SEC Changes Rules For Mutual Fund Advertisers

Shops Will Wait and See, But New Points of Differentiation Possible
BOSTON–The agency world is receiving the Securities and Exchange Commission’s new advertising rules for mutual funds with a mixture of enthusiasm and caution.
The regulations allow mutual fund companies to include a customer satisfaction rating in their marketing messages. Previously, the SEC allowed only financial performance ratings to be touted in ads.
“Fund marketers are going to love it,” predicted Bill Heater, president of Boston-based Heater Advertising, which has worked for Scudder Kemper Investments and Fleet Bank. “There are more mutual funds than stocks and [consumers can get] overwhelmed, so you need more help.”
Satisfaction ratings “will probably end up being [used in ads] just like J.D. Power” and Associates’ awards of excellence are occasionally used by automakers, said Mike Sheehan, creative director at Hill, Holliday, Connors, Cosmopulos in Boston, whose clients include Fidelity Investments. “It would be something [we] might use, but what really breaks through loud and clear is good performance.”
Others say the rating is not the top consideration for consumers. “If it gives some company with underperforming funds an edge you can bet they’ll use it” in their ads, said Bob Hoffman, president of Gearon Hoffman in Boston, which launches Brown & Co. Securities mutual funds this fall. Hoffman will not tout customer satisfaction for Brown.
The April rule change was engineered in large part by Dalbar, a securities research firm in Boston, which developed an SEC-approved customer satisfaction rating system.
Charlene Kane, an account director at Boston shop Trinity Communications, whose clients include Putnam Investments Scudder, did not see the change as having an enormous impact. She predicted that advertisers would just see a good rating as “another feather in their cap,” not a reason to craft new ads.
Until the Dalbar name is better known, its ratings won’t be a useful marketing tool, said Heater. “It took a long time for [fund rater] Morningstar to catch on,” he said.