International bank ABN AMRO relied on FCR for a full range of communication assistance when it developed a new investment product for the Australian and New Zealand retail investor markets.
The high yield fixed interest investment was based on a portfolio of corporate credit ratings. Compared with traditional fixed interest products, it offered higher returns for higher risks. It was a considerable improvement on a competitive product that had drawn strong criticism.
FCR carried out research and advised how to minimise potential media criticism. We used our corporate naming process to develop an appropriate name for the high yield fixed interest securities: HY-FIs. FCRs design team created the logo and look and feel of the new product.
We helped shape the structure and text of the prospectus, and designed and produced it to appeal to sophisticated high net worth investors. We wrote and designed the HY-FIs Australia website and created and placed press advertising.
Our media relations strategy helped eliminate concerns by educating personal investment journalists on the complex aspects of the product and its relative risks, while a concentrated media relations program throughout the offer period helped reinforce adviser marketing.
The initial series of HY-FIs were oversubscribed.
When ABN AMRO Bank decided to create a new type of financial product for sophisticated retail investors, it adopted an inspired approach to marketing. The bank short-listed two consultancies, paying each $10,000 to develop a full marketing and communication plan that outlined all aspects and costs of marketing the proposed product. It then appointed FCR because we offered a more developed and convincing plan with strategies to overcome the potential risks.
The bank was highly respected in the wholesale market, but this was the first time it had offered a product to Australian and New Zealand retail investors. It was to be the first of a regular series of similar investments.
The product was different from traditional fixed interest investments and had advantages over the new class of debt-equity hybrid investments.
diversification through exposure to an international debt portfolio;
To familiarise investors with this complex new investment product would be a challenge
The investment was based on a collateralised debt obligation (CDO) structure a synthetic securitisation of the credit ratings of 70 well-known companies. CDOs are commonly used by banks in the institutional market to create higher returns than traditional debt-based investments with the same level of risk. The structure, however, was new to retail investors, and the first CDO-based retail offering had been made only a year earlier.
Not only an unfamiliar type of investment, but an unfamiliar brand
Because ABN AMRO was not guaranteeing the product, a separate company and brand had to be created that had no direct connection to ABN AMRO. FCR developed the name High Yield Fixed Interest Securities (HY-FIs) for both the company and product.
The first CDO-based retail product had attracted criticism
Deutsche Banks Nexus Bond was the first CDO-based retail product, issued late in 2002. It was criticised for labelling itself a bond and not fully explaining how the underlying risk differed from other fixed interest products. Columnists such as the Australian Financial Reviews Trevor Sykes and several personal investment writers wrote articles warning investors that the bond was a wolf in sheeps clothing, with risks far higher than a traditional bond. ABN AMRO wanted to avoid any adverse comment. We advised that media relations was a crucial element negative press would destroy marketing efforts; a well informed media should be positive.
Substantial marketing had been required for the initial offering.
Discussions with investment advisers and brokers revealed Nexus Bonds had been difficult to market and heavy advertising had been necessary. While Nexus Bonds had a 10.25% interest rate, HY-FIs interest rates were lower, so we could not use a headline, double-digit rate to attract investors.
The target market was likely to be diverse
In our proposal to ABN AMRO we outlined a wide range of investors who might divert funds to the product from the following investments:
Equities. After poor returns from equities, negative returns from managed funds and an uncertain global outlook, relatively high yielding fixed interest investments would look attractive;
FCR proposed a focus group of independent financial advisers and brokers who had sold Nexus Bonds to confirm:
the profile of investors interested in these types of product;
The focus group would also provide advisers views on the marketing support they would need to sell HY-FIs and on the proposed name and corporate identity.
We determined topics to be covered (Appendix A Issues to explore) and contracted a facilitator. The focus group was followed by discussion between the advisers and the HY-FIs development team.
Research results (see summary results, Appendix A Key findings) drove the marketing strategy and activity. They indicated areas of communication on which we would need to concentrate, and the potential investor profile. They also revealed the importance of explaining the relative risks of the investment before investors would accept the product, and showed that investors look at the interest rate first and the risk second, while advisers are more sensitive about risk.
The major market for HY-FIs was high net worth individuals, particularly those seeking to diversify and boost the return on the fixed interest sector of their portfolio. The market also included:
professionals and managers;
We expected the majority of these investors to be:
in the over-45 age group;
The most influential way to reach these investors was through investment advisers, so our marketing had to educate them on HY-FIs.
We identified all journalists who had commented on Nexus Bonds and those who might comment on HY-FIs, to enable us to arrange opportunities to explain the new product, improvements over Nexus Bonds, and the relative risks involved.
COMMUNICATION STRATEGY AND IMPLEMENTATION <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Goal: Establishing the new brand
- Full explanation of the product and its risks, using easy-to understand terminology and diagrams.
- Daily press and financial magazine advertising, with website address and phone contacts.
- Website with explanatory information.
Goal: Avoiding criticism
- Do not use the word bond; replace with HY-FIs or securities.
- Fully explain the product and its risks.
- Consider gaining a rating from Standard & Poors or Moodys for the product.
- Offer to meet with journalists who had criticised Nexus Bonds to explain the relative risks of HY-FIs.
Goal: Filling the issue
- Support adviser and broker selling by communicating to investors through media articles:
- the advantages of the new investment;
- the benefit of some fixed interest in their portfolio; and
- advantages of diversifying their fixed interest investments in the same way they do with equities.
- Explain the CDO structure to media and concentrate publicity in the one month offer period.
- Advertise the key investment benefits.
Our naming process quickly produced HY-FIs and our design team refined the corporate identity, which was confirmed through the focus group (Appendix A Corporate Identity).
While ratings are common for companies and some debt instruments, HY-FIs became the first retail CDO investment to be rated.
As the Australian and New Zealand markets were similar, we developed both prospectuses and the website to provide straightforward sources of clear information. We managed the Australian launch, advertising and media relations ourselves, and worked with a New Zealand consultancy on these activities there (Appendix A Timeline).
FCR writers and designers worked closely with the HY-FIs team and its lawyers to develop a prospectus that was both contemporary and helpful. It highlighted key points and included diagrams and boxed information that explained aspects such as:
It included an exhaustive Q&A section and full explanation of what would happen in the event that one or more of the portfolio companies became bankrupt or had its credit rating impaired. The level of disclosure was higher than any other similar product and more than regulators required.
We launched the investment to media at a luncheon in ABN AMROs boardroom, followed by a roadshow to other states.
While a separate company had to be established to offer the product, the credit structuring expert from ABN AMRO, the arranger and lead manager of the issue, explained HY-FIs to journalists, while executives from the lead manager ABN AMRO Morgans, commented on market acceptance.
We also created press advertisements appropriate to the audience profile and developed a placement schedule to support adviser and broker selling during the one month offer period.
Print will have greater influence on target audience we recommend most of the advertising budget goes into print media with a small amount for online advertising
will set out complex information in an attractive and easy to read format; with:
flexible layout which will allow for last minute changes and late insertions but will not compromise a fresh and dynamic look and feel. Subtle repetition of the corporate logo (Marabon) and product identity (HY-FIs) throughout the document will help establish the brands;
legible typefaces and sub-headings that are easily read by people with less-than-perfect eyesight;
page numbers and section headings that are clear and easy to find quickly;
non-reflective printing papers, and
production qualities that convey the appropriate level of quality with due regard to economy and expectations of the audiences.
We recommend an explanatory brochure, separate to the prospectus, to allow clear, uncluttered communication of the broad product benefits. The title: Creating Balance In Your Portfolio Explaining High Yield Fixed Income Securities. As this suggests, it would be a newsletter/leaflet style document with a strongly educative element. It would:
act as a highly approachable additional source of information that can be digested quickly;
have a newsletter/magazine-style layout design, with illustrations, case studies, Q&A, and analogies that highlight the benefits and put the systematic risk in perspective;
Both the Australian and New Zealand offers of HY-FIs were oversubscribed, with the Australian issue attracting $136 million from more than 2,000 investors.
HY-FI Securities Limited, ABN AMRO, and ABN AMRO Morgans were pleased with FCRs contribution.
Our name and corporate identity for the product were well received and, as predicted, media used the musical allusion in creative headlines. (See Appendix A: media coverage).
Our media strategy prevented a repeat of the criticism of Nexus Bonds. All media articles contributed to investor understanding of the product. Only one quoted an investment adviser critical of CDO-structured investments for retail investors.
The prospectuses contained greater explanation of the risks involved in the product than any previous or subsequent CDO issue. After the issue closed, the promoters suggested this had not been necessary and might have scared some investors away. We stuck by our research findings that, unless the risk could be understood and compared with the risks of other investments, investors would remain wary. No subsequent research could be funded to determine the part this played in investor motivation.
The goal of filling the issues in both Australia and New Zealand was achieved they both were oversubscribed.
One of the companies represented in the portfolio, Parmalat, was placed in bankruptcy as a result of management fraud.
FCR helped HY-FI Securities and ABN AMRO explain to media and investors that the bankruptcy did not affect the principal amount that investors had invested, or interest payments. A protection amount, or level of insurance, built into HY-FIs to cover such events acted as a shock absorber. Several such events must occur before investors principal and interest they receive are reduced.