The mutual fund industry is weathering scandals and starting to win back the customers' trust.Just about six months ago, New York state Attorney General Eliot Spitzer announced the beginning of an investigation into the trading practices within mutual fund companies. At the very least, the effect on the reputation of the fund industry - which had been known as a safe investment choice for college savings and retirement money - was tarnished. Companies are now under pressure to define the industry's brand as a trustworthy one and distinguish themselves from thousands of other firms. When the scandal broke, many were taken entirely by surprise. Hedda Nadler, whose New York-based Mount & Nadler is the oldest PR firm specializing in the mutual fund industry (Nadler herself has been in the business for 65 years), says she hadn't seen anything like it before. "The industry, which until then had pulled its suspenders as being scandal-free, appeared to be hit suddenly," Nadler says. "It wasn't a misinterpretation of a procedure. It seemed to be a blatant transgression." But the issue seemed much larger than it actually was because of the length of time that it took for all of the facts to reveal themselves, as the large firms sealed themselves off to be sure of trading activities. "We have not witnessed a scandal of this magnitude because it seems to be unfolding daily," says Nadler. "Improprieties have been revealed slowly. This seems to have a wider magnitude in that each day seems to have a new development." While PR advisers waited for information, no one spoke to the press in the early weeks, and the only activities that occurred were carefully worded letters to customers. "First of all, all of us needed to see the details, and then we wanted to see how it was going to unfold," Nadler says. She says that none of Mount & Nadler's nine fund company clients were implicated in illegal trading practices, so "it never occurred that our clients should do anything specific. A few wanted to put their policies for late trading on their websites. We make our recommendations and judgment calls. Sometimes we're very strong in our opinions, and sometimes, rarely, the client still wants to proceed. In terms of the scandal, we felt very strongly that it should be business as usual. Keep serving their shareholders." Maintaining integrity Joseph Finora, whose tiny Laurel, NY-based firm, Finora & Associates, had a client who was implicated in the scandal, says that the element of suspicion that average Americans have about Wall Street was only exacerbated by the scandal. "I'm advising clients to be up-front. People don't like surprises," says Finora. "The less you surprise people, the more business they'll give you. There's never been a bigger need for [mutual fund] services, but if [the providers] don't act soon, then this opportunity will pass them by. The brand is so important." "We were getting new clients after the scandal had broken," says Richard Virgilio, head of the mutual fund practice at the New Jersey-based Stephenson Group. "That was crisis communications." Bill McBride, an EVP with Edelman Financial, recently hosted a private breakfast for senior communicators at mutual fund groups to discuss the issues at hand. "We're only partially through it," says McBride. "We don't see the end in sight. One of the issues is that there's an enormous regulatory rivalry over who should take the lead in the mutual and securities industry." The other rivalry comes from two groups that are very influential with fund group leadership. "I think that the biggest challenge that PR professionals have today is the battle between the lawyers and the marketing people," says Michael Murray, CEO of marketing and investment firm Kestrel Consulting. "Most legal staffs are forcing tier people to clam up and wait for the storm to blow over. What I'm advising clients to do is to stand up and lead reform and change. Clients aren't as concerned about price as they are about integrity." David Kowal, whose Kowal Communications represents green investing firm Winslow Management Co., never had a problem with integrity. "The biggest problem we faced around that time," Kowal says, "was that any reporter we talked to was talking about the scandal, while our fund's performance was up 91%. It was harder [to tell that story] than it might have been otherwise because reporters kept saying that they were only writing about the scandal." So at a time when a fund has almost doubled its value and can't get press, how can PR professionals make a brand stand out among the thousands of others out there that haven't been affected by the scandal? "There are hundreds of companies out there who are not in the spotlight necessarily, but they're still proactively dealing with these issues," says Dan Sondhelm, a partner at SunStar, which represents several funds. "If you're a second-tier fund, you should have a strategy. You really need to be ready with a story and your strong points." "The bottom line is that no two mutual funds are alike, as no two people are alike," says Virgilio. "The differentiators are all of the third-party rankings. That's where investors, for the good and the bad of it, are reflexively pouring themselves into those funds. Education and visibility are key." Others agree. While you can market the story of a fund like other products, by highlighting the story behind a fund manager or stellar performance, an overall priority should be maintaining an overall positive image. "[Investors] aren't as concerned about price as they are about integrity," says Murray. Reinforcing the brand Proactive PR is also a good tool to use in restoring the faith of investors. "It's going to be really important to have your policies about various activities easily accessible to your shareholders," says McBride. "Get ahead of the game and prepare yourself to be questioned on these things. Put yourself in the shoes of the people who ask the pertinent questions." And while media relations will reach some investors and intermediaries, there are other ways of reinforcing a fund's brand. "Attending or exhibiting at conferences, whether for the public or an intermediate, is a way of promoting," says Nadler. "We advise clients on how to set up a display at a conference, and we'll coordinate with a press room. There are some conferences that are oriented to the public. You bring literature and people who can talk basic stuff, and you can bring reprints to lend credibility. Clearly, if it's a conference that reaches intermediaries, the materials need to be more sophisticated." While the scandal, investigations, and debate carry on, the media has expanded its scope. "I think that in the past few weeks or so, it seems like there is less attention on the scandal," says Kowal. "I got coverage for our client in Barron's, and on Fox and CNBC. Timing is so critical in our business. I was able to pitch the year-end story for the fund. In January it was difficult to get interest. Now it's getting easier, but that could have to do with follow-up." Of course, it's important to follow up with customers, as well. "The fund business has to let the public know that they're accessible and transparent," Nadler says. "They can reiterate this in shareholder letters, special communications, and then of course they have to actually do what they say they will. I think they need to indicate that they're being responsive, but it's business as usual, and if any regulations come out of the situation, that they need to indicate that they are complying." But what might be the toughest PR front is the boardroom. "What the best PR people are doing right now," says Murray, "is communicating with executives at the company. The decision has to come from the boardroom. That's where the scandals came from, and that's where the solutions will come from." ----- Case study - Eaton Vance During the fund scandal, Meg Pier, VP of PR at top-25 fund company Eaton Vance, turned into a publicity superstar instead of shying away from the press. Dubbed "Eaton who?" in a 1998 Barron's story, the Boston-based fund went from barely known to everywhere, and Pier used the mutual fund scandals to actually build the brand's reputation, not protect it. "Eaton Vance was very proactive and early in issuing a memo to employees the day after [the scandal broke], outlining our procedures of what we allow and what we don't," says Pier. "The following day it was issued as a statement to the press. That statement prompted a Boston Globe article called 'Pickpockets Beware' that said that Eaton Vance's proactivity was sadly unique." Moving on, Pier relentlessly pitches the press while building relationships and traveling to major media markets. "Reporters like to get fresh ideas, but they also need color that makes a fund or portfolio manager come alive," says Pier. "I continually try to differentiate what we offer through being a pioneer or having a large amount of assets, or by sharing with a reporter a history of a particular manager that differentiates him." To demonstrate the types of details that she offers to reporters, she shared an anecdote about a fund manager whose grandfather invented the Klondike Bar. Somewhere, a journalist's mouth is watering.