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Mutual Fund News

Fidelity bucks trend in sector, antes up for marketing effort

Toronto-based unit of U.S. fund giant begins 24-city road show today, KEITH DAMSELL writes


Financial advisers may have had a sense of déjà vu on Oct. 20.

Fidelity Investments Canada Ltd. rolled out the red carpet that night, inviting about 2,000 advisers and their clients to a gala event at Roy Thomson Hall in downtown Toronto. White-haired investment guru Peter Lynch entertained the crowd with a folksy speech on stock picking.

Afterward, invitees mingled with Fidelity staff and enjoyed steak, shrimp, sushi and cheese. Serving staff worked the room dispensing red and white wine.

One attendee remarked that it reminded him of the 1990s: Fidelity was at the top of its game, the fund industry went to great lengths to wine and dine the advice community, and advertising spending grew leaps and bounds.

So is "the show" back?

The short answer is no. Fidelity's event with Mr. Lynch and its prime-time television advertising campaign are likely an industry anomaly this registered retirement savings plan season. Despite a buoyant year for mutual fund sales, several financial service firms interviewed will continue to target the financial advice community and have no plans to dramatically boost marketing presence.

"I think we're in a different time. It's a more mature market," said Doug Checkeris, president and chief executive officer of Media Company, a Toronto advertising buyer. He expects industry advertising will show a modest increase in 2005 from the $15.8-million spent last year. That's down dramatically from the $67.3-million spent in 2000, reported Nielsen Media Research.

Fund companies are "in that difficult place of trying to strike that awareness they need with not being seen to spend the money. They have to be cautious as to how it's used," Mr. Checkeris said.

The fund business views advertising as a discretionary item come budget time. A high-profile ad campaign is a non-starter in an environment of rising regulatory costs and an increasingly fee-conscious investing public, sources said. And many firms argue it's difficult to judge the effectiveness of advertising. Brand awareness may grow but it may not necessarily translate into increased sales via the all-important advice channel.

"People do not walk in to their advisers and say 'I want this fund because I saw it on TV.' That's not the experience," said Gavin Graham, director of investments at Guardian Group of Funds Ltd. of Toronto.

In contrast, Fidelity is in the midst of a high-profile campaign reintroducing the company to advisers and the public at large. In September, pop icon Paul McCartney kicked off a series of TV spots, and newspaper ads and billboards are touting the brand. The Toronto-based unit of the U.S. fund giant begins a coast-to-coast 24-city road show today, its first major meet-and-greet event with advisers in seven years. Fees have been cut and new funds introduced.

"The message is we're back and we're in this to win. We want your business," said spokeswoman Kim Flood, adding that there's been a "substantial increase" in the company's marketing budget.

The ultimate goal? Stemming net redemptions. As of Oct. 31, Fidelity's assets under management were $32.3-billion, down from a 2000 peak of $35-billion.

Money looking for new home?

There's an estimated $2-billion up for grabs on Bay Street in the next few months.

Last winter, there was huge appetite among investors for retail structured products, a vast mix of complex closed-end funds, notes and limited partnerships. Unfortunately, many were tied to the performance of this fall's asset class under fire, income trusts.

There's no penalty to redeem registered retirement savings plans after the first year and industry sources expect the cloud of uncertainty hanging over the trust sector means the bulk of investors will be cashing in. Demand for RRSPs has dried up and there's little sense where the estimated $2-billion fleeing the asset class will end up.

"That's the $64,000 question," said one investment manager. "There will be a lot of money looking for a new home."

Eye on the ball

"We do provide quite extensive financial planning offering. We do provide a number of exclusive services to our clients. . . . Those aspects, we believe, cultivate both an appreciation for our fee levels embedded within our products and an appreciation for the fact that they're [clients] getting very good value from their complete relationship with us. . . . Our attitude to it is to continue to observe it as one of those competitive parameters that we obviously need to keep our eyes on." -- Murray Taylor, president and chief executive officer of Winnipeg-based Investors Group Inc., commenting on the fund company's fee structure in a conference call last week.

Industrial dumps Norshield

It took six months but Industrial Alliance Insurance and Financial Services Inc. has finally dumped troubled Norshield Financial Group from its management list.

The Quebec City company severed its ties with the hedge fund manager last week, shifting its last accounts to Lyxor Asset Management, a unit of Société Générale Group.

Clients of Industrial Alliance had an estimated $77.9-million in funds tied up in Norshield, a Montreal firm that suspended redemptions in May and was later put into receivership by the Ontario Securities Commission. To the credit of Industrial Alliance, the company has redeemed Norshield positions held by its clients. Industrial Alliance has put in place a $13-million provision to cover any losses.

RSM Richter Inc., the court-appointed monitor of Norshield, is expected to release a detailed report on the hedge fund manager Nov. 17, an update that will address the whereabouts of more than $300-million in client money that went offshore. Norshield's estimated 2,000 retail investors are anxious for the news. There's been very little information released on Norshield since a July court hearing.

© 2007 The Globe and Mail. All rights reserved.

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