Fund firm's spending on advertising appears to have continued to plunged in the fourth quarter, in spite of the creation of tax-advantaged products. Between the end of August and December 1, total fund spending fell to just more than $42 million, according to New York City-based Competitrack. That is down 59 percent from $102 million for the same three-month period in 2001.

The plunge in advertising comes even as firms have rolled out tax-advantaged individual-401(k) plans that require participants to start plans by year-end to gain tax-deductability this year. 2002 was also the first year in which 529 college savings plans were available with the full tax-advantages created by EGTRRA. These new products apparently were not enough to spur ad sales, though.

Much of the decline appears driven by drastic cuts in campaigns built around performance. Most fund firms so far have failed to develop non-investment return related messages for consumers. The failure of the industry to create alternative messages has left Vanguard in the strange position of being the industry leader on spending.

Through the first eleven months of 2002, fund firms spent $132.2 million on advertising against $257.7 million in the same period in 2001. That puts the industry on pace to spend just $135 to $140 million in 2002. Last year the industry spent $266 million, or almost half what it spent at the peak in 2000 when it budgeted $515 million, according to data Competitrack released at that time. In 1999, the industry spent $422 million on advertising.

As important as the decline is the finding that the fall off in ad spending likely will continue into 2003. Total ad spending has fallen in each quarter of 2002, signaling that no end to the slowdown is in sight. Indeed, even if the stock market was to turn around in 2003, fund track records would not necessarily inprove, as quarterly returns from 1999 will be dropped from five-year track records in 2003.

Vanguard has been known as a frugal buyer of advertising and has hewed closely to a message of low cost investing for more than a decade. The Valley Forge-based firm says that it has not cut back on ad spending this year. It seems every other fund firm has, though.

Competitrack now ranks Vanguard as the largest buyer of ads. Franklin-Templeton was the second largest purchaser, while the Nasdaq, OppenheimerFunds and T. Rowe Price rounded out the top five (Competitrack divulges rankings but not the actual dollars spent). Also, the remainder of the top ten in order were: American Century, Fidelity Investments, Barclays Global, Morgan Stanley and Lord Abbett.

Both the Nasdaq and Barclays focused their spending in publicizing their exchange-traded funds.  

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