You can't necessarily judge a mutual fund by its "Lance Face."
But American Century Investments is betting that partnering with seven-time Tour de France winner and cancer survivor Lance Armstrong will at least attract investors' attention to a new line of lifecycle funds.
"We see investor inertia as a major problem," said Chris Doyle, a spokesman for American Century of Kansas City, Mo. "They are vacillating, not embracing the things they know they need to do in terms of setting aside dollars for long-term goals," he said. "Who better to motivate and inspire investors than Lance Armstrong?"
American Century plans to begin selling its LiveStrong funds under the slogan "Put Your Lance Face On" in May.
Armstrong's American Century partnership certainly does not mark a fund company's first celebrity partnership. Paul McCartney worked as a front man for Fidelity Investments last year, while, a few years before, former fellow Beatle Ringo Starr crooned for Charles Schwab. Ex-San Francisco 49er Joe Montana made a pass as spokesman for Franklin Templeton Distributors in the early 1990s, until the Securities and Exchange Commission stopped the campaign, accusing Franklin of unfair sales play. Sam Waterston still shills for TD Waterhouse, evoking his no-nonsense "Law & Order" image.
Armstrong's deal is different because not only is he lending his celebrity name to the company, he's aligned himself with a specific product: the American Century LiveStrong Portfolios. Investors will choose the cyclist-endorsed lifecycle funds based on their anticipated date of retirement. A 20-year-old may choose the 2045 product, for example, while his 50-year-old mother might choose the 2015 portfolio. The idea is to steer investors toward a secure retirement through a fund with a mix that morphs over time to become more conservative as the investor approaches the end of their working years.
"It's a slow and steady wins the race approach," Doyle said.
The funds also offer philanthropic appeal. Although the details are still under negotiation, according to Doyle, the multi-year agreement calls for American Century to make annual contributions to the not-for-profit Lance Armstrong Foundation of Austin, Texas, which Armstrong founded to promote education, advocacy and support for cancer patients.
James Stowers. Jr., founder of the Kansas City company, is also a cancer survivor who himself is deeply committed to cancer research and, after winning his own battle against the disease, opened the Stowers Institute for Medical Research in 2000. "We think this is a compelling back story," Doyle said.
But a good back story doesn't guarantee a stellar product, said Geoff Bobroff, of Bobroff Consulting in East Greenwich, R.I. "People shouldn't view Armstrong or Joe Montana or anyone else as financial experts," he said.
In fact, the SEC prohibits fund companies from suggesting investors should. The Investment Company Act of 1940 explicitly prohibits the use of investor testimonials, celebrity or otherwise, to promote advice, research, analysis or other service provided by an investment advisor. "It's a fine line," said SEC spokesman John Heine. It may be the line Montana crossed.
Although the American Century funds perform relatively well, Bobroff said, investors can't lose sight of the underlying investments, fees or management of any mutual fund. "I don't think anyone should take anything from Mr. Armstrong's endorsement," said Bobroff. "When you want advice about bicycling, look at Armstrong."
Armstrong also may be qualified to offer some expertise on branding.
As part of a fundraising effort for his foundation, Armstrong marketed and sold yellow wristbands meant to be emblematic of the struggle to conquer cancer. Soon, the $1 bands seemed ubiquitous, appearing on wrists from high school classrooms to corporate offices to supermarket aisles. Even those who didn't wear them generally knew they were synonymous with Armstrong.
These, together with $12 LiveStrong water bottles and $20 LiveStong T-shirts helped earn The Lance Armstrong Foundation $20.1 million in merchandise profits in 2004, according to tax records.
And that attention-grabbing persona? Priceless. Whatever Armstrong's alliance says about American Century, celebrity branding says something about the market climate, too. "When markets aren't doing well, there is more focus on brands and fees and less focus on performance," said Mercer Bullard, founder of the Oxford, Miss.-based not-for-profit mutual fund shareholder advocacy group Fund Democracy.
"You have an overcrowded market. There are thousands of funds, hundreds of fund companies," said Barbara Roper, director of investor protection for the Consumer Federation of America of Washington.
Like McCartney, who Fidelity hoped would appeal to Baby Boomers' reminiscences of youth, and Montana, an all-American hero to football fans, Armstrong brings with him a following. And American Century is banking that this demographic is even wider. "It's just a device to get people to look."
People may look, but will they buy?
"The answer is: maybe," Bobroff said. "You never know whether these identifiers are what makes the difference," he said.
On the other hand, individual investors have so many tools to compare fund performance available to them - from research companies like Lipper or Morningstar to fund supermarkets like Charles Schwab or Fidelity - it seems few would be swayed solely by celebrity. Furthermore, 90% of investors use an adviser, and generally those investors buy the funds their advisers suggest, Roper said.
Most importantly, investors must be mindful of fees. In the case of the soon-to-be launched LiveStrong funds, American Century has stated that the annual donations to the Lance Armstrong Foundation will come out of company coffers, not investors' pockets.
"It's disingenuous to claim that distribution costs are borne entirely by the fund manager and not the fund shareholders," Bullard argued. Ultimately, all of American Century's profits come in one way or another from investors, and because fund companies can use fees from one fund to cover the costs of another, Bullard warns investors to be watchful.
Promising philanthropy is nothing new. When McCartney appeared in Fidelity's ads, the company made donations to his music education initiative, too. While the cause may be a good one, investors should not allow any such promise to fool them into choosing a fund that may underperform or be more costly. After all, investments should first and foremost serve the investor, Bullard said.
"It's not very efficient to support initiatives by choosing a fund that offers indirect support of his initiatives," said Bullard. "If you want to support Lance Armstrong's initiatives, write him a check."
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