Does mutual fund advertising provide necessary investment information?

Abstract

PurposeFinance theory proposes that consumers require information about the risk‐return trade‐off credibility information to relieve principal‐agent conflict concerns, and transaction cost information – for investment decisions. This paper aims to investigate whether or not such information is present in advertisements for one investment vehicle – mutual funds.Design/methodology/approachAll advertisements in Barron's and Money over two years were content‐analysed to determine the degree to which mutual fund advertising practice adheres to theories regarding information necessary for optimal investment decisions. Use of techniques known to influence advertisement noting (i.e. advertisement size and colour) and copy readership (i.e. visual size, text length, unique selling proposition/brand‐differentiating message, celebrity endorsements, direct or indirect comparisons with competitors, and emotional appeals) was also investigated. Finally, because mutual funds are a financial service, the presence of convenience information (e.g. investment minima, access to agents or account information, and liquidity) was studied.FindingsMutual fund advertisements are not providing the information necessary for optimal investment decisions. Mutual funds use techniques known to increase the likelihood that their advertisements are noticed, but they also use techniques known to decrease the readership of their advertisements. Also, they rarely included convenience information.Research limitations/implicationsMutual fund advertisements attempt the activation of the advertised brand‐quality and the long copy‐quality heuristic. However, future research must determine whether or not consumers are applying these two heuristics on seeing mutual fund advertisements.Originality/valueMutual fund advertising is not serving consumers. Regulators should require all mutual fund advertisements to include an easy‐to‐read table summarizing necessary investment information to assist consumer decision making.

Adherence of Retirement Mutual Fund Providers to the Securities and Exchange Commission (SEC)’s Advertising Guidance: Provision and Readability of Advertising Disclosure

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Regulating Information Disclosure in Mutual Fund Advertising in the United States: Will Consumers Utilize Cost Information?

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Consumer preference for electronic consumer durable goods in India: a conjoint analysis approach

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