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Initiatives to Regain Trust Fall Flat So Far

The last three years have shaken investors to the core, depleting their confidence in Corporate America and the stock market and leaving many unclear about what to believe and what to stay away from. While some companies have tried their best to regain the trust of the investing public, measurable success is hard to come by at this point.

As time has gone on, the relentless barrage of bad news has left investors dizzied, reeling first from the tech bubble burst, to the tragic events of 9/11, to the constant threat of continued terrorism and the unrest in Iraq and on the Korean peninsula. Throw in the corporate scandals at the likes of Enron, Tyco and WorldCom and the fact that despite three successive years of a down market, the ailing economy shows little signs of recovering resilience.

Chip Roame, managing principal at market research and consulting firm Tiburon Strategic Advisors, in Tiburon, Calif., said that there are several good examples of campaigns to rebuild investor confidence. He said Charles Schwab has been a leader in promoting the "stay the course" message, using Chuck Schwab as a spokesman to "exude confidence." Schwab also offers a new "check-up" program, he said, to let investors get their hands around a situation quickly.

Merrill Lynch, meanwhile, has developed an ad campaign promoting "Total Merrill," with the message that investors need to think about their needs more broadly and Merrill is there to help them. Roame said he has also noticed a pick-up in rate-of-return ads by fund companies lately.

Daunting Task'

Ivy McLemore, a spokesman for AIM, said the company is working on an ad campaign that focuses on keeping things in perspective, but for competitive reason he could not discuss it further.

However, he said there are a number of things that can be done to combat the "daunting task" of restoring investor confidence, beginning with communication, something he said the firm does through quarterly newsletters, annual reports, and via AIM's Web site.

"Even though we communicate with shareholders, it's very important to do so more often," McLemore said, adding that AIM is working on a "road show" to talk to advisors about the past, present, and future of the company. Likewise, AIM is informing investors of the quantitative measurements it is using.

While it may make investors jittery to sit tight while the jingle of the change in their pockets jangles more softly, McLemore stressed the importance of a long-term outlook. And as expected in this down economy, the company is touting "timeless fundamentals," much like the blocking and tackling of football. While it may sound overly simplistic, he also said the company is "reminding individuals" of three important keys: diversification, having a long-term plan, and enlisting a good financial advisor.

Many agree there is not much else to do at this point but to wait and see as confidence is often instilled by returns, and in a poor market environment there is little else but fundamentals to tout. While firms may be getting their word out, for the most part, campaigns touting fundamentals and good old-fashioned values are pretty much the norm of any initiative trying to regain investor confidence.

Not Doing the Trick

But the campaigns are producing little measurable results up to this point to sway investors back into believing in corporate America, according to the Investor Confidence Index, a tracking survey conducted by Rating Research, a joint venture between The Ratrix Group and Opinion Research Corp. "Despite efforts by the government and many companies to restore investor confidence and somewhat less media attention on corporate scandals, investors appear largely unmoved," said Matthew Mole, co-founder of Rating Research

Nearly two-thirds of the respondents, or 65%, said that they maintain about the same level of confidence investing their money in the stock market in 2003 as they did last year. While only 14% said they felt more confident, even more felt less confident, at 16%.

Merely one in 20 said they felt "very confident" that the senior leadership of publicly traded companies engage in ethical business practices. Meanwhile, 45% said they are "not very confident" or "not at all confident" in senior leadership's ability to act ethically. While this is an improvement from the high of 56% reached in August, it still represents significant problems for the industry.

The survey consists of 500 investors, polled in waves between last May and December. An overwhelming 53% said that having available ratings on ethical business practices of publicly traded companies would increase their confidence, but the credibility of those providing the ratings is paramount.

More Than Faith

Ron Logue, State Street's president and operating chief, said that there is a lot more to regaining investor trust than simply asking the public to have faith in the honesty and integrity of financial intermediaries. Speaking at a conference last month (see MFMN 1/20/03), Logue said a growing interest in products that offer a minimum guaranteed return, even at the expense of settling for a lower rate of return, and a rise in interest in relatively low-risk strategies such as "enhanced indexation," which offer attractive risk-reward tradeoffs, "are the kind of solutions that will attract clients and allow us to gain their trust and understanding over the long term."

Copyright 2003 Thomson Media Inc. All Rights Reserved.