Coffee and investing

“That will be 28 cents please!” Not something you hear every day, especially in New York City.

I was so delighted I asked to hear it again. That’s the price of a cup of coffee from The At-Cost Café, which was parked on Union Square yesterday afternoon.

This unexpected treat is from Vanguard, and sadly is only in New York for a few days. The message is simple and compelling: Vanguard’s mutual fund fees are about 1/5 of the average charged by the US mutual fund industry. And you guessed it, 28 cents is 1/5 of $1.38, the average price of a cup of coffee in the US.

Putting the math aside, the clear message to investors is that fund management fees really matter. Vanguard describes two funds with typical industry performance other than fees—the one with Vanguard’s fee level will typically provide the investor with 95 percent of the gross return over a 20 year period, while the one with industry average fees delivers only 74 percent of the return after costs.

On the other side of Union Square, another challenge to the status quo is in progress: Occupy Wall Street has arrived with banners and protesters loudly proclaiming their anger at the financial sector.

This juxtaposition brings to mind the dramatic contrast in approaches taken by financial brands in today’s turbulent market. On one side, Wall Street is still struggling to counter public perception that the game is rigged in the banks’ favor, with fresh self-inflicted wounds from the recent uncomfortable encounter with Sesame Street. The standard response “we only succeed when our clients succeed” sounds hollow when evidence continually surfaces that these firms may be acting in ways that are misaligned with their clients’ interests. No matter how much money they spend on citizenship activities, these will only return pennies on the dollar while they remain overshadowed by public distrust of their motives.

Returning to the other end of the public square, there are a few financial brands that have always lived on Main Street, acting transparently and doing the right thing for clients. Chief among these is the sponsor of my at-cost coffee, who has made “vanguarding” a verb synonymous with responsible finance.

Our belief is that a brand is as a brand does. Closely aligning a company’s actions with its message is essential to building a consistent brand, and this goes double for financial brands. Vanguard can authentically convey its message through a simple cup of coffee because they already have the public’s trust, and everything they do reinforces this.

This approach is more than good public relations—it builds a brand reputation that enables a financial firm to retain clients through inevitable market cycles, build strong business partnerships, attract talent, and protect its license to operate from public pressure or regulatory action.

Those financial firms that embrace this and make it core of their business will reap the benefit. Those that don’t will at minimum suffer a missed opportunity and continue to waste resources on activities that do very little to build a durable reputation.