Amid worries that the markets still aren't bouncing back as readily as many investment professionals would like and a greater focus on intermediary sales, advertising spending by mutual fund companies continued to slide dramatically in the first quarter of this year from the comparable period a year ago.
Fund complexes spent $35.6 million to promote their products and services between January and March 31 of this year, a 70% decline from the year-ago period, when advertisers spent $117 million, according to Competitrack, a New York firm that analyzes advertising spending. However, the figure is down only 4% from the fourth quarter of last year when fund advertisers spent $37.2 million.
Although economic news has been relatively upbeat in recent weeks, analysts said fund companies are stalling their advertising efforts, waiting for a more solid recovery in the markets. Fund companies are also waiting to see what their competitors do, analysts said.
"It's like a runner standing by the starting line, but not getting into position because the person firing the gun is maybe getting a bite to eat," said Stan Bornstein, a principal at the Boston marketing firm DiBona, Bornstein & Random. "People are looking over their shoulders a lot, trying to see when their counterparts are jumping in. People are looking for a return, but it seems to be stalling."
Bornstein said fund companies are continuing to scale back on advertising because "it's very difficult right now to take the pulse of the investing public." And with performance numbers still dodgy, he added, some companies may be waiting for a few quarters of strong performance before they will consider expanding their advertising budgets.
Nonetheless, some marketing pros say now is a perfect time to launch an aggressive advertising campaign, since so many companies have cut back on their advertising and marketing budgets. Investors are more likely to take note of a company's message when they are not distracted by the messages of dozens of other firms, Bornstein said. In essence, the airwaves are quiet compared to last year, he said.
"You could make a lot more noise for less money than you could a while ago," he said.
"There are some opportunities to negotiate aggressively with the media," Bornstein added. "We're seeing the opposite of what we saw two years ago in terms of media spending and negotiating power."
T. Rowe Price seems to have assumed that aggressive stance. The Baltimore firm spent $16.9 million on advertising in the first quarter, more than any other fund company, according to Competitrack. T. Rowe executives declined to comment on the company's marketing efforts.
A statement issued by the firm at the end of March quoted Chairman George Roche as saying that the company was encouraged by its first-quarter net cash inflows of nearly $1.2 billion. But Roche also said that advertising spending in the second quarter of this year would continue at the first-quarter level of $16.9 million. This is a 21% decline from the $21.5 million T. Rowe Price spent on advertising in the first quarter of 2001.
Bornstein suggested that other firms may not be waging aggressive campaigns right now because signing off on an expensive effort during times of tight budgets is a frightening prospect.
"It trickles down to a very, very personal level," he said. "With the kind of cutbacks people have seen across all industries, with positions being lost, it would be a test of character and judgment for someone to say, I'm going to be accountable for that kind of move.' You would have to have great buy-in from senior management to make that kind of move."
But the dearth of marketing efforts may also be due to a much-talked-about sea change in the industry, said Matt McGinness, a senior analyst at the Boston research firm Cerulli Associates. With sales increasingly focused on the intermediary channel and load funds, where investors are flocking for advice, companies see their sales forces as the best way to communicate their messages to investors, McGinness said. So, firms are bent on keeping their sales teams at maximum staffing levels more than they are willing to spend millions on ad campaigns to reach investors directly, McGinness said.
"As more firms move toward an intermediary sold model, it's critical to woo the financial adviser more so than the consumer," McGinness said. "Product is important, but everybody's product strength ebbs with the times. The most [important] thing now is [to focus on] the skill of your sales force."