Although top mutual fund managers increased their advertising budgets by 20% last year, to almost $231 million, overall ad spending on mutual fund products — by all types of financial providers — declined by about 14%.
Awareness-building is what interests fund companies now, said mutual fund consultant Geoffrey Bobroff, president of Greenwich, R.I.-based Bobroff Consulting Inc.
“They are less inclined to advertise investment performance. It's more thematic, about rollovers, IRAs and retirement. Since it's hard to predict what's going to happen, no one wants to be out there advertising a 100% return which then falls off,” Mr. Bobroff said.
According to Cerulli Associates, a Boston-based research firm that issued a report on mutual fund branding last month, three firms —
T. Rowe Price Group Inc. of Baltimore, Franklin Resources Inc. of San Mateo, Calif., and Boston-based FMR Corp. — accounted for about half of all advertising spending by mutual fund companies in 2006.
Fund advertising is now “less about specific products and more about company messages, to get the name out there,” said Daniel Sondhelm, a partner and vice president at SunStar, a financial marketing firm in Alexandria, Va.
Reflecting the declining emphasis on particular funds and their performance, New York-based ad-vertising trackers Nielsen Monitor-Plus and Competitrack Inc. both reported that ad spending in the mutual-fund-product category declined in 2006 compared with the previous year. Nielsen said it went down 8%, and Competitrack said it fell 14%.
Their data on expenditures did not take into account Internet advertising or public relations, which observers note are also on the rise.
In the Nielsen analysis, fund advertising declined to $280.2 million in 2006, from $305.2 million in 2005. Competitrack found a decline to $196.7 million from $228.8 million.
According to Nielsen, mutual-fund-product advertising during the first six months of this year was 21.5% below the level of the first half of 2006.
Unlike the late 1990s, when individual investors were the fund companies' intended target, the chief audience for fund advertising today is advisers, Mr. Sondhelm said.
But the cost to land a new customer from retail advertising can be high, Mr. Bobroff said.
“The penetration is there,” he said. “More than 50% of the population directly or indirectly through 401(k) plans has mutual funds. Where are we going to get new customers?”
Cerulli's data underscore this shift. Spending on television advertising — a medium used almost exclusively to reach consumers — declined 16% last year, from $55.9 million to $47.0 million, among the 25 biggest-spending mutual fund managers. At the same time, print advertising, which includes consumer and business-to-business ad spending, rose 35%, to $174 million.
Among big ad spenders, Internet spending rose more than 25% last year, to $9.8 million.
Reaching advisers is one of the reasons
The Vanguard Group Inc. of Malvern, Pa., boosted its ad spending to $16.3 million in 2006, from $9.4 million the previous year.
“The primary reason [for the increased spending] is a push to increase awareness among advisers for our exchange traded funds,” said Bert Dalby, a Vanguard principal who heads the firm's institutional marketing efforts.
“Up until the ETFs, most of our advertising had been retail oriented,” he said. “We still do some of that.”
Vanguard will spend about as much on advertising this year as it did in 2006.
At
T. Rowe Price, both the retail and the intermediary markets are important. Company spokesman Brian Lewbart said that recognition of the brand among both groups is beneficial when advisers and clients sit down to talk.
“There's a lot of synergy that comes out of the fact that we are so heavily into the consumer marketplace in addition to the trades,” he said.
Branding is also an important for companies that have undergone major changes.
Legg Mason Inc. of Baltimore, for example, cut its spending by more than 50% last year as part of a realignment following its acquisition of New York-based
Citigroup Inc.'s asset management business in June 2005. The company spent last year conducting market research to prepare for a $6 million branding campaign launched earlier this year, said Benji Baer, head of marketing communications.
“While we have a strong interest in connecting with consumers and raising awareness of the Legg Mason story, our primary target audience is financial advisers,” she said, adding that the new campaign includes print, television and elevator ads.
A new Legg Mason website is coming in December, Ms. Baer said, adding that she expects the firm will maintain its 2008 ad spending at this year's levels.
Sue Asci can be reached at [email protected].
