Advertising by mutual fund companies and other investment firms fell to its lowest levels of the year, slipping by more than $6.5 million during the third quarter, according to data from New York research firm Competitrack. The declines were largely the result of a typical slump in fund advertising during the months of July through September, analysts said, but companies are still stung by dwindling assets under management and swooning markets.
Advertising fell to $30.1 million in the third quarter, compared to $36.6 million in the second, Competitrack said. In 2001, fund companies spent more than $40 million in the second quarter and $37.2 million in the third, marking a 19% decline in the third quarter of this year from year-earlier levels.
"The bottom line is that there's [typically] not much going on in the third quarter," said Daryl Logullo, of Strategic Impact, a Vero Beach, Fla., a financial marketing consultancy. Logullo said that firms usually advertise more during the first and second quarters of the year, when investors receive year-end bonuses and roll over their IRAs.
Still, funds are doling out markedly less to advertise their products. In 2000, the firms spent more than $356 million to promote their funds in advertisements. They spent $266 million in 2001. This year, as of the end of the third quarter, funds have spent only $105 million.
There's no question that fund companies are tightening the reins on advertising," Logullo said. "I wouldn't be surprised to find the average no-load fund company cutting what they're spending by anywhere from 15% to 30% or more," Logullo said.
"The third quarter was just horrendous for the fund industry," said Darlene DeRemer, who follows fund marketing in her job as managing director of NewRiver, an Andover, Mass., consultancy.
"The market returns in July pretty much wiped out people's budgets for the rest of the year. Investor confidence is at an historical low, with the exception of the Depression," DeRemer said.
The possibility of more terrorist attacks and a war with Iraq would hurt markets, and thereby hobble the fund industry further, analysts said. "Mutual fund companies don't know what to say," said Sheila McCormick, president and CEO of Click Communications, a financial-services marketing company in Chicago. "Mutual fund companies have less money to spend, so they're discriminating about what they say."
In addition, McCormick said that the typical message of fund companies in a bear market - "Stay the course; Invest for the long-term" - has worn thin with investors. Corporate scandals haven't helped, either.
"There's no credibility in that message anymore," she said.
"I'm not saying that advertising isn't critical," McCormick continued. "But when business is so tight and organizations are cutting the fat away to get down to the bone, and they're down to the bone now, they're looking at advertising as a luxury."
As investors demand more financial advice, funds have also been selling more of their products through financial advisers and channeling their marketing dollars to woo those intermediaries. Those efforts have siphoned away money that would have gone to advertising, DeRemer said. She noted that this could have been one of the reasons Time Inc.'s Mutual Funds magazine went out of business.
If fund companies do advertise, they should "communicate the basic values of their organization: why [investors] should select [their] company over another," she said. Companies can figure out how to do that by conducting research, McCormick said.
For example, a survey that Click conducted among affluent investors found investors were more concerned with a company's reputation than with its fees or performance [MFMN 11/18/02].
"It's so hard for companies to acquire new clients right now," she said, adding that firms "need to be focusing their dollars on retaining and growing existing clients. Companies "need to accept that the world has changed," she continues, adding that there needs to be "a fundamental shift in how mutual fund companies market themselves, especially the larger ones, [which are] not that nimble."
Franklin Leads the Pack
Franklin Templeton, of San Mateo, Calif., was the biggest spender among fund companies in the third quarter, followed by the Vanguard Group, of Valley Forge, Pa., Nasdaq, of New York (which made the list for its ubiquitous advertising of its QQQ exchange-traded fund), Oppenheimer Funds, of New York, and T. Rowe Price, of Baltimore.
Bruce Dunbar, the VP of brand and international communications at Oppenheimer, said his firm spent about $2.5 million on advertising during the third quarter in a two-prong strategy that involved advertising nationally on cable television and picking core local markets, including New York.
Dunbar said his firm hasn't cut advertising this year, but it hasn't ramped up its efforts, either. He said that Oppenheimer cools its marketing efforts during the summer months because the time is mostly quiet for financial advisers, who sell many of the firm's products.
The Vanguard Group declined to disclose its advertising spending. But a spokesman said that the firm has not increased its ad budget this year, or in many other years. "It's pretty static," he said. Vanguard has been advertising mostly in magazines and newspapers, such as The Wall Street Journal, Money and Forbes, the spokesman said.
The other top-five spenders declined to disclose their budgets, or didn't return calls seeking data.