SAN FRANCISCO — Despite its pending acquisition by a unit of Power Financial Corp., Putnam Investments continues to face an uphill battle in its bid to regain the
trust and confidence of financial advisers.
In recent months, Putnam chief executive Charles “Ed” Haldeman Jr. has been crisscrossing the country in an effort to try to bring advisers back into Putnam’s fold.
Compared with institutional investors and product distributors, “advisers are the toughest” to win back, Mr. Haldeman said at a recent gathering of industry executives here.
As the first mutual fund company charged with wrongdoing in the market-timing scandal that rattled the industry several years ago, Putnam has seen investors yank billions in assets from its funds in recent years.
But even before that, the Boston-based company was facing a crisis of confidence on the part of the brokers, financial planners and other middlemen that sell its funds. That crisis was precipitated by plunging returns, because managers had placed huge bets on technology stocks.
Although Mr. Haldeman believes that Putnam — after implementing systems, policies and procedures to assure more-consistent returns — is deserving of a second chance, it remains to be seen whether advisers will give it that opportunity.
Indeed, a recent query to members of the National Association of Personal Financial Advisors of Arlington Heights, Ill., and the Financial Planning Association of Denver, yielded eight responses that all followed a similar script.
“With all due respect to Mr. Haldeman, I highly doubt that I would commit client dollars to the stewardship of Putnam now or anytime soon,” Roger Wohlner, principal with Asset Strategy Consultants of Arlington Heights, Ill, wrote in an e-mail. “I took issue with Putnam’s general poor performance, high fees, style drift and their blatant betrayal of the
trust placed in them by advisers and investors, ” said Mr. Wohlner, who oversees $95 million in assets.
With so many good fund companies vying for assets, “why would I place money with Putnam?” he wrote.
That said, more advisers are warming up to Putnam, according to Mr. Haldeman.
From January through August 2006, the number of advisers with more than $50,000 invested in Putnam products increased by 21%, spokeswoman Nancy Fisher said.
She declined, however, to quantify that group and gave no update on whether it has grown.
“I doubt that advisers are coming back,” Bedda D’Angelo, president of Fiduciary Solutions in Durham, N.C., wrote in an e-mail. “I suspect that Putnam has courted a whole new generation of brokers who have no historical perspective.”
At least one adviser, referred to InvestmentNews by Putnam, was persuaded by Mr. Haldeman not to yank his clients’ assets from Putnam’s funds.
“I knew who Ed was, and frankly, I trusted him,” said Philip Bracy, a registered representative with Financial Network Investment Corp. of El Segundo, Calif., which manages $20 million. “I went to Boston [after news of the scandals broke]. I believed he could turn it around [after talking to him]. He said it succinctly.”
Another adviser, also referred by Putnam, spoke favorably of the changes that have taken place at Putnam in recent years.
“They could have come back with the product du jour, but they came back with fundamentals and sticking to a process,” said Irwin W. Rosenzweig, president of Rosenzweig & Associates Wealth Management Group LLC of Media, Pa., which manages $300 million.
Although Mr. Rosenzweig never stopped using Putnam’s bond funds and an asset allocation fund, he has only begun buying riskier equity funds from Putnam during the past 12 months, he said.
Overall, however, the jury remains out on whether Putnam is new and improved.
“Haldeman has brought a modicum of stability, but there’s more to be done,” said Reginald Laing, a mutual fund analyst for Morningstar Inc. of Chicago. “We’d like to see them do a better job retaining people.”
Indeed, inexperienced managers and high manager turnover make it difficult for Putnam to outperform across multiple funds, Mr. Laing said.
Putnam, however, maintains that its strategy of assigning four or five managers to one fund insulates it from the downside of manager departures.
“There’s a succession plan in place [implicitly with multiple managers], so it’s better for advisers,” said Forrester Gordon, director of marketing for Putnam.
Also, Putnam’s efforts to reduce portfolio volatility through the introduction of computerized risk control may be responsible for the firm’s lackluster performance, Mr. Laing said
For the one-, three- and five-year periods ended April 30, the average domestic-stock fund at Putnam ranked in the 61st, 54th and 63rd percentile, respectively, among their peers, according to Morningstar.
“They’re swinging from no risk controls to too many,” Mr. Laing said.
