Scudder Stevens & Clark Inc. is leveraging its position as the American Association of Retired Persons' exclusive mutual fund supplier to go after a prized demographic sector-aging baby boomers.
The Boston-based fund company won the much coveted AARP affiliation back in 1985. Though the contract has always been considered valuable, it seems especially so now as the first wave of the postwar generation has begun to turn 50-AARP's minimum age.
"We have been actively planning for this constituency," said Linda C. Coughlin, managing director of Scudder and chairman of its AARP Investment Program.
It's already a group banks-and other fund companies-actively court; one third of mutual fund buyers at bank-owned brokerages are between 50 and 59, according to American Brokerage Consultants Inc., St. Petersburg, Fla.
Resolving the major cultural differences between baby boomers and AARP could take time. But Scudder has already shown savvy in marketing to older, more conservative investors, observers say.
"What Scudder has done is take the initiative of grabbing fixed-income funds (for a fund group) specifically designed for the older investor. It may not be that much different from other fixed-income funds, but it has the AARP backing," said Richard Ayotte, chief executive and managing partner of American Brokerage Consultants, adding: "I don't have any sense banks are going in this direction."
"Scudder's AARP stamp carries more weight than the Good Housekeeping seal of approval," said Michael A. Flanagan, principal at Financial Services Analytics Inc., Jenkintown, Pa. "Scudder is certainly in a good position to benefit from aging baby boomers, but I don't expect a ground swell toward funds for older investors.'
Like many banks, Scudder positions itself as sympathetic to the needs of the uninitiated-in this case, many first-time AARP investors.
"It's not that it (responsibility) is implicitly added, but we take the relationship very, very seriously. I like to think there's a cultivation of relationships, through research, seminars, and telephone calls," said Ms. Coughlin, who served as AARP Investment president for six years before taking over as chairman after Cuyler Findlay's December retirement. (AARP Investment last week named as its president William Glavin Jr., an executive vice president and director of product management at Dreyfus Corp.)
Many worry that when the stock market slides, older investors will be among the first to panic, redeeming shares at a faster pace. But when hand holding is needed, Ms. Coughlin often answers shareholders' questions herself on the telephone. She regularly gives investing and retirement planning seminars.
The firm also issues monthly updates on fund and overall market performance-10 more a year than required by law. It also offers quarterly newsletters that tackle broader issues, like tax and legal planning.
"The reports have a lot of information but they also have lots of white space and large print," making them more readable, Ms. Coughlin said. "We're extremely member oriented. Their (clients') interest takes all kinds of forms. We want to find out what's on their mind, what their intentions are. When we introduced new funds, we put our efforts on how we need to describe our fund."
The result, she said, is that when the market or market sectors have taken a downturn, AARP Investment has kept redemptions low in relation to the industry, she said.
The top-performing fund is AARP Growth and Income, rated five stars by Morningstar Ratings Inc. The fund, which returned 21.61% last year and 31.82% a year earlier, has also attracted more investor capital than any other AARP fund.
Other AARP Investment funds have lagged behind, earning from three stars to none from Morningstar. Observers cite the conservative approach of many of the funds; nearly half of AARP Investment's 13 funds are in fixed-income investments, including bond and money funds.
"I would think in marketing to older investors you've got to stay on the conservative side. These are not people looking at rolling the dice here," said American Brokerage Consultants' Mr. Ayotte.
Still, six of the 13 funds are new this year and at least two-the international and small-cap funds-reveal a more aggressive side to the family of funds.
Mr. Coughlin has other surprises in mind. She has responded to older Americans' reliance on technology, including personal computers. (AARP members can already bolster investment portfolios by ordering direct deposit of Social Security checks.)
"What we find is that older Americans are among the fastest-growing users of PCs," said Ms. Coughlin. "Anything that can make the process easier."