Mutual Fund Scandal May Scare Off Investors
Recent scandal shakes investor confidence in specific funds more than overall sector
Richmond, Va., (Dec. 5, 2003) - Recent news coverage citing trading improprieties at several mutual fund firms has prompted more than one-third (35 percent) of existing mutual fund investors to say they are unlikely to buy mutual funds in the near future and 77 percent to say they would pull their money from a mutual fund they believe acted improperly, according to a survey conducted by The Lumin Collaborative LLC, the public relations industry's first intellectual collaborative. The survey of 650 mutual fund investors measured the effect of negative news coverage on targeted companies and brands, as well as the overall mutual fund industry.

According to the survey, three out of four investors said that performance is the top criteria for selecting a mutual fund, and 57 percent cited reputation as key to fund selection. The mutual fund industry may find some solace in the survey finding that 85 percent of respondents said they will "keep money in their current fund" and only 5 percent of respondents said they were likely to pull all their funds out of the market. However, the survey also revealed an alarming trend - 30 percent of respondents plan to keep money in the market but will stop investing in mutual funds as a result of the emerging mutual fund scandal.

Survey respondents specifically named Putnam (48 percent) and Strong (23 percent) most often as the mutual fund companies involved in recent news reports. Correlating survey results showed that these companies garnered the most negative evaluation from participants. Nearly half of respondents cited negative impressions of Putnam and Strong (47 and 44 percent, respectively). Of those, 17 percent claimed that Putnam was "one of the worst" mutual fund companies.

"The survey findings demonstrate that despite the highly metric nature of investment decision-making, changes in trust can severely impact business activities," said Mark Raper, chairman of Carter Ryley Thomas and chairman of Lumin. "The big challenge for every brand in this category is how to get a large number of their customers off the sideline and back into the mutual fund investment game. The solution to that business challenge is a combination of operational, regulatory, marketing and communications factors that must occur in order to restore trust in individual fund brands and their management."

In contrast to Putnam and Strong, Fidelity and Vanguard, free from negative press to date, were evaluated positively (94 and 90 percent, respectively); 50 percent called each fund "one of the best" in the industry. Fidelity was identified by only 16 percent of respondents when asked which mutual funds were involved in negative news reports, while Vanguard was not named at all.

"The survey provides solid evidence that public opinion of Strong and Putnam has eroded compared to other brands which have so far not been named in the media," continued Raper.

Crime and Punishment Attitudes Prevail
Survey respondents call for prosecution of trade law violators (89 percent) and tighter regulatory oversight (76 percent). 51 percent reported the "crisis" in the mutual fund industry will continue over the next six months and 41 percent predict it will get worse before it gets better.

"Elevated attention on mutual fund impropriety has incited tough responses regarding punishment and regulation," said Raper. "However, it has not advanced to the stage where people plan to pull their investments en masse. To date, most people have seen mutual funds as the 'safe course' for their investments. But as evidence mounts and additional negative news about the mutual fund industry unfolds, we may see people's attitudes and behaviors converge, leading to a widespread reallocation of assets and erosion of public trust in the entire industry."

The online survey was completed by 650 mutual fund investors nationwide in late November. Most respondents (72 percent) were between the ages of 35 and 65, college graduates (68 percent) and earned more than $50,000 per year (66 percent).

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About Lumin
Founded in 2003, Lumin is an intellectual collaborative of like-minded, independent PR firms dedicated to developing and providing next-generation communications solutions for mid- to large- size companies around the world. Lumin is composed of five leading mid-sized firms that include: Carter Ryley Thomas, Padilla Speer Beardsley, PainePR, Patrice Tanaka & Company, Inc., and Peppercom. The collaborative consists of nearly 300 professionals in 11 offices throughout the U.S. and Europe. The Board of Directors includes Mark Raper and Mike Mulvihill from Carter Ryley Thomas, Lynn Casey and Matt Kucharski from Padilla Speer Beardsley, David Paine and Daryl McCullough from PainePR, Patrice Tanaka and Ellen LaNicca from Patrice Tanaka & Company, Inc. and Steve Cody and Ed Moed from Peppercom. Additional information is available at www.luminllc.com.

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