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Funds Streamline Marketing Budgets for 2002

Overall, marketing budgets at fund firms for 2002 are way down, according to analysts. Many firms maintain that marketing is one of last things they want to cut, but the downward trend in spending, which began in 2001, is continuing this year. Still, because firms started paring down their marketing initiatives in 2001, there is not a lot to drop in 2002. As a result, firms are likely to maintain their initiatives, but direct them to a smaller pool of potential investors.

"Marketing budgets are absolutely down from recent levels just about everywhere in the fund industry," said Jim Folwell, an analyst at Cerulli Associates. "But they're not really rolling out different initiatives for 2002. They're targeting those initiatives to narrower groups. I think we'll see them continue to do the things they've been doing--sponsorships, marketing materials, value-added wholesaling, sales tools--but they will save money by targeting them to fewer people."

Scaling Back

That means firms will actually lower the number of adviser firms on which they concentrate. Instead of managing 50 relationships with adviser firms, for example, some fund companies have begun working on 15 key firms, Folwell said.

Typically, firms make multiple budget plans for the year assuming different levels of assets and revenue, according to Charles O'Neill, a principal at Diversified Management Resources. The base plan will contain the bare essentials for firms, such as periodic, standard marketing materials geared towards advisers, and will add initiatives back to the agenda throughout the year if current revenue streams permit.

"When making their budgets, firms take a look at the things that are nice to have versus things that they need to have," said O'Neill. "This year, there's not going to be too many nice-to-haves."

Narrowing the marketing target can be more difficult in the direct channel. That, combined with the trend towards adviser-sold products, makes it unlikely that firms will engage in a lot of direct, broad-based advertising, Folwell said. Television advertising is one area that will be down significantly in 2002 as firms focus their advertising on more efficient media outlets, he said.

"Firms will simply have to be more selective in terms of the media through which they get their messages out," Folwell said. "With this year's budgets, firms are having to ask themselves, How can we be smarter about how we spend our dollars?'"

One way firms will try to cut spending on sales efforts is with the implementation of virtual wholesaling and the reduction of travel costs, said Matthew McGinness, an analyst at Cerulli (See E-Wholesaling, pg 3). While firms are not discarding traditional wholesaling techniques, current budgets have forced them to consider to some degree the lower salaries and lower total costs associated with virtual wholesaling."

"Virtual wholesaling is becoming something firms are looking at as an economical means of expanding the number of sales people they have," McGinness said. "Everyone wants to increase their staff to boost sales, but this is a tough year to do that."

High-Net-Worth Marketing

In 2001, there was an emphasis on fund firms going after the high-net-worth market. Although firms will narrow their marketing focus, it's not necessarily more cost efficient to pursue the high-net-worth investor because that market is much more costly to serve, Folwell said. While some firms have begun building managed account programs, which will require some degree of marketing, the marketing focus will continue to be on funds.

"Fund complexes have to focus their energy on where their clients are and where the money is," Folwell said. "Yes, firms are slowly trying to move up the scale in terms of the affluence of their investors, but I don't see them making a big jump to high-net-worth clients this year."