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Funds Unveil Promos To Spark Sales

Reminiscent of the free toasters banks were fond of handing out to new depositors in the 1960s, at least two mutual fund companies and one insurance company have recently turned to special promotions to lure assets.

In addition, one industry trade group is set to launch a sweepstakes Nov. 1, which will award multiple $1,000 fund investments. The promotions, fund companies hope, create good will among existing shareholders and help the funds get closer to retail investors.

Montgomery Funds of San Francisco recently launched its second annual "Wise Owl Coloring Contest." The contest, announced on the fund group's Web site, allows children up to age 12 to download a contest entry form that asks them to concoct and color their own version of the Montgomery Funds' owl mascot. The contest runs through Nov. 13. One winner will receive $1,000, which will be invested for the child in any of the Montgomery Funds under a uniform gift to minors account (UGMA).

Trawling for Employee Investments

In July, the Armada Funds, the proprietary mutual fund group of National City Corp. of Cleveland, instituted an incentive program to entice company employees and their immediate family members to invest in three of the group's 29 mutual funds.

Any National City employee or family member that opens an account with a minimum of $500 in either the Armada Aggressive Allocation Fund, the Armada Balanced Allocation Fund or the Armada Conservative Allocation Fund will receive a $50 gift which will be invested in the newly established account. Furthermore, any employee who opens a new account will be entered into a $250 raffle that is expected to take place before year-end.

To qualify for the $50 incentive, employees must purchase A shares of those funds (the funds also offer B and C shares) and must maintain the fund account for six months or forfeit the $50.

Industry Groups Not Immune

Also jumping on the sweepstakes bandwagon is the Mutual Fund Education Alliance (MFEA), one of the industry's no-load funds associations. In honor of its 30th anniversary, the Alliance next month will rollout its "Fund Your Future" sweepstakes.

It will award $1,000 to winners who enter the sweepstakes on the Alliance's Web site, from each of the member companies that elect to participate, said Michelle Smith, managing director of the Alliance. So far 10 fund companies have signed on and each has agreed to award the winners $1,000 investments, she said.

So why are fund companies so eager to invent incentive programs and create sweepstakes?

While many no-load fund companies have also built intermediary distribution channels for their funds, there is still the desire to reach out and contact retail investors, said Smith. "It's a nice way for fund companies to make personal contact with investors. [In essence] they are saying, We're here, come learn about us, and if you win the sweepstakes, we'll help you get started,'" Smith said.

The MFEA, whose members include 34 fund groups, decided to launch its sweepstakes as a way to encourage individuals to make an investment for the long term, no matter what the stock market is doing, Smith said. "We're looking to capture those investors that are new to mutual funds and are, frankly, frightened to invest."

It can also provide an opportunity for mutual fund companies to create some excitement about their funds, especially when performance is so grim, Smith added.

Old Pro in Contest

A desire to create excitement is the driving factor behind Stein Roe's sixth annual Young Investor Fund essay contest, which now includes high school students as well as fifth through eighth graders. This year's contest, announced last month, will award a total of $34,000 in fund investments to 12 winners who write poetic about the most important lessons they have learned about money and investing, and how this knowledge will help them in the future. A different essay topic is available for the older kids.

The contest is open to all children, whether or not they are already invested in the $805 million Stein Roe Young Investor Fund or its intermediary-sold sister fund, the $116 million Liberty Young Investor Fund. Both funds invest in companies that kids easily recognize and associate with, and send out quarterly, kid-oriented educational newsletters.

Roughly half of the 1,000 to 2,200 annual essay contest entries are from existing young investors, said Wendy Rauch, Stein Roe spokeswoman. "We wanted to do something interactive each year, on a new topic as a way to recognize that kids are getting involved with investments," she said. The original intent of the contest was not to target new investors, Rauch said. But the contest, and subsequently the fund, has won quite a following, especially among teachers, she said.

The Cons of Incentives

But contests can be tricky, said Michael Sakraida, a fund consultant in Westchester, NY. "Sweepstakes or giveaways that do not have a direct tie-in with investment management run the risk of making the fund company look too desperate for business or insulting the prospects."