contribution plans, from the trade jargon. But they wanted something even less inspired.
'I've got it!' somebody said. 'Let's call these things salary reduction plans.' The label could claim an element of accuracy, inasmuch as the payroll deductions used to make the setup work reduced the participants' gross pay for tax purposes, along with the take-home amount on their checks.
Alas, the concept of 'salary reduction' failed to catch the fancy of the nation's working stiffs. If I'm at all representative, our cherished goals lie mostly in the other direction. So in short order, the commonly accepted name for these plans reverted to sections of the law that authorised them ' 401(k) and 403(b).
The story of 401(k) and 403(b) plans since then is the stuff of history. It proved that the right money-management idea at the right time could attract $1.7 trillion in its first two decades with a name that is nothing more than bureaucratic mumbo-jumbo.
Every now and then some maverick tries to break out of this mold, usually without success. Several years back the frustrated operators of closed-end funds ' a business older than the mutual fund industry but less than 2% its size ' figured a change of name might at least shake off a little of the dust. The new label they adopted, 'publicly traded investment companies', created no buzz whatsoever and quickly vanished. If the acronym PTIC was ever used in public, I didn't see or hear it. Today, if you look for these funds on Bloomberg or in your Sunday paper, expect to find them, as obscure as ever, under the old appellative 'closed-end funds'.
A livelier story has unfolded among a newer variation on the fund theme, known as exchange-traded funds. Common usage refers to these by their acronym, ETFs, which evokes images of a class of military aircraft. Maybe this resonates with investors who picture themselves as top guns.
That brings us to the present, and a big push now being mounted in financial services circles behind a vehicle known as the 'separate account' or 'managed account'.
Wonderfully inert labels. What few descriptive qualities they possess speak to industry insiders, not to the customer. When I mention separate accounts to ordinary citizens, the phrase usually draws a blank stare. 'I have no idea what you're talking about,' a friend said. If we go by the historical record, however, this may well be no negative omen for the success of this product, which is a kind of customised alternative to mutual funds that allows investors to have some say in picking individual securities. Separate accounts also dodge the pesky problem of capital gains distributions, which have provoked much agitation over these past few years among tax-paying investors in stock funds.
Some sexier name is certainly possible. How about the Big Bucks Package? Or, if you go for quasi-mysterious initials, maybe something like HNW (for 'high net worth') accounts. Clients could be given HNW decals to put on the backs of their sports cars.
By now I think we see what makes money management products different. No matter how vain investors may be about their financial success, they don't want to come across as crass.
Besides, as stories like the movie Titanic remind us, anybody who embarks on a risky venture should avoid tempting fate.
So for financial merchandise of all descriptions, a dull, totally uninformative name may actually provide a kind of comfort. When you look at it that way, I guess 'separate accounts' won't be so bad.
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