Yield of Dreams

Can American Funds Win Back Advisors?

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America_FundsLogoAmerican Funds, which has notoriously and historically been media-shy, is now trying to change that, at least with advisor-facing publications. And there's good reason for the change. Long considered the darling of the mutual fund world, American Funds bled $81.5 billion in assets in 2011, and lost another $10 billion in assets during the first two months of this year, according to Morningstar. Now, the company is trying to win back the hearts of advisors, launching a new series of funds of funds, ramping up its advertising in trade publications that reach advisors, and rolling out a Facebook page and YouTube channel. The company will also start making its business professionals available to advisor-facing publications, such as Registered Rep., for the first time.

I sat down with the fund family’s spokesman Chuck Freadhoff to hear more about the new initiatives, which get underway next month. Freadhoff said nothing has changed on the investments side; it still has the same investment philosophy and multi-manager approach to running its funds. But a lot is changing on the business side.

For one, the fund company is going to start advertising in select trade publications, a big leap for a company that has never advertised. The company only sells through advisors, not direct to retail investors, so the advertising will be targeted at advisors. The company has also launched a Facebook page. The new YouTube channel, coming this summer, will feature the company’s executives talking about investment themes, such as dividend investing. But it won’t be product-oriented.

Many have debated the reasons why advisors have been taking money out of American Funds in droves. Our February 2011 cover story outlined many of the possible reasons. Perhaps it was poor performance, or a symptom of the move away from active mutual funds toward more passive instruments. Maybe it was the effect of the equity market volatility, or perhaps advisors didn’t like the company’s wholesaling approach anymore. Equities, which constitute a large part of their fund line-up, are out of favor with investors. But the primary reason, according to Freadhoff, is bad performance over the last couple years.

Some of the changes going on at American Funds came out of advisors telling the firm, ‘You’re not making our lives any easier,’ Freadhoff said. One way the company is trying to make their lives easier is with a new line-up of funds of funds, eight of them to be exact, also coming in May. They’ll provide different three types of portfolios that advisors can use with clients depending on their risk tolerance, including accumulation portfolios, balanced portfolios and preservation portfolios. Although there will be several American Funds within these funds, there will only be one ticket charge.

Of course, I understand why American Funds is trying to get in front of advisors. It’s not as if advisors don’t know they are, but many of them simply lost faith in the fund company and walked away. If they want to get their attention, they’ve got to show that things have changed. The question is, will the new efforts work?

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Casting a gimlet-eye on asset management issues.

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