Marketing Effort by Van Kampen 1998

May 1998

Van Kampen American Capital chief Philip Duff

"We bought Van Kampen for its mass marketing and service capabilities to individual investors. Nobody at Morgan Stanley had that experience."

Since succeeding Van Kampen Chairman Don Powell 11 months ago as the firm's president and chief executive, Mr. Duff, 41, has embarked on a scrappy plan to focus sales efforts on the country's biggest distributors,

Mr. Duff's goal: to more than double the $55.7 billion that Van Kampen managed at April 30 to $125 billion by 2002. The parent's four money management units -- retail-oriented Dean Witter InterCapital and Van Kampen, and institutionally-oriented Morgan Stanley and Miller Anderson -- run $356 billion.

To cajole major brokerage competitors to peddle the firms' funds, he's using a carrot-stick approach, offering firms like Merrill Lynch & Co. help in penetrating key markets but threatening holdouts with reduced access to new underwritings and trading business from Morgan Stanley Dean Witter.

Mr. Duff's aspirations are not limited to the U.S. He's also looked into such offbeat options as peddling Van Kampen funds through Amway distributors in Japan.

He's already succeeded in bolstering the firm's fund offerings by cloning retail versions of Morgan Stanley's top performing institutional funds. Previously, the only retail investors were clients of financial advisers who buy the funds via discount brokerage supermarkets.

Net sales of Van Kampen's long-term funds grew 16% last year to $2.56 billion, its highest total since 1993. More than 20% of last year's sales came from a copycat of Morgan Stanley's Institutional Global Equity fund that Van Kampen began selling in October.



trillion-dollar list

Later this year, Van Kampen expects to clone three Morgan Stanley institutional foreign stock funds. In July, Mr. Duff plans to begin selling a retail version of Morgan Stanley's top-rated Institutional Equity Growth fund. To market these goodies, he's now focusing Van Kampen's efforts on the biggest dozen or so firms -- out of a pool of 4,000 brokerages, banks and planners -- who generate the majority of its sales, while still continuing to provide sales support and service to others.

"Just as in the airline industry," says Mr. Duff, "we're scaling our services relative to the level of production by distributors."

In January, Mr. Duff replaced long-time sales and marketing chief William Molinari with Jack Zimmermann, who recently bought rights from IXI Corp. in McLean, Va., to a database of wealthy U.S. households with $3 trillion in financial assets.

Van Kampen is negotiating to offer Merrill Lynch brokers exclusive access to the list to augment the brokerage's internal campaign to attract new customers with at least $1 million in investable assets.

"Merrill is intending to sell $60 billion worth of mutual funds this year and every fund concern wants to be a part of that," says Mr. Zimmermann. "Depending on what Merrill can help us do to build our sales, that would determine whether we would be willing to give them exclusive access."

Similarly, Van Kampen officials are creating a program to jump-start sales through St. Louis-based Edward D. Jones & Co. as it focuses on attracting investors over age 55. Though Van Kampen's overall sales through Edward Jones are up sharply, its share of the regional brokerage's $8.7 billion in 1997 mutual fund sales ranked sixth among seven "preferred" fund companies, down from fourth in 1996. It's currently running dead last.

The Dean Witter link may be to blame. "The new list of products they have to offer is excellent," explains Edward Jones principal Tom Miltenberger, who runs the firm's mutual fund marketing effort. "But if a broker has a little bit of worry over the Dean Witter connection, it's an excuse to do business with another preferred fund firm."

Outside the U.S., where Van Kampen has virtually no name recognition, a group of Van Kampen and Morgan Stanley executives traveled to Japan in February to look into launching a locally based fund marketing effort.

One idea that was kicked about: leveraging Morgan Stanley's investment banking relationship with Ada, Mich.-based Amway Corp. to sell Van Kampen funds through Amway's 1.1 million Japan-based distributors. The unorthodox strategy (rejected by Japanese regulators) was aimed at using Amway's door-to-door reps to call on stay-at-home spouses who serve as the household's financial decision maker.

In the United Kingdom, to strengthen the Edward Jones ties, Morgan Stanley's London office expects to help offer retail products.

But in the U.S., Morgan Stanley and Mr. Duff have yet to solve the brand issue.

In February, Morgan Stanley settled on a two-pronged marketing strategy: All fund products sold by Morgan Stanley Dean Witter employees will carry the Morgan Stanley Dean Witter label. Van Kampen and other Morgan Stanley funds sold through outside sales forces -- such as Merrill Lynch or SunAmerica Corp. -- will use a separate, yet-to-be-determined brand name.

Then there's the question of melding corporate cultures.

While Morgan Stanley and Miller Anderson & Sherrerd of West Conshohocken, Pa. which was acquired in early 1996, both cater mainly to institutional clients, Van Kampen American Capital is retail-focused.

"The different departments didn't talk to each other," says Mr. Duff, a Harvard math whiz and MIT business school grad who joined Morgan Stanley in 1984 and rose to head the financial institutions M&A group before becoming CFO four years ago.

To change this, Mr. Duff created strategy development teams: 300 of Van Kampen's 1,600 employees -- from transfer agents and service supervisors to fund managers and sales staff -- helped shape everything from paying money managers to training salesmen who call on brokers and other intermediaries.

combine dual headquarters?

Morgan Stanley officials are still studying whether to combine the firm's dual headquarters structure, which includes Van Kampen's 560-person Oakbrook Terrace, Ill., office and American Capital's 580-person Houston facility. "If it was free and everybody wanted to move, we would (consolidate the headquarters) immediately," says Mr. Duff.

Some observers say Morgan Stanley hasn't gone far enough in integrating institutional and retail money management units, especially as profit margins narrow in the investment banking and corporate finance fields.

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