Ad Spending Slashed Nearly 50% in 2002

Continuing a longstanding trend during this protracted bear market, mutual fund companies cut their advertising budgets 48% in 2002, spending $132.8 million as of Nov. 30, compared to $257.8 million in all of 2001, according to Competitrack, a New York firm that monitors advertising.

Observers see the trend continuing throughout 2003. Until markets recover, and investors have more compelling reasons to return to equity investing from their refuge in fixed-income funds and other more-stable vehicles, fund companies are expected to continue to retrench.

"In 2003, it will depend on the markets," said Kristin Adamonis, who tracks advertising for Financial Research Corp. of Boston.

Mutual fund advertising has been on the decline for more than a year, as funds have struggled to plug the leak in their assets under management. By contrast, fund companies spent more than $356 million on advertising in 2000, roughly 63% more than they spent in 2002, according to Competitrack.

With little to crow about when it came to performance in 2002, many firms became virtually silent on the advertising front because they weren't sure what to say. For fund companies, which had become accustomed to running full-page ads in The Wall Street Journal touting strong performance gains, it was a matter of re-thinking the message to investors.

Still, Adamonis and other observers say that much of that process is behind the fund industry and firms are now coming forward with a new message, which won't result in widespread advertising at the levels of 1999 and 2000, but could result in a slight uptick in ad spending.

Life Goals vs. Cold, Hard Cash

"We've already seen them start to switch their approach," Adamonis said. "They're going with more of an emotional appeal where [the advertising] talks about life goals and achieving your life goals through investing."

Advertising strategies have also been affected by the long-heralded shift from selling funds directly to distributing them through intermediaries. Most notably, many firms are now advertising in venues such as trade publications that are targeted at those intermediaries, Adamonis said.

Other consultants and analysts say they don't see advertising increasing much in 2003. Lisa Cohen, a fund consultant based in Medfield, Mass., hasn't heard of any firms planning to increase their advertising budgets in 2003, but she expects this shift in marketing strategy away from performance-based advertising will result in some spending [see MFMN 12/23/02].

Melanie Szlucha, an analyst at Competitrack, expects firms will continue to try to build awareness of their brand and push advisory services in 2003. In addition, Szlucha said that many will continue to focus their advertising messages on relative performance - comparing the performance of their funds with other types of vehicles - and educating investors about good asset allocation strategies.

The top advertising spender for the year was the Vanguard Group, which, during the summer, became the top fund group in terms of assets in long-term, open-end funds. Vanguard didn't return calls seeking comment, but a spokesman said late last year that the firm had not changed its advertising budget in 2001, and that the company has been advertising mostly in print publications such as The Wall Street Journal, Money and Forbes.

Adamonis said that many larger firms, such as Vanguard, have had the cash to keep advertising during the downturn while smaller firms have been forced to retrench. "Many of the larger firms will always have the budget for advertising," she said. "Vanguard has done very well this year, so they can keep up their advertising efforts. They have the right product and the right message for this time."

Still, she said, on par with how greatly other fund advertisers have pulled back, Vanguard has been "low-key" in its advertising, largely eschewing television and focusing mainly on print. That such a quiet advertiser has eclipsed the spending of large complexes, such as Fidelity Investments and OppenhiemerFunds, which advertise often on TV, shows how little many firms are spending, she said.

The other top advertisers, in order of spending, were Franklin Templeton, OppenheimerFunds, Nasdaq (advertising its QQQ exchange-traded fund) and T. Rowe Price. The firms did not disclose their ad spending for last year, and Competitrack does not release these figures.

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Money Management Executive
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