Banks dramatically cut back advertising investment products in the first quarter as rates on certificates of deposit became more favorable, a research firm has found.
Banks spent $2.5 million, 77% less than in the first quarter of 1994, for print and television advertisements of their mutual funds and annuities, according to Competitrak Inc., New York.
The reduction in advertising dollars is most likely due to an uptick in CD interest rates at the beginning of the first quarter.
"We are seeing a corresponding increase in CD advertising, which had been virtually nonexistent in 1994" when interest rates were very low, said John Jelilian, a senior vice president at Competitrack.
Competitrak tabulated the data by monitoring advertisements on network, cable, and local television stations, 150 national and local newspapers, and 200 consumer magazines. The company tracks advertising for banks, brokerage firms, mutual funds, and insurance companies.
Of the $110.5 million spent on investment products advertising in the first quarter, banks spent 2.3%, while they manage 7.3% of the assets in mutual funds.
"I think a lot of banks last year found, with markets being sour, that customer interest was not as strong as it had been," said Allen W. Croessmann, managing director of retail marketing and investment services at Bank of Boston Corp.
Bank of Boston, one of few banks to go against the grain, spent more than $1 million on television and print advertisements to promote its 1784 Funds because it started its own broker-dealer in January.
Other banks have found direct-mail campaigns more cost effective than trying to compete with the advertising budgets of behemoth fund companies like Fidelity Investments or no-load giant T. Rowe Price.
After testing out local radio and newspaper advertisements a few years ago, Signet Banking Corp., Richmond, Va., did not generate as much sales as through direct marketing, said James Eads, president of the bank's brokerage unit.
So the company acquired the assets of the Blanchard Funds, a mutual fund family that, solely through direct-marketing campaigns, has built up $1 billion in assets under management, Mr. Eads said. Signet plans to merge those assets into its Virtus Funds.
What makes direct mail appealing to Signet is that most of the investors in Virtus Funds live in Virginia, Maryland, and Washington, D.C., so "Unlike Fidelity, we can have shareholder meetings so people can meet the portfolio managers and learn about the funds," he said.
Advertising dollars spent on nonbank investment products declined 18% in the first quarter from the same period a year ago. Mr. Jelilian attributed the reduction to large cutbacks made by a few big investment companies that were significant advertisers last year. He refused to name them.
