Investor Satisfaction Case a Business Report Investor Essay

Excerpt from Essay :

Investor Satisfaction Case

A Business Report


As requested, here are my findings on the investor satisfaction report as collated by our analysis department. Our investment brokerage firm is advised to follow up on the results to improve brokerage performance based on type of investment product purchased.

100 clients were randomly selected and asked a series of questions, the criteria being they must have purchased shares in any one of the funds. Investment counselors personally ask the client to rate their level of satisfaction with the product as high medium or low.

30% of our investors have invested in bond fund, 30% in the stock fund and 40% have invested in the tax-deferred annuity. We can deduce from the total population data that 40% of all clients displayed high satisfaction, 40% displayed medium satisfaction and 20% displayed low satisfaction (Table 2.17).

Stock fund clients report high satisfaction generally across our tabulation results, bond fund investors seem to have high to medium satisfaction while out tax-deferred clients seem to be relatively less satisfied.

While analyzing row percentages and column percentages we can deduce that 50% of bond fund investors reported high satisfaction with our company's performance while 40% of these same investors reported medium satisfaction, and only 10% reported low satisfaction (Table 2.18). A collective look at the entire range of row percentages brings us to the conclusion that stock fund investors are highly satisfied, that bond fund investors are quite satisfied (but somewhat less than stock fund investors) and that tax-deferred annuity purchasers are less satisfied than both stock fund or bond fund investors (Collins & . Mack, 2007).

Regardless of whether a mutual fund is passively or actively managed, most funds have only one class of stock that shares equally in all the investment income and capital gains of the fund. However, some mutual funds have several classes of stockholders. For instance, dual funds have one class of shareholders with a claim on the fund's investment income (dividends and interest payments) while another class of shareholders has a claim on the capital gains of the fund.

More recently, a new type of mutual fund has been developed whereby one class of preferred shareholders has a prior claim on the interest income of the fund up to a specified amount that varies with a specified money market interest rate, while the common shareholders of the mutual fund have a claim on all remaining investment income and capital gains (Deliva & Olson, 2008). This latter capital structure is especially useful for municipal bond funds, as it gives the preferred shareholders a fairly secure money market interest rate that exceeds high-grade municipal money market rates, while allowing the common shareholders of the fund to obtain a leveraged investment in municipal bonds by essentially "borrowing" (Blake, 2005) at a low tax-advantaged rate (because municipal securities are exempt from federal tax, they tend to have negative Oj terms with yields below the risk-free Treasury rate).

There has been a great deal of discussion about the optimal size of a mutual fund. Although larger mutual funds tend to have lower administrative expenses due to economies of scale, they also often have higher trading costs because of the need to buy so much of a security to obtain a meaningful position (Deliva & Olson, 2008). In addition, larger funds find it especially difficult to take significant positions on smaller companies without substantial trading costs. Overall, although it is nearly impossible to start a mutual with less than $1 million in assets, and administrative costs tend to be extremely high for funds with even $10 million in assets, there are many fund managers who believe that it is so counterproductive to be too large that they close their funds to new investors once they reach several billion dollars in assets (Clements, 2004).

There also exists a type of fund called a fund of funds that pools investors' money for purpose of investing into other mutual funds. Many of these types of funds are offered by the administrator of a family of mutual funds to invest only into a portfolio of mutual funds in that family. Many funds of funds generally add an extra layer of annual expense (often called a wrap fee) for the service of determining for investors the mutual funds into which they are to invest (as little as 0.08% per year for Fidelity but closer to 2% for others, which is in addition to the annual expenses charged to the funds themselves into which the money is invested). However, some fund administrators (such as Vanguard, Scudder, and T. Rowe Price) do not charge for this service. There was $29 billion invested through such funds of funds in 2008.


Investor satisfaction is quickly revealed by how long investors keep their funds invested in your company stock. A bad sign is a falling share price or higher loan interest rates. This raises your cost of capital and therefore your cost of business, all pointing to lower profits in the future.


Move from zero-sum thinking to positive-sum thinking.

Manage employees better.

Manage supplier relations better.

Manage distributors and dealers better.

Manage investors better.

In earlier times, a businessperson thought that the size of the pie was fixed. His conclusion: He could gain the most by paying his partners-employees, suppliers, distributors -- the least. This is zero-sum thinking. Today, there is growing evidence that your economic results will vary with the manner in which you treat your partners. Fred Reichheld, in his Loyalty Rules!, describes many successful companies that reward their employees, suppliers, and distributors generously, and this creates a larger pie, including the share that goes to your company.' Your company will attract better and more motivated employees, suppliers, and distributors, and they will manage as a team to outperform the competitors.

An analysis of mutual funds requires an examination of the most important characteristics of each fund. One of the most important functions of mutual funds is to provide diversification, and it is important to ensure that the selection of funds meets the investors' needs. Because most funds concentrate their investments in some particular category of assets (such as stocks), it is generally necessary to choose more than one fund (Blake, 2005). For instance, to achieve diversification guidelines, an investor might need to invest into at least 4 different mutual funds: one for domestic equities, one for domestic bonds, one for real assets, and one for foreign assets (with more than these four funds being required if any of the funds has concentration in any individual securities, industries, or foreign regions). Although an investor with limited knowledge could blindly assign equal weights to each category (i.e., 25% into each investment category), or according to the approximate weights of the market portfolio of all securities (i.e., about 20% into U.S. bonds, 20% into U.S. equities, 5% into U.S. real estate, and 55% into foreign bonds and equities), (Clements, 2004) the percent of wealth allocated to each fund concentrated in an investment category should optimally be set as a function of the type of aggregate fundamental analysis.

On the other hand, it is also possible to allow professional managers to determine the optimal allocation to each investment category. For instance, if one invested in a balanced fund, there would only be a need for a minimum of 3 different funds, as a balanced fund includes both domestic stock and bond holdings (Collins & Mack, 2007). It is actually possible to select just one fund, if it is an asset allocation fund that diversifies across all investment categories.

When choosing which funds, it is also important to exercise judgment with respect to various other criteria besides diversification. Among the most important information to examine on any fund are the fees or load charged directly to investors for buying or selling shares of the fund, the annual operating expenses charged to the fund for its administration, and the fund's historical performance in maximizing long-term returns net of those expenses (Damato, 1996).


Our board members are advised to take the following recommendations into consideration win the next meeting to improve client satisfaction of our Tax-Deferred Annuity investors. While it is established that some mutual funds are sold as a package with some form of life insurance policy. Investments in such package contracts are often called variable-rate deferred annuities. Investments in these contracts can be made in one lump sum or periodically as the investor wishes.

Upon the death of the individual specified in the contract, the life insurance portion of the investment generally guarantees the right to a payment at least equal to the full amount invested in the package. In other words, the life insurance portion of the contract represents a European put option with an exercise price equal to the cost of the summed total investments in the contract and with the expiration date at the death of the individual specified in the contract. However, some of the annuities offer more valuable life insurance…

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