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Ads Said Not to Influence Shareholders

BOSTON - Despite the millions of dollars funds pour into marketing and advertising campaigns, their efforts are not being noticed by shareholders and are generally not effective, according to a recent survey conducted by the National Investment Company Service Association of Wellesley, Mass.

Only one percent of 2,526 investors responding to the survey said newspaper, magazine, television and radio advertisements had an influence on their decision to purchase a certain fund.

In fact, advertisements and direct mail solicitations ranked as the two weakest influences on investors' decisions to purchase a fund, according to the survey. Fund performance topped the list of influences affecting shareholders' buying decisions with 72 percent of respondents citing this factor as their major consideration. Fund reputation wielded the second highest influence, with 67 percent citing this as their greatest consideration. Low management fees was the third most influential factor, with 39 percent citing it as their chief consideration.

That was one of the highlights of the association's shareholder service survey for 2000, presented here to industry executives attending NICSA's east coast regional meeting earlier this month. This year's survey is the thirteenth NICSA has conducted in as many years. The survey, which was distributed to 14 fund companies which distributed it to their shareholders, was commissioned by NICSA and conducted by Atlantic Marketing Research of Boston. The goal of the survey was to provide an overview of shareholders' investing behavior and measure their satisfaction, according to Lonnie Macdonald, senior vice president for Atlantic. The companies involved in the survey include eight firms that offer load funds, two that offer only no-load funds, and four that offer both load and no-load. The survey represents a cross-section of shareholders who hold a minimum of 100 shares or a balance of $5,000 or more, Macdonald said.

Although most shareholders are generally satisfied with the service level provided by their respective fund companies, a growing number of shareholders indicated that they are either indifferent or somewhat dissatisfied with service, according to the survey. Forty percent of the respondents said they were somewhat satisfied, indifferent, or somewhat dissatisfied. That number is two percent higher than in 1999 and six percent higher than in 1998, according to the survey. In the past three years, only one percent of the respondents have indicated that they are very dissatisfied with the level of service they are receiving.

However, fund companies need to concentrate on the growing number of shareholders that are either ambivalent or somewhat dissatisfied about the level of service they are receiving, said Macdonald.

"If you had shareholders responding [that they were] neither satisfied nor dissatisfied, or below, you are at risk of losing those shareholders," he said.

The survey also found that when a phone rings at a fund's call center, it is more often a customer calling to redeem shares rather than buy them. Twenty-eight percent of the respondents indicated that they contacted their fund company in 2000 to make redemption, up from 24 percent in 1999. Twenty-seven percent in 2000 said they called to make purchases, down from 32 percent in 1999.

"People increasingly call fund companies to redeem," Macdonald said. Last year a lot of investors chased performance and the growing number of funds available to investors contributed to the increase in redemptions, he said. Companies participating in the survey were: Alliance Fund Services of New York, American Express Financial of Minneapolis, Armada Funds of Cleveland, Eaton Vance Asset Management of Boston, Evergreen Funds of Charlotte, N.C., Federated Investors of Pittsburgh, Ivy Mackenzie Services of Boca Raton, Fla., Liberty Funds Group of Boston, Mainstay Investments of New York, Scudder Kemper of Boston, Sentinel Funds of Montpelier, Vt., State Street Research of Boston, Stein Roe and Franham of Chicago and WM Group of Funds of Sacramento, Calif.