Although fund companies increased their advertising spending slightly by 3% between the first and second quarters of this year, marketing consultants said they were surprised by the gains and that companies would likely cut their ad spending drastically during the second half of the year. They also emphasized that compared to figures for last year, advertising spending is still down considerably.

Fund complexes spent $36.7 million on advertising in the second quarter, up from $35.9 million in the first quarter but down 50% from the second quarter of last year, when fund companies spent $72 million, according to New York advertising research firm Competitrack.

In the first six months of this year, fund companies spent $72.6 million on ads, 62% less than the $189 million they spent in the first half of last year.

Some marketing consultants were befuddled by the slight uptick in spending between this year's first two quarters. With corporate scandals plaguing Wall Street, investors have continued to lose confidence in a protracted bear market, and as a result, most consultants' clients have been losing assets and slashing advertising budgets.

Many Slash Budgets

"I was very surprised to see that there had been an increase at all, based on the conversations we've been having," said Lisa Cohen, a principal at The Collaborative, a consulting firm in Medfield, Mass. "People are incredibly pessimistic and talking about cutting [advertising budgets] way back."

Cohen said that advertising spending will likely drop off in the latter part of this year. With assets in decline, she said fund companies may be advertising out of desperation.

"People have to do something," she said.

In addition, Cohen said that many firms are marketing themselves via Web sites and brochures instead of advertising in newspapers, magazines or on television. But firms that sell through broker/dealers don't have a network through which they can distribute or promote those materials, so they are using advertising to get investors' attention, she said.

Irving Strauss, a marketing consultant in New York, said he was unsure why advertising spending had increased in the second quarter. He guessed that large firms, such as T. Rowe Price of New York, the top spender for the second quarter, could simply afford to continue advertising during troubled times.

But for most firms, advertising, particularly on television, is too expensive during a bear market. "Most television ads are [for] brand-building, [and] now is a time when people are pulling back their brand-building activities. Brand-building is a long-term investment," and most firms, instead, are focused on their bottom lines, Strauss said.

However, Strauss added, some small and mid-size complexes, which spend very little compared to the industry's biggest firms, are continuing to advertise, especially in special-interest publications.

A biotech fund, for example, may advertise in a biotechnology trade publication, which is typically less expensive than a national newspaper such as The Wall Street Journal, where ads can cost upwards of $100,000 for a full page.

"It's a much more targeted approach for those who can't afford the Barron's and The Wall Street Journal," Strauss said.

In addition, Jim Atkinson, a principal at the Los Angeles firm Orbis Marketing Group, said that small firms are advertising more because they can't afford to see their assets dwindle. "Obviously, if you're a very large fund company, you've got a whole host of problems," he said. "But if you're a small company, your problems are more urgent. You can't cut expenses to solve the problem because of this bad environment."

Investors Not Buying It

Of the advertising initiatives that have survived the bear market, Cohen called them unoriginal and lacking in credibility.

For example, Cohen said firms are continuing the tired message that they have been slinging at the investor for months: Stay the course; don't give up on the markets; Wall Street will recover.

Investors aren't buying it, and the tactic is failing miserably, Cohen said. She compared the recent advertising messages to "shutting the barn door after the horse has left."

Fund companies have been reluctant to talk honestly with investors about the recent corporate scandals and the declining markets, "and the reluctance has translated into shareholder fear," Cohen said. "It's not going to be very easy to get clients back."

To remedy the problem, Cohen said fund companies should be advertising with an honest approach this year. "People need to come out and say, Man, this is really horrible and it feels horrible and let's figure out what we need to do.' I've not seen any advertising that's been that direct."

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