Actively managed mutual funds have taken a bit of a beating in the press lately over their expenses and perceived inferiority to exchange-traded funds. In the face of this less-than-flattering news coverage, the mutual fund industry seems unwilling to go the distance.

Without a solid defense, these funds are at the mercy of the press�s punches. The blows come from many angles: Investors are unaware of the costs of actively managed funds; they pay more to own mutual funds and they are better off opting for a passively managed index fund than an actively managed one, the articles shout.

Criticism regarding fees and expenses or other investor-facing issues is not new but this recent spate of negative press does shine a spotlight on the importance of reacting�swiftly and emphatically to potentially harmful coverage. Without a defensive plan, mutual funds will just get pummeled in the market.

To counter these reports, mutual fund companies must enact proactive, brand-building and educational campaigns� not just defensive, reputation-protecting programs. In many cases, if mutual fund firms wait for bad press to activate their defense, they will do more harm than good. But letting the bad press go unaddressed isn�t the answer either. The idea is to stop the barrage and find the white space.

There is certainly historical precedent to drive home this point � most dramatically with the market timing scandal of the early 2000s. Harvey J. Goldschmid, then a commissioner with the Securities and Exchange Commission, wrote in a December 2003 speech that he was saddened over the late trading and market timing abuses, calling them �a grievous betrayal of trust,� and pointing to widespread �venal self-interest.� Those scathing words hit the mutual fund industry hard.

In this case, the Investment Company Institute responded to the scandal by denouncing the abuses and urging action in several areas ahead of the SEC, showing that it was�as the old adage goes�part of the solution, and not the problem. The ICI took immediate action to address these issues and to work with regulatory officials, executing what Goldschmid declared in his speech, that �trust, honesty and fair dealing must be restored.�

The idea is to retain control over the story so others don�t shape it for you. But the longer an industry, or a specific fund firm, waits to respond, the more at risk it becomes for seeing its detractors or competitors�or regulatory body�take over the direction of the story. By following this strategy, mutual fund firms can help minimize erosion and reputational damage. Silence is largely what breeds misperceptions and allows damaging arguments to fester. And they can sometimes fester for years.

Today, mutual fund managers need to think about reframing the debate. And they do have options. The industry, for example, has an extensive heritage of innovation. Just a few years ago, there was an explosion of products on the market, where investors feasted on a bounty of offerings, and it felt as if there was an investment solution for just about every need.

Instead of accepting the role of �ETF competitor,� mutual fund companies can brand their funds as complements to ETFs, billing themselves as essential members of a family of investment products that meets a range of investor needs. The message investors will receive is that there is plenty of room for both types of funds, and choosing one�or opting for both�will be determined by how they want to set up their portfolio.

Mutual fund providers can offer a new message that encourages healthy competition, and contributes to the history of innovation�all in an effort to help investors build diversified portfolios that best suit individual needs while allowing advisors to access many different products. That message will resonate more strongly than one that only attacks the perceived shortcomings of ETFs. It is also a message that will improve client relations. Competition breeds product innovation, leading to more options for the investor.

It is imperative that mutual funds not remain silent on this issue or any other challenge that paints them in a negative light. They must find ways to build and protect their brands before problems strike, and devise a tailored defense for new jabs as they arise. And they must find new ways of engaging investors and the public, and send a message that they�ve heard the criticisms and are doing something about them. Mutual fund firms need to say something, because keeping silent�and ceding control of the story�is the most damaging statement of all.

Jennifer Connelly is founder and CEO of JCPR, a leading independent fully-integrated communications and public relations agency with practice groups in Finance, Technology, Commercial Real Estate, Professional Services, Health and Wellness, and Innovation and Leadership.

Jennifer Connelly is founder and CEO of JCPR, a leading independent fully-integrated communications and public relations agency with practice groups in Finance, Technology, Commercial Real Estate, Professional Services, Health and Wellness and Innovation and Leadership.

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