MARKET FOCUS: Bear market necessities

Financial services companies continue to trim back their PR budgets.

Financial services companies continue to trim back their PR budgets.

It is no wonder that three years into the worst bear market in recent memory, financial services marketing has taken a hit. The aggressive pushes many brokerages and asset managers made during the late 1990s have largely faded into the past. Financial services firms seem to be paring their in-house resources, and at least one large agency laid off several of its financial services teams this year. PR spending, it seems, is a far cry from the salad days of the late 1990s. "It's generally weak, and has been since 9/11," says Alan Towers, president of PR firm TowersGroup, which focuses largely on the financial services. "Although the market had been falling since mid-2000, the attack was the point at which we really started to take our hits. Since then, there's been a continuous and gradual decline." People say that the sagging markets and economy have forced much of Wall Street, as well as the commercial banking world, to trim its PR apparatus. Extensive in-house staffs have been replaced by more streamlined PR operations. "These days, we see ourselves much more as a Porsche than an SUV," says Fred Hill, EVP of marketing communications at JPMorgan Chase. "We're not huge, but we still have the ability to cover the landscape very effectively." Others say they have found innovative ways to address PR needs. "We have cut back on staff, and my team has shrunk a bit," says Mary Waller, VP of media relations at Bank of America. "So we have been looking for creative ways to do more with less. For instance, we have come up with a template for some of our branch managers to follow for doing their PR locally. It's about directing and enabling others in the organization to handle PR without losing control of the process or message." But when it comes to agency relationships, some companies are frank about their outlook. They say they're looking for the strategic counsel that they get from the smaller boutiques, and not the army of foot soldiers that they say is offered from the giant firms. Outside counsel "For us at least, the days of having broader relationships with media relations firms have changed," says Hill. "Still, outside counsel is important, otherwise you wind up smelling your own socks. However, it seems that some PR firms have become so big that you're not really getting the person who walked in the door when you hired them - you get their surrogates instead. We try to stick with the agencies where we know we'll be working with the principals." Still, some say that while the pain in the financial services PR world may seem unrelenting, it's not as bad as in some other marketing disciplines. "While there has been some cutting, there is a recognition that PR is a fairly cost-effective way to keep supporting the brand and that it's more cost effective than advertising," says Paul Critchlow, SVP for public affairs at Merrill Lynch. "So what you're seeing is significant cutting of advertising, much more so than PR." If there is wide agreement about anything in the financial services sector, it is that the companies marketing stock-related products - especially mutual fund asset managers - remain tentative about their PR spending. "While I won't say it is impossible to land an equity-related client these days," says Towers, "I will say the chances are remote." Still, financial services PR experts say agencies should take a page from the investor handbook and concentrate on the first rule of smart investing: diversification. In recent years, it has been bonds - not stocks - that have been leading the charge, as interest rates (which move in the opposite direction to bond prices) have fallen to their lowest levels in nearly two generations. The best advice to agencies in the current economy seems to be: follow the money. "Even though we've seen investment-banking and brokerage clients cut their budgets, we're seeing quite a bit of business in the fixed-income area," says Jen Prosek, partner at Jacobs & Prosek, a PR firm focused on financial services clients. "We have won several bond-related clients. We just added another new bond account a few weeks ago. That's where the strength has been in financial service. It seems like those clients have not received word that there's a recession going on." The drop in interest rates has also translated into an unprecedented increase in mortgage refinancing among consumers looking to wring equity from their homes. Yet perhaps the greatest irony of this market is the fact that the low rates seem to do their own PR. "At first, there was a push behind getting consumers interested in our refinancing," says Bank of America's Waller. "But now we make sure to coordinate that PR with support staff. We don't want our call centers to get overwhelmed with customers. Interest in refinancing and mortgages is very, very high these days. The other segment of the market that appears to remain at least somewhat resilient is the credit- and charge-card business. Consumer spending has remained surprisingly strong throughout most of the downturn. Nevertheless, competition in this segment remains tough, and a handful of players continue to grapple over market share. "There's definitely a focus on gaining market share," says David Chamberlin, VP of PR in Bank One's card-services division. "We have been trying to focus consumers on relationships with strong corporate partners, like Starbucks." Others are finding strength in places they never imagined a few years back. "We recently got a cash-management client. It's PR for a money-market fund," notes Tom Walek, CEO of financial services-focused agency Walek & Associates. "Cash is big during a bear market." The one other pocket of strength appears to be so-called alternative investments, including exotic investment vehicles like private-equity firms and hedge funds (see sidebar). Alternative investments Private-equity firms gather money from wealthy individuals to start or buy companies in the hopes of one day selling or reselling these investments for a profit. "Private equity firms are great clients to have because you often get to represent all their limited companies," says Prosek. "It can be like getting a few clients at once." Still beyond the economic landscape, many say PR will surely play a role in the financial services world for some time because of the reputation damage suffered following the market bust. Whether it is from the widely covered landmark settlement Wall Street recently inked with regulators, or the huge losses some aggressive mutual funds have wrought on their shareholders, reputation repair is sure to be in order. "The one thing we've focused on is not being afraid to tell the media that we're aware that we, and the industry, have made mistakes," says JPMorgan's Hill. "We know we can't take a holier than thou attitude here. We're willing to demonstrate some contrition." Others say some companies have their work cut out in regaining the trust of customers that have lost significant money in the market recently. Towers says he has seen a few of these companies - particularly some asset managers - looking for help with a reputation facelift in recent months. "These are distressed brands where the companies have been hit very hard by redemptions or poor performance, and they really have no choice. They often find the money to fund very elaborate (reputation-rebuilding) programs. It's not just the normal asset decline, but also a threat to the brand. And that's one of the few places we've had an opportunity to pitch some pretty significant business. These are companies that are seeing not only assets eroding, but also faith in their brand eroding. That's a market loss they really can't afford." ----- Hedge funds: a PR opportunity? Hedge funds - largely unregulated investment vehicles that pool money from wealthy individuals to invest using sophisticated and untraditional strategies - have grown in popularity as returns continue to largely surpass the broader stock market. Yet the complex investing strategies these high-octane vehicles employ, along with their secretive nature, make them all the more mysterious to the average consumer. "We have seen more alternative investments recently, and that definitely includes some hedge-fund work," says Hollis Rafkin-Sax, general manager, financial communications at Edelman. Because hedge funds are private partnerships that are loosely regulated and not open to the general public, the funds are forbidden from marketing themselves to the public. Therefore, doing PR can be tricky. "You work closely with attorneys and follow the first rule of PR - do no harm," says Tom Walek of Walek & Associates. "You market the hedge-fund manager's expertise, instead of their investment products." Still, others complain that the constraints and the limited target audience make the PR work daunting. "There isn't a whole lot you can really do," says Alan Towers of PR firm TowersGroup. "Most hedge funds I come across get frustrated with PR. Unless you are [hedge-fund manager and philanthropist] George Soros and you're changing the world, there just isn't enough to justify the fee." Others say the work is not about the typical media outreach, but rather about handling more standard logistical work. "I'd say more than half of hedge funds don't want aggressive publicity per se," says Jennifer Prosek of Jacobs & Prosek. "They want help with position and messaging, and they have us around for communications with their potential investors. They're not interested in getting their name spread far and wide. It's about a helping target a small group of people that may want to invest. That said, there is sort of a black box surrounding what PR firms can do for hedge-fund clients."

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