'Jaw-dropping' Comments from an American Funds Exec Have Advisors Buzzing
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Tuesday, April 12, 2011

'Jaw-dropping' Comments from an American Funds Exec Have Advisors Buzzing

Fundsters interested in the advisor-sold side of the business, particularly those pondering how to deal with the media, may want to take heed of the hubbub over a recent article in Barron's. On Saturday Michael Shari, in the pub's cover article, offered a glimpse of the recent trials and tribulations of Capital Group's gigantic American Funds [see profile], including rare comments from several top Capital Group execs. Now a trade pub sees controversy stirred up over that article.

InvestmentNews' Jessica Toonkel reports that advisors are reacting strongly to quotes in the Barron's article from American Funds Distributors president Kevin Clifford, who seemingly blamed advisors for American Funds' recent massive outflows ($50 billion in 2010 and $14.79 billion so far in 2011, according to Morningstar), claiming that advisors had been "foolish" after the dot-com crash in marketing American's offerings as "able to defy gravity."

Capital Group spokesman Chuck Freadhoff told InvestmentNews that "Clifford absolutely did not blame advisers."

"I am not saying that the reporter misquoted him, but there was a miscommunication," Freadhoff reportedly said, adding that the fund giant has already reached out to its wholesalers regarding the hubbub. "We have provided them with the full context of what Kevin said and prepared them to answer any questions."

Don Phillips, director of research at Morningstar, called Clifford's comments "rather foolish" and "just jaw dropping". And advisors InvestmentNews interviewed turned the blame back around to Capital Group.

"Advisers were overselling the funds because they [American Funds' team] were over-marketing them," opined Steve Johnson, a Raymond James advisor. "Their wholesalers were out there beating you up on how cheap their funds were and how consistent the track records were."

Fundsters interested in Capital Group may want to take a look at the full Barron's article, which offers commentary from several executives from a fund giant that is notoriously shy about granting interviews. Those who spoke to Barron's include Capital Research and Management executive committee chairman Jim Rothenberg, as well as Robert Lovelace (grandson of founder Jonathan Lovelace), Capital Research and Management president Tim Armour, Casey, Quirk and Associates partner Kevin Quirk and several advisors. Rothenberg admits that it's been a rough couple of years for the quiet giant.

"We disappointed people in the downturn in 2008-09, after we had done so very well in 2000-02," Rothenberg told Barron's. "We had all the raw ingredients, but somehow the chef messed up the soup."

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