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NICSA Survey


Fund shareholders' overall satisfaction with the level of service they are getting from their fund companies is waning, according to a new survey issued today by the National Investment Company Service Association.

The results of the NICSA Shareholder Satisfaction Survey, which was conducted last year, found that of the 5,206 shareholders who responded, the percentage who reported being very satisfied fell to 53% in 2001 from 59% the prior year. And those who indicated that they were very dissatisfied with the level of service their fund company was providing spiked to 4% in 2001 from just 1% in 2000.

Some of that dissatisfaction is shareholders' frustration with the overall poor performance of their funds in a tough economy, said Brett Sullivan, director of research with Access Data Corp., the firm that conducted the survey. Even though the survey is intended to measure satisfaction of service, fund performance and other factors probably "trickled into shareholders' sentiments," Sullivan said.

But the results do reflect a couple of trends in the fund industry that have served to reduce the quality of service shareholders receive, Sullivan said.

Cutting Costs at Shareholders' Expense

Over the past year, many firms made deep cuts to their shareholder servicing departments as part of an effort to reduce costs in the face of a flagging economy, he said. Moreover, in the past two years a growing number of firms have abandoned the notion that a high level of customer service can make them stand out among their competitors, Sullivan said. "Up until two years ago the entire industry was trying to differentiate themselves based on level of service. I think there is a greater focus on the bottom line and a greater focus on gaining market share and people believe that service isn't the way to do this," he said.

This year's survey marks the 14th year that NICSA has queried shareholders about their level of satisfaction with their funds companies' service, what factors influence their investment decisions, how, when and why they contact their fund company and a host of other issues. Access Data randomly mailed 31,000 surveys to the shareholders of 29 companies participating in the survey.

Online Communication Catching On

A growing percentage of shareholders are adopting the Internet as the primary means of communication with their fund company, the survey shows. In the past three years, all forms of direct communication with a fund company have declined while contact through company Web sites has increased from just 3% in 1999 to 14% in 2001. Also, 24% of all respondents indicated that their preferred means of contact is via phone through their broker. That figure climbed from 22% and 21% in 2000 and 1999, respectively.

"Less and less people are relying on customer service representatives in their contact with fund families," Sullivan said. Moreover, a growing number of shareholders are beginning to get comfortable with using the Internet to buy, sell and exchange fund shares as well as conduct other transactions, he said.

Influencing Factors

One aspect of the survey that remained constant from 2000 to 2001 was the factors that have the greatest influence on shareholders' decision to invest. Performance and a fund's reputation continue to be the biggest factors shareholders examine. Not surprisingly, management fees and sales charges increased in importance, according to the survey. Forty-one percent of respondents indicated that low professional management fees were a factor that mattered most, up from 39% the prior year. And 38% said that low sales charges were the most important, up from 37% in 2000.

What factors have the least influence? Mail solicitations, advertisements and newspaper and magazine articles are not very convincing to shareholders, according to the data. As was the case in 2000, just 1% of respondents indicated that mail solicitations and television and radio ads had any kind of bearing on their investment decisions, the survey said. Newspaper and magazine ads had an influence on just 2% of respondents, down from 3% the prior year and newspaper and magazine articles had some sway on 8%, which was up from 7% in 2000.

Social responsibility issues were an influencing factor for 11% of shareholders participating in the survey, which was up from just 6% the prior year, but there is a mitigating factor that caused the spike, Sullivan said.

There were twice as many fund companies participating in the survey. Two new firms included SRI firm Domini Investments as well as the WM Group of Funds, which offers socially responsible funds.

The increase in participating companies skewed other results as well, Sullivan said. In 2000, 14% of the total number of companies were no-load firms, but in 2001, 27% of the firms were no-load, Sullivan said. That may account for the spike in the number of respondents indicating they own no-load shares. Thirty-six percent of respondents in the 2001 survey indicated that they owned no-load shares compared to just 28% in the year prior. Similarly, those who indicated they owned A-shares dropped from 50% in 2000 to 45% in 2001 and the number of B-share owners dropped from 30% in 2000 to 36% in 2001.