American Century Investments of Kansas City, Mo., is breaking out of its previous mold. With approximately $90 billion in assets under management, American Century spent much of 2003 setting the groundwork for its reemergence as a bigger and better money manager.
Last year, it added the "Investments" to its corporate name and identity to clarify its business, transferred full ownership of its defined contribution retirement plan services joint venture with JPMorgan to the New York firm, and broaden its distribution network. It accomplished the latter by redirecting 10 of its mutual funds into the broker/dealer marketplace, each sporting a new sales charge structure.
This year, American Century wants to build on that foundation. It has undertaken a bigger, and slightly more expensive, multimedia ad campaign than ever before, showcasing its company president and underscoring its integrity at this time of the fund scandal. It has added one new fund for financial intermediaries and expects to add others later this year, all the while refusing, as many of its competitors have, to abandon the direct-to-investor distribution channel. And the firm has taken the unconventional step of waiving its bread-and-butter management fee on one of its popular funds that has been dogged by sub-par performance.
Money Management Executive Editor-at-Large Lori Pizzani recently spoke with Mark Killen, senior vice president, corporate and product marketing at American Century Investments, about the firm's move primarily from a no-load firm to embrace advisers.
MME: You have had a flurry of small initiatives since the start of 2004, including the introduction at the start of this month of a brand-new, large-cap growth fund, the American Century Capital Growth Fund, which is available with a sales charge for financial intermediaries. Why create a brand new fund, rather than transition over one of the existing American Century funds as you did with 10 other funds last year?
Killen: We've taken a disciplined approach to product design. We started by asking ourselves, should we do with this fund what we had done with the others, or go with a new fund? We felt it was best to introduce a new product because it allowed us to tweak it a bit for the advisers' market.
MME: Are there more funds for advisers on the horizons?
Killen: We are always looking at new products for the load market. Last fall, we looked at about 30 new ideas, and we are considering more new products for this channel that will debut during the third and fourth quarter of 2004.
MME: Are you launching new funds to meet the demand for product you are hearing from advisers, or are you filling out what you perceive to be holes in your product lineup?
Killen: Actually, it is both. We are responding to need and our desire to fill out the product line. We started by transitioning over 10 funds, and have since added three: an Arizona muni fund, a Florida muni fund and the new large-cap growth fund.
MME: Did the favorable stock market returns of last year weigh into your decision to launch a large-cap growth fund now?
Killen: I think people in general are returning to the equity markets.
MME: You made your initial voyage into the broker/dealer sales channel in February 2003 with that shifting of no-load funds into the Advisor Funds lineup. Now, 13 months later and with $278 million in assets in the full array of 13 intermediary-sold funds, how well do you think that effort has gone?
Killen: We would like to be larger than that, but we are happy. We are a little ahead of our plan. That growth reflects good performance, and we continue to add staff and resources to this effort.
MME: What has been your biggest challenge to building your business through the intermediary-sold sales channel?
Killen: We have some very established competitors: Vanguard and T. Rowe Price on the direct side, and long-established groups, like the American Funds, on the load side. We need to get out there and get our name known. We have been known, predominantly, as a no-load fund group. Now we need to get the story out. So far, the reception has been good.
MME: In early February American Century announced that it would do something unconventional -- temporarily waive the entire 1% management fee on its $881 million Giftrust Fund through the end of July. What made you take that bold step?
Killen: The recommendation to waive the management fee on the Giftrust came from the board of directors and is supported by the management company. We are definitely feeling the pain from doing this. But the performance of the Giftrust is not up to expectations.
Because of the irrevocable nature of this product, investors who are unhappy with its performance cannot just sell their shares and transfer to another American Century Fund or just redeem their holdings. Giftrust is meant as a way to establish a gift for someone else, a beneficiary, such as your kids or grandchildren. This was meant as a gift of remembrance, not meant for college savings or retirement money, but an irrevocable gift that has a minimum maturity of 18 years.
The original idea our founder conceived of was that 18 years from now, when a child or grandchild opens their account statement and sees the accumulated assets, that he or she will place a picture of the person who gave them the gift on their mantle.
We have now intensely focused on getting performance back on track. We want all of our products to perform at the very top.
MME: Speaking of college savings vehicles, how has the Learning Quest 529 plan program been doing since you launched it with the state of Kansas in July 2000 and expanded it to include the Learning Quest Advisor program for intermediaries in 2002?
Killen: Assets have been on or close to estimates. There is definitely a learning curve, and we are helping to educate on these plans. We do see advisers taking advantage of 529s.
MME: Tell us about your new print ad that we have seen, starring American Century President and CEO Bill Lyons. At a time when many fund group presidents are in hiding, or are huddled behind closed doors with counsel, it's intriguing to see him out in the open, unafraid to "stress the importance of integrity in money management."
Killen: That's a new ad, and it is running in the The Wall Street Journal, New York Times, Investors Business Daily, Kiplinger, Money, Fortune, Business Wee and some other monthlies. This ad is part of a series of five or six planned print ads featuring some of our employees.
In 2003, we began moving from being seen as a mutual fund company to a premier investment management firm. This year is going to be about bringing our new brand to market. What better way to reintroduce American Century than to do it with our own people?
We started out the campaign with our own CEO. But we have others planned, including one with two of our chief investment officers, one growth and the other value. The idea is that these two are so focused on what they do that they only meet at the water cooler.
The message in our ads is that American Century performs beyond the numbers and that we have a relentless focus on investments and value and in going beyond performance and delivering on customers' expectations. We are balancing strong values with strong performance. The message speaks to all of our audiences.
MME: How has the industry scandal shaped these ads?
Killen: We're all troubled by the scandals, but we think there's more good than bad in the industry. We felt we needed to speak out and talk about where we stand. It's an extension of the Web site message from both Bill Lyons and James Stowers, our founder. It might seem to some to be opportunistic, but this is the way we have done business for years.
MME: Will this ad campaign go beyond just print ads?
Killen: Yes. We have planned some TV spots, and we have an Internet ad running now in places such as CBSMarketwatch.com for direct investors who need some help with allocation planning for retirement. That's more of a corporate ad.
MME: Why advertise on the Internet?
Killen: During the go-go days of the 1990s, we learned that the Internet was a valuable tool for individuals to get information, check out features and make comparisons. The benefit to us of the Internet is that we can obtain demographic information as to who is going to our site. We are better able to track responses, and segment the audience, than with print or TV ads.
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