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A graphic account of the downturn

Imagine if fund managers started claiming that investments can go up as well as down. The humour behind this belies the difficulty of promoting investments in a third consecutive bear year.

The bull market of the 1990s saw the unit trust industry grow massively. Rising stockmarkets gave companies the opportunity to use graphs in their advertising showing impressive year-on-year growth. Now, of course, graphs would tell a very different story.

Advertising agency CCHM chairman Lucian Camp says investment companies are faced with a challenge. “The fat days of the 1990s and their graphs are no longer available. We now have to proceed on a cautious, expectation-managing basis.”

Camp is fresh from working on a campaign for Isis, the rebranding of the merged Friends Ivory & Sime and Royal & Sun Alliance Investments. Its big idea is the strapline: “this is reality”. The campaign uses ironic humour to negotiate the difficulties of the current market such as: “You certainly picked a great year to launch an investment company – Thanks. We thought so too.”

Yet many investment companies have beaten a tactical retreat and stopped advertising. New Star marketing director Rob Page, whose company has advertised heavily since its launch 18 months ago, thinks this is a mistake. “We need to get away from the boom and bust of advertising. We recognise that intermediaries are in business all the year round and that buying an Isa on April 2 might not be the best time to do it.”

Page accepts that he is in a different position as he is trying to establish a new brand and has funds without any past performance to speak of. But he still sees an educational role for graphs, as used in New Star&#39s trade advertising for its recently launched high-yield bond fund.

However, Virgin Direct marketing manager Gordon Maw is cynical about the use of graphs and says companies are still combing through their portfolio looking for which particular fund is performing best.

He welcomes the fact that current markets make the use of short-term performance unattractive. “We have turned up the advertising on other products rather than push on the closed door of unit trusts,” adds Maw.

Some companies, such as Liontrust, have never been convinced by the use of advertising. Marketing director Jonathon Harbottle says: “We rely on old-fashioned techniques of shoe leather and eyeballing advisers.”

He believes the big investment houses, with a multitude of “me too” funds with mediocre performance, will have a very difficult time, faced with the combination of bull market costs and bear market income.

From an IFA perspective, Hargreaves Lansdown head of research Mark Dampier warns that the next five or so years are going to be very tough for fund management companies and intermediaries. “People are just not going to buy. There is a complete buyers&#39 strike on at the moment and it is not going to return to what it has been for a very long time.”

Dampier points out that some people have lost 50 per cent of their money and it will take a considerable amount of time for their confidence to return. However, he believes that companies which are continuing to spend a lot of money on marketing, such as DWS, New Star and Insight, will take what little new business there is.

But he warns: “You cannot spend hundreds of millions in advertising expecting money just to roll in as it did in the past. It is no good trying to sell something people just do not want.”

His advice is for fund management companies to focus their strategies very tightly on particular areas, such as bond or income funds and perhaps derivatives products.

Above all, he says investment houses should be targeting their advertising at intermediaries rather than consumers because fuller discussions with an adviser could be the only way in which to persuade investors to part with their money.

Life companies are also finding the going tough. Their primary investment offering has been with-profits, which in the current environment has the consequences of bonus cuts and market value adjusters. Life companies have had to dig into reserves or call on shareholder money to maintain the health of their with-profits funds.

Rather than advertising for with-profits products, consumers have been faced with full-pages ads in the national press from Prudential explaining why it has cut payouts on its with-profits bond.

There has been a search by life and investment companies to find alternatives to their old warhorses. For many, the answer has been to focus on structured products.

The bear market may have laid one argument to rest, however. As Dampier says with icy irony, controversies about past performance will be no more, as there is none to talk about.

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