With the markets still in decline, Morgan Stanley and Merrill Lynch, both of New York, recently mounted aggressive marketing efforts to calm investors' nerves. The message? Buy low, sell high. And if you don't want to be in equities or mutual funds, look into alternatives.

Fund companies need to do more to stem the panic, observers said, including simply talking investors through their troubled impulses to sell out and emphasizing how their own portfolio managers are coping.

Morgan Stanley hosted a nationwide town-hall meeting Aug. 7 inviting investors to more than 100 locations where they were shown a live video broadcast of Morgan Stanley CEO Phil Purcell and a roundtable discussion of the firm's top executives. The meeting's overall tone was bullish, reassuring investors that now is a good time to buy equities because, if they buy cheap, their portfolios will appreciate more drastically over time.

"Nobody wants any part of the equity market," Purcell admitted to investors. "We have many clients coming in saying, Get me out of the equity market altogether. Put it in cash. Put it in bonds.' This is probably the worst time to do that."

Merrill Lynch ran an eight-page spread in the front section of The Wall Street Journal on Aug. 6 also taking the steep market decline head-on. The piece was filled with investor quotes about the stock market "free fall" and their retirement hanging in the balance. But instead of emphasizing a market-buying opportunity, Merrill played up other aspects of financial management, including taxes, annuities, bonds, real estate, guaranteed principle and cash.

These messages hardly do enough to convince investors to stick with stocks and funds, said Lisa Cohen, a fund sales consultant at The Collaborative in Medfield, Mass.

"People are so afraid and are not responding rationally," Cohen said.

A number of fund managers have told Cohen that investors are so gripped with dread that they are jumping out of the equity markets while at the same time admitting that they know they are doing the wrong thing.

"Investors are saying, I don't care what is the right thing to do, just get me out. I can't take it anymore,'" Cohen said.

Louis Thompson, Jr. who heads the National Investor Relations Institute in Vienna, Va., said fund companies could expound on Merrill's and Morgan's messages by telling them how their own portfolio managers are coping with the downturn.

Fund companies should use advertising, letters to clients, call centers and any means possible to tell investors how they are responding firsthand to the swooning markets, he said.

But one of the reasons more firms are not talking to investors about their internal portfolio management strategies is that many fund companies are not following the advice that they are giving to investors, Thompson said.

On one hand, funds are telling investors to stay in the markets for the long haul. On the other, he said, portfolio managers are trading out of their positions en masse in an effort to create solid short-term returns.

"The trading volume that we're seeing on Wall Street today can't be just due to individual investors buying and selling," he said. "We've got ourselves in the situation where fund managers are being reviewed and compensated on the basis of short-term performance."

"I think there is a disconnect in the message," Thompson continued.

In addition, he said the problem of shattered investor confidence won't go away simply because fund companies are communicating more openly with investors. CEOs of corporations and regulators also face a gargantuan task.

"Words are not going to do much in this environment," he said. "The market needs to calm down a little bit, instead of this knee-jerk stuff that's going on. We all have a role in this. We've all got a lot of work to do. But, having said that, what we destroyed in six months could take a lot of time to bring back."

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