What a difference a year makes.
On Sept. 2, 2003, one day before Eliot Spitzer's famous press conference on Canary Capital, the thought of a slew of high-profile, highly respected fund names disappearing during the ensuing 12 months was almost inconceivable. But just one year after Fundgate kicked off, brand names like Invesco and Bank One are set to vanish, and others are sure to follow suit in the near future.
Amvescap, the parent of AIM Advisors and Invesco, announced its intention to ditch the troubled Invesco name for its retail U.S. mutual fund investors late last week. Weary Invesco, which had taken a pounding during its highly visible battle with regulators, has been in the process of folding into AIM for some time. But the mammoth $451 million settlement (see related story, page 1) against the sister-shops appears to be the final nail in the coffin of one of the oldest mutual fund brand names.
The decision to eliminate the Invesco brand was a move many experts both expected and felt was unavoidable given AIM's and Invesco's similarities and Invesco's problems. "They have been maintaining the fiction of separate brands with AIM and Invesco, while at the same time dismantling most of the Invesco marketing and distribution operation and ceding it over to AIM," said Philadelphia-based consultant Burton Greenwald, of B.J. Greenwald & Associates.
Time Running Out
Over at Bank One, time is running out for One Group Funds. Bank One, which merged with J.P. Morgan earlier this year, announced last month its intention to either merge One Group funds with J.P. Morgan Funds or simply re-brand the remaining Bank One offerings in February. "None of the funds will keep the Bank One name," said a Bank One spokeswoman.
Another one of the original un-fab four from the Canary complaint, Bank of America, is likely to see one if its two major brands disappear, although a company spokesman said BoA has not made any decisions yet. Bank of America merged with FleetBoston, parent of the Columbia Funds, earlier this year, and now the decision for BoA is whether to keep the tarnished Columbia funds brand or the more tarnished Nations Funds name. Several industry watchers have noted all signs point to Columbia as the brand that will survive.
Strong Funds, another original bad-boy in the scandal, was also acquired following its settlement with regulators. It is almost guaranteed to shed its name, experts say. The assets of the firm, once owned by fallen fund icon Dick Strong, were purchased by Wells Fargo, and the bank is likely to rid itself of the tainted association.
"I would be shocked if they kept the Strong brand," said Phil Edwards, managing director of global fund research at Standard & Poor's. Greenwald agreed, saying he anticipates the name to disappear gradually. "Wells Fargo may have a problem abandoning the Strong name too quickly because of some commitments they have, but I think down the road, that name will ultimately disappear and the Wells Fargo brand will be supreme." A Strong spokeswoman said no decision on the name had been made yet.
While shops like Strong, Bank of America, Bank One and even Invesco have an in-house viable alternative and do not have to start from scratch, others are not in an as-enviable position.
"There is an immediate solution in having another brand present. At Bank One, there happens to be a very strong financial name in J.P. Morgan that can be used tomorrow if they wanted. That's important," said John Benvenuto, mutual funds expert at Financial Research Corp. of Boston. However, the reality for many firms is brand rehabilitation. "Anyone that is independent still is in brand-resurrection mode, not brand-changing mode," Benvenuto said.
Those firms with fewer options and the stink of the scandal on their hands may be in more serious trouble, experts cautioned. Pilgrim Baxter, which settled with regulators, still bears the name of Gary Pilgrim and Harold Baxter, both of whom still face serious charges. "Pilgrim Baxter is a very strong case for re-branding," Benvenuto said. "It's similar to Strong."
Others said the reality may be much more grave. "They are a pretty one-dimensional shop," Edwards said. "At Fleet and Nations, it's a question of which name do you take or do you [create] a new name? It's not a question of whether they are going to exist. With Pilgrim Baxter, you have to throw that into the ring, too. Will they even continue to exist?," Edwards asked. Pilgrim Baxter declined comment.
Another shop that could become an "endangered species" as one industry expert put it, is Mutuals.com. "That's a group, out of all of them, that is most susceptible to going away," according to Edwards. Greenwald agreed, saying that "would be very hard to sustain that brand name."
Others pointed to the combination of regulatory scrutiny and the damage that can have on the brand as well as the challenges of smaller shops in this environment of increased regulatory costs. Benvenuto said that any small firm with less than $1 billion in assets that has been touched by the scandal, will have a difficult time resurrecting momentum.
Staying the Course
But Mutuals.com intends to stay the course. "There's absolutely no thought of our company going anywhere. We have funds with a good track record," said Dan Ahrens, president and CEO of Mutuals.com, noting that there is no regulatory case against the fund or its advisor. Rather, it is against three former executives and "only involves the brokerage side of Mutuals.com Inc.," Aherns said.
The company, which runs four funds and has assets of about $90 million, is doing well and gaining assets, according to Ahrens. However, he did admit the regulatory probe has had some affect. "We have prospectus supplements because an affiliate has charges against it," he said. "So, it affects the company, and has probably slowed the Vice Fund's growth and inflows, yet the Vice Fund is still gaining assets and growing."
And while Ahrens is not planning on re-branding the firm's name, he is open to change. "Although we're not planning on going anywhere and think the funds are doing very well, if somebody that has greater distribution than us, somebody that can grow the assets better than we're able to, wanted to acquire us, that we're open to."