As equity indexes struggle to hold onto gains and recovery seems to be well hidden around the next corner, marketers have found themselves in an unfamiliar world. A report from Diversified Management Resources, Is Fund Marketing an Oxymoron?, suggests that new tactics are required to reach investors who were burned in the recent bear market. A few companies that have marketed themselves successfully may point the way for the rest of the industry.

During the 1990s, the mutual fund industry grew substantially, with fund assets, investors and a number of funds showing increases. But just as the bull market allowed many investors to think themselves ace stock pickers, it also encouraged marketers to believe that they were responsible for fund growth. Touting performance, as was common during the last decade, brought in assets but when the market correction began it wasn't possible to mention performance data.

"A fund's performance certainly plays a pivotal role in attracting and retaining assets. However, short-term investment performance does not necessarily equal good money management practices," the report said.

Chasing performance caused other problems, the report said, such as renaming or changing the investment strategies of funds to suit the latest fad. One hundred new technology sector funds were created between 1999 and spring 2000. Value managers were pressured to "style drift or drift themselves out the door," the report said.

After a decade of seeing fund returns trumpeted in every ad, investors' expectations became similarly inflated. A survey of 1,300 people conducted by Scudder Kemper Investments between April 18 and May 1, 2000, found the mean average return expectation was 21.7%. Risk management seemed to be taken seriously by few investors.

Investors may be held responsible for adopting a get-rich-quick mentality, but the fund industry has to take its knocks as well. "Fund marketers, particularly marketers from companies that aggressively flaunted their fund's brisk--yet unsustainable--investment performance are not entirely blameless," the report said.

An Exercise in Absurdity

Paul Mulligan, research analyst at Diversified Management Resources and one of the authors of the report, takes a dim view of basing campaigns on returns. "I'd say it's the last thing a company needs to advertise. It has a place in continuing to inform the client, but it's an exercise in absurdity to place your entire advertising strategy on a quarterly performance, ever," he said.

Returning to the investment principles that were ignored in marketing campaigns at the height of the bull market has its own risks, however. "Because of the zeal for sales, they were literally thrown out the window. Now, everyone wants to talk about them again," Mulligan said. Investors aren't so stupid that they won't notice when companies that didn't mention asset allocation and diversification suddenly start stressing them, he added.

Image vs. Brand

Although Mulligan is dubious about the appropriateness of brand-building campaigns for fund companies, sometimes they may be necessary. "However, what has to be distinguished is that it depends on if you're going to brand an image of the fund company or brand the reputation of the fund company," he said. Images are wonderful but a reputation is constant. "There are legitimate reasons for brand building. Outside of exposing your name, it helps develop a reputation for what you do," he added.

Fund companies have to be careful that the campaign doesn't promise too much. Mulligan said he had seen fund companies that have had to literally kill their campaigns when they couldn't do what they said they were going to do for their customers.

Competition for the investment dollar has increased, with separately managed accounts, exchange traded funds and stock baskets all vying for the mutual fund shareholders' attention. Mulligan doesn't expect funds to go away, but fund companies need to pay more attention to asset retention. "They do need to start moving beyond Let's acquire the asset. Now that we've acquired the asset it's over.' The marketing strategy must incorporate into it the retention strategies," he said.

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