SEC Changes May Increase Ads For Funds

New rules adopted by the Securities and Exchange Commission allow mutual fund companies to include customer satisfaction claims in their marketing messages. Previously, the SEC allowed only performance ratings to be touted in ads.
The change was engineered in large part by Dalbar, a 22-year-old securities research firm in Boston which developed a customer satisfaction rating system that was approved by the SEC this spring.
The Dalbar Rating gauges satisfaction with both specific investment advisors and mutual fund companies.
“[The ruling] opens up the world to a whole bunch of smaller funds and serves consumers well,” said Dalbar president and founder Louis Harvey. While a high performance rating is desirable, it fails to measure how well the fund serves each client’s needs, Harvey said.
Dalbar executives estimate that the adoption of their rating system could prompt a nine-figure increase in mutual fund advertising annually because companies with lower performance ratings will now be able to tout customer satisfaction.
The mutual fund industry last year spent $298.8 million on advertising to consumers, according to Competitive Media Reporting.
Michael Donovan, president of Northborough, Mass.-based Donovan Group, which handles Lord, Abbett & Co.’s mutual funds, predicted that the Dalbar Rating will be to mutual fund providers what J.D. Power and Associates is to automakers.
“Once you get past the performance stories, how do you differentiate yourself?” Donovan queried. “You start looking at services. I think the Dalbar Rating will be a great tool.”
Dalbar, which charges mutual fund companies to survey their customers, does not have exclusivity on consumer satisfaction ratings for mutual funds. Therefore, it is possible other firms will develop their own benchmarks that advertisers can use.
Dalbar executives said their consumer satisfaction ratings should begin appearing on ads in the fall.