In the News

Mutual-Fund Firms Cut Ad Budgets

Companies Buff Image, Try To Build Brand Awareness And Tout Advisory Services
Tuesday, December 24, 2002
by Frank Byrt

Dow Jones Newswire

Mutual fund companies have drastically cut back advertising spending this year and many are tinkering with their marketing approaches as volatile markets have sent investors scurrying.

Fund industry advertising year-to-date through the end of August is down 58% vs. 2001, to $90.1 million, according to Competitrack, a New York firm that tracks advertising spending.

Last year the same group of companies spent $215 million through the end of August, which is the most up-to-date data available from Competitrack.

This year, Franklin Templeton Investments leads the pack in spending, followed by Vanguard Group, Oppenheimer Funds Inc., T. Rowe Price, American Century Investment Management Inc., The Nasdaq Stock Market Inc. and Fidelity Investments, according to Competitrack. The Nasdaq Stock Market is represented due to its advertising spending for its Nasdaq-100 Index tracking stock (QQQ).

While Competitrack ranks the companies by spending, it does not disclose amounts.

Last year, Janus led the pack, followed by Fidelity, Franklin Templeton, Charles Schwab Corp. (SCH), Oppenheimer, American Century and Invesco Funds Group.

The primary reason for the cutbacks are that investor outflows have crimped fund companies budgets, causing them to reduce advertising spending, said industry watchers.

Advertising is one of the easiest areas to reduce when management calls for expense cutbacks, said Geoff Bobroff, a fund industry consultant with Bobroff Consulting Inc., in East Greenwich, R.I.

But Bobroff said that's a double-edged sword, because investors are now so disaffected with fund investing and the stock market in general that it will be a hard sell to get them back when the markets and funds return to relative normality.

Also impeding ad spending is the uncertainty on the part of advertisers who are pondering how best to reach investors in a period when their confidence has been squashed by several years of fund losses and a series of major corporate bankruptcies and scandals.

Melanie Szlucha, a senior account manager for Competitrack, said that prior to 2000, most fund firms' advertising focused on the performance of their funds, which was spectacular in the late 1990s.

But now, "they can't advertise stability because everybody's getting hit," she said. "I think some firms are hesitant because they don't know what to advertise," she said, of the reduction in advertising spending.

Marc J. Lane, a financial planner, lawyer and professor at Northwestern University School of Law, said he thinks some of the spending cutbacks are a result of fund companies shifting their emphasis to third-party sales from direct sales over the past few years.

The growing emphasis on adviser-sold funds "is a sea change" in how financial products are sold and that naturally affects the target of fund firms ads and the media they use to reach the investment adviser community, he said.

Using Different Approaches
Individual fund firms appear to be heading in different directions when it comes to advertising.

For example, The Lord Abbett family of funds, has stepped up its advertising efforts and is launching a new campaign early this month, while Janus Capital Management LLC, which has suffered significant fund outflows over the past two years and last year was the leader in advertising spending, has cut back in all areas.

But Oppenheimer is staying true to its long-running approach to advertising.

Lord Abbett is increasing spending and is launching a new advertising campaign Oct. 6, said Doug Sieg, director of marketing for the Jersey City, N.J., company.

Rapid asset growth has helped expand its advertising budget as the firm has increased assets under management to $45 billion at Aug. 31, from about $15.5 billion in 1996, he said.

The firm, which distributes its products through financial intermediaries such as financial advisers, will try to reassure investment advisers and their clients by the emphasizing company's longevity and reliability in the new ads.

"While the markets have dipped and swelled over the years, Lord Abbett has relied on disciplined investing to consistently provide its clients with the best results in the long-term," says the ad.

Janus spokeswoman Shelley Peterson, said the company has been cutting back on advertising for the past few years, particularly TV advertising, in favor of direct mail communications to current shareholders.

"It hasn't been an overnight change. It's been gradual as the downturn continues and market volatility increased," she said. "It's quite simply a matter of (the company) wanting to best use our resources and direct them so they can be right in front of our shareholders."

The company is relying on its semi-annual Janus Report, to address many investor concerns, said Peterson.

Oppenheimer, consistently one of the biggest spenders on advertising over the past few years, according to Competitrack, is not changing its advertising premise.

It has cut back on advertising spending relatively in tandem with the rest of the industry, but it will continue to be among the top spenders and maintain its advertising theme, said Bruce Dunbar, vice president of brand marketing at the firm.

The focus of its advertising is "to build credibility and establish our areas of expertise in terms of management capabilities," he said.

"Our advertising efforts are pretty much all geared to building brand awareness over the long term," and since it is not a direct retail seller that means trying to appeal to financial advisers who sell its products, he said.

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