Journal of Services Marketing

Effects of mutual fund advertising disclosures on investor information processing and decision-making
Taejun (David) Lee, TaiWoong Yun, Eric Haley,
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Taejun (David) Lee, TaiWoong Yun, Eric Haley, (2013) "Effects of mutual fund advertising disclosures on investor
information processing and decision-making", Journal of Services Marketing, Vol. 27 Issue: 2, pp.104-117, https://
doi.org/10.1108/08876041311309234
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 Effects of mutual fund advertising disclosures
on investor information processing and
decision-making
Taejun (David) Lee
Department of Advertising, School of Communication, Kookmin University, Seoul, South Korea
TaiWoong Yun
School of Advertising and Public Relations, Hongik University, Chungnam, South Korea, and
Eric Haley
School of Advertising and Public Relations, University of Tennessee, Knoxville, Tennessee, USA

Abstract
Purpose – This research aims to examine the effects of financial services advertising disclosures by pairing a content analysis documenting how
mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing whether inclusion of the
disclosures influences consumer responses to advertisement, brand and company evaluations.
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Design/methodology/approach – This research examines the effects of financial services advertising disclosures by pairing a content analysis
documenting how mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing
whether the inclusion of the disclosures influences consumer responses to the ad, brand and company.
Findings – The findings show more positive consumer responses for perceived advertising responsibility, recall, and cognitive response as well as
higher risk perception when consumers are exposed to the financial disclosures in mutual fund advertisements. Also, the results indicate a mediating
role of positive cognitive responses on attitude toward the mutual fund company only when consumers are exposed to advertising disclosures.
Originality/value – The paper extends knowledge of whether and how required information disclosures pertaining to mutual funds influence
investors’ psychological responses in mutual fund advertising contexts. From a managerial perspective, it has implications for financial services
advertising and other social marketing campaigns by uncovering the effects of advertising-as-information in financial decision-making. From a public
policy standpoint, the paper is among the first to make explicit claims regarding the role of advertising disclosure in retail investment circumstances.

Keywords Advertising disclosure, Mutual fund advertising, Financial decision-making, Consumer welfare, Disclosure, Unit trusts, Advertising

Paper type Research paper

An executive summary for managers and executive
readers can be found at the end of this article.
Advertising disclosures are viewed as important elements to
the symmetrical correspondence between consumers and
marketers that can prevent misleading, deceptive advertising
impressions and facilitate information transparency (Franke
et al., 2004; Lee et al., 2011). Much prior work notes that the
role of disclosure is imperative to the basic rights that people
should have when possessing information and participating in
decision-making (Grunig, 2001; Stewart and Martin, 2004).
Huang (2004) suggests that ensuring accessibility and
diagnosticity to disclosure gives power and disclosure
facilitates power symmetry in the marketplace. In this vein,
information disclosures are particularly critical issues for
financial services advertising and financial welfare (Warren,
2008).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0887-6045.htm
Journal of Services Marketing
27/2 (2013) 104– 117
q Emerald Group Publishing Limited [ISSN 0887-6045]
[DOI 10.1108/08876041311309234]
In terms of libertarian paternalism which suggests using
simple interventions that do not limit consumer free-choice to
enhance consumer welfare and decision making (Thaler and
Sunstein, 2003), disclosure information is suggested to help
people make better decisions by enabling them to realize
neglected consequences of distributed choices and overcome
information overload and limited cognitive capacity (Bone,
2008; Ratner et al. 2008). According to the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Pub.L.
111-203, H.R. 4173) that was established due to the recent
financial crisis, financial companies are asked to abide by the
regulatory guidelines of information disclosure and
collaborate with new legal codification for transparency and
information remedy. In reality, policymakers, consumer
educators, financial marketers, and researchers advocate
investment companies use advertising disclosures in order to
improve the quality of consumer economic decisions (Stewart
and Martin, 2004). For instance, the Federal Trade
Commission (FTC), the Securities and Exchange
Commission (SEC), and Financial Industry Regulatory
Authority (FINRA) require that mutual fund advertising
provide information disclosures for certain financial offerings
that a typical consumer could not easily comprehend and
evaluate (Federal Register, 2003; Government Accountability
Office, 2011).
Despite the importance of information disclosure in
financial services advertising and consumer welfare, limited

104
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
research on the role of advertising disclosure in investor’s
decision-making has been done and there are many aspects
that should be investigated. As noted by previous research
(e.g., Kozup and Hogarth, 2008; Kozup et al., 2008),
although governmental bodies and financial companies are
increasingly asked to conduct consumer tests of whether and
how advised advertising disclosures affect average consumers’
financial decision-making, academic literature has given little
attention to this issue. Thus, the current research aims to
extend our knowledge of whether and how mandated mutual
fund information disclosures influence investors’
psychological responses in mutual fund advertising contexts.
Our research has managerial implications for financial
services advertising and other social marketing campaigns
by uncovering the effects of advertising-as-information in
financial decision-making. From a public policy standpoint,
this paper is among the first to make explicit claims regarding
the role of advertising disclosure in retail investment
circumstances.
Research framework and literature review
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Prior research has documented the nature and types of the
messages being communicated in mutual fund advertisements
and offered insights into behavioral finance research and
public policy implications for regulators. For example, Jones
and Smythe (2003) investigated the information content of
mutual fund advertising. The results indicate that without
significant increase in the information content of mutual fund
print advertisements in 1979, 1989, and 1999, funds rarely
discussed price-related information (e.g., loads, 12b-1, and
expense ratio) and risk-return estimation in their
advertisements. Huhmann and Bhattacharyya (2005) found
that mutual fund advertisements did not provide the
information necessary for optimal investment decisions
whereas they employed techniques known to increase
audience attention and decrease advertisement readability.
More recently, Lee et al. (2011) found that investment firms
shifted away from emotional advertising in favor of
informational advertising between 2005 and 2009 in
response to changing economic conditions brought about by
a sustained recession.
Additionally, previous literature has examined the investors’
processing of and receptiveness to financial products/services
advertising. For example, Zinkhan and Zinkhan (1985)
developed advertising response profiles and provided a wide
range of reactions that an investor might experience when
exposed to commercials and print advertisements. Bobinski
and Ramı́rez (1994) found that that investor-relations
advertising might change the expectations of individual
investors, thereby positively affecting stock prices in the
short run. Jain and Wu (2000) found a strong cause-and-
effect relationship between mutual fund advertising and
investment decisions. Jordan and Kaas (2002) revealed that
mutual fund advertising significantly influences investors’
perceived investment risk and expected return. By
synthesizing findings from advertising studies with those
from the field of behavioral finance, Karrh (2004) proposed
that investing expertise, access to company information and
motivation affect perceptions of a company’s advertising
efforts. Jones and Vance (2007) examined the relationship
between mutual fund advertising and fund characteristics of
both equity and fixed income mutual funds. Their findings
reveal that investors can infer mutual fund quality and price
from the presence of mutual fund advertising. More recently,
Karniouchina et al. (2009) revealed that television
105
Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
commercial variables such as message length, recency-
primacy effects, information clutter and source credibility
differently influenced average investors to accept stock
recommendations and, in turn, to change their economic
decisions.
General advertising disclosure literature has suggested that
advertising disclosures facilitate the symmetrical
communication between the provision of disclosures on the
advertisers’ side and the utilization of disclosures on the
consumers’ side (Franke et al., 2004). Advertising disclosure
can effectively convey information relating to risk of product
purchasing and usage thereby helping consumers make
efficient decisions, leading to greater consumer
empowerment (Stewart and Martin, 2004). Additionally,
there are strong data to support the proposition that
consumers view the advertiser using disclosure as an
altruistic, ethical, moral, or socially responsible entity, which
could positively affect consumer perceptions, beliefs, attitudes
and behavioral aspects of the brand and company (e.g., Torres
et al., 2007).
Despite the prevalence and importance of mutual fund
advertising, the scarcity of research on the effectiveness of
mutual fund advertising disclosure is surprising. The current
study examines whether and how mutual fund companies
provided information disclosures and investigates how
disclosures contained in mutual fund advertising affect
investors’ processing of and receptiveness to mutual fund
products and companies. To this end, we examine the
information disclosures presented in mutual fund advertising
through content analysis which allowed us to see whether and
how mutual fund companies used information disclosures in
their advertising. These findings helped us design realistic test
advertisements that we used in the second stage of the study, a
between-subjects experiment that empirically examines
whether and how mutual fund advertising disclosures
identified in the content analysis influence investors’
responses to the ad, product and company. The hypotheses
for experimental stage of the study are as follows.
Perception of responsible advertising
Social contract theory (SCT) offers a useful framework for
the examination of the relationships between company acts,
company brands, and consumers’ perceptions, attitudes, and
decisions in advertising contexts (Torres et al., 2007).
According to previous SCT literature, companies thrive
when adhering to obligations imposed by social contracts
whereas disregard for the social contract invites company
failure (Dunfee et al., 1999). Similarly, signaling theory (ST)
suggests that that companies use costly marketing initiatives
to “signal” a particular issue, product, or service features to
the market to reduce information asymmetry (Scott, 2005).
Especially in marketing and communication contexts, a
related issue of SCT and ST is that companies desire to
differentiate themselves from other companies, generate a
positive perception of the their socially responsible nature,
and stimulate greater behavioral responses from stakeholders
by way of information transparency and symmetrical
communication (Huang, 2004).
Taking SCT and ST perspectives, an extensive review of the
literature clearly suggests that an appreciation for the actions of
a company deemed to be acting in a socially responsible manner
leads to the beneficial effects of their actions from internal and
external stakeholders (Dunfee et al., 1999). For instance,
Singhapakdi and LaTour (1991) demonstrate a strong
correlation between perception of a socially responsible cause
(anti-littering proponents) and voting for a prosocial law
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
promoted by the cause (anti-littering). As indicated by Webb
and Mohr (1998), consumers tend to view companies that
make communicative efforts to provide important product
usage and safety information as being responsible for marketing
and advertising. Likewise, Torres et al. (2007) reveal that an
appreciation of responsible advertising actions (i.e. providing
clear risk disclosure in advertisements) results in more positive
perceptions and beliefs of the brand and company.
Over the past few years, the USA has witnessed an
economic recession that has been manifested in a housing
downturn, capital market turmoil, credit crunch, business
closings or consolidation, government bailouts, and
bankruptcies. Based on SCT and ST perspectives,
investment companies may want to be perceived as signaling
and acting in a socially responsible manner by providing
information disclosures in advertisements, especially in times
of financial uncertainty when average investor confidence has
been shaken. Specifically, mutual fund companies using
mandatory advertising disclosures may be perceived to be
moral entities that fulfill their social obligations and legitimate
organizations that are accountable to consumer financial
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welfare. Thus, advertising disclosures may offer an investment
company an opportunity to be seen to demonstrate good
corporate citizenship. Based on the above reasoning, we posit
that the presence of required information disclosures in
mutual fund advertisements positively influence consumer’s
perceptions and beliefs of the advertising’s social
responsibility:
H1. Compared with a mutual fund advertisement without
disclosures, a mutual fund advertisement with
disclosures results in more positive perceptions of
responsible advertising.
Risk perception
Economics of information (EOI), a branch of microeconomic
theory, explores how information generation and
dissemination affect resource allocation and decisions of a
consumer (Nelson, 1974). Taking the EOI perspective, extant
empirical research indicates that advertising information can
serve the informational interplay between buyer and seller by
helping consumers notice, process, and comprehend the
advertised product’s qualities (Franke et al., 2004). For
instance, EOI research has demonstrated that consumers rely
on objective, concrete, factual, precise and verified
advertisement claims and information in an effort to
maximize the utility of their purchase decisions by searching
for information (Ford et al., 1990). In addition, research
shows that advertising-as-information is useful to information
processing and decision making in high exogenous
uncertainty when consumers cannot easily determine the
marginal cost versus marginal value of products and services
(Urbany, 1986).
As mentioned above, similar to the study of the EOI,
signaling theory (ST) offers interesting insights into the
market interaction in which marketers know the quality of
their goods or services, but consumers are not fully informed
about the quality of sellers’ goods or services (Spence, 1974).
Specifically, the ST proposes that consumers would like
information that allows them to distinguish the seller of high-
quality goods or services from the seller of low quality goods
or services. One solution to this information problem is for
firms to send pre-purchase signals about their quality,
especially in high-stake, risk-taking situations (Spence,
1974). In particular, several researchers have considered
advertising information as market signals given that it can
106
Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
influence consumer’s perceptions and beliefs of products or
services despite the situation of unobservable quality
(Boulding and Kirmani, 1993).
Building in the identified theoretical mechanisms, empirical
research indicates that advertising disclosure influences
consumer’s risk perception of the nature and attributes of a
product or service. Substantial evidence has demonstrated
that providing information disclosure can create an
impression that the product may be riskier than its
substitutes without disclosure and that consumers are likely
to have higher perceptions of the risks associated with the
product after being exposed to the disclosure (Viscusi, 1990).
Similarly, Andrews et al. (1998) reveal that advertising
disclosures signal consumers to closely scrutinize selling
messages and broaden cognitive frames of reference, thereby
leading consumers to fewer inappropriate generalizations of
product risks. Torres et al. (2007) reveal that consumers trust
firms to provide products and services that are safe, perform
as expected and are accurately communicated regarding
product risks.
Taken together, based on an integration of the EOI and ST
perspectives, the current study assumes that advertising
disclosures have an impact on investors’ perceptions (or
expectations) about uncertain future events and product
performance that play a role in investment decision-making.
That is, the provision of required advertising disclosures
increases the likelihood that retail investors perceive and
attend to the risks of a mutual fund product. In contrast, if the
required disclosures are not presented, investors may perceive
little risk associated with the mutual fund investment. As a
result, the lack of risk perceptions of a mutual fund product
may create decision scenarios where investors may lead to
suboptimal financial behavior, especially in conditions where
risk perception is a crucial facet of investment decision
making (Jordan and Kaas, 2002; Kozup et al., 2008).
Although limited research on the relationship between
advertising disclosure and investor’s risk perception has
been carried out, the available studies advance the following
hypothesis:
H2. Compared with a mutual fund advertisement without
disclosures, a mutual fund advertisement with
disclosures results in higher risk perceptions of
mutual fund product.
Recall
The effectiveness of advertising disclosure has important
implications for cases where consumers can attend to and
retrieve relevant information presented in advertisements
from memory (Franke et al., 2004; Stewart and Martin,
2004). From a consumer welfare standpoint, the
communication effectiveness of advertising disclosure is
determined by the reader’s ability to recall pertinent
information about the advertised product and service. Also,
marketers are concerned with consumer recall of
advertisements.
As discussed earlier, the EOI and the ST posit that
consumers are more likely to notice and attend to advertising
disclosure because it can reduce search costs (i.e. time and
effort associated with obtaining and processing information)
and improve search benefits (i.e. lower price and/or higher
quality) in order to maximize the utility of their purchase
decisions (Boulding and Kirmani, 1993; Ford et al., 1990). In
particular, the SCT suggests that companies complying with
their social contract with consumers by presenting required
advertising disclosures should generate higher levels of recall of
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
the qualified claims and pertinent information in
advertisements (Torres et al., 2007). For example, Johar and
Simmons (2000) note that advertising disclosures enhance the
consumer’s opportunity to process the advertising message.
Barlow and Wogalter (1993) reveal that warning labels with risk
disclosure result in high recall of pertinent cues and relevant
messages contained in the warning disclosure, which could lead
to more favorable attitudes toward the advertiser. Hence, the
following hypothesis is put forth:
H3. Compared with a mutual fund advertisement without
disclosures, a mutual fund advertisement with
disclosures results in higher recall of the stated
advertisement claims and information on mutual
fund product.
Cognitive responses to advertising
Consistent with the aforementioned consumer recall hypothesis,
we further propose that advertising disclosures affect
consumers’ cognitive responses to advertising. In general, the
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goal of much advertising is to present product or service
information to potential target customers. This information, it is
hoped, will result in consumers adopting more favorable
attitudes toward the advertised product or service. These
attitudes, in turn, should result in a greater probability of the
consumer purchasing the advertised product or using the service
than if the consumer had not been exposed to the
advertisement. Contemporary theories in persuasion have
advanced the notion that thoughts elicited by persuasive
messages, which are typically called cognitive responses, are
important determinants of attitude change (Greenwald, 1968).
In short, the cognitive response approach to attitude change
maintains that when people receive a message, they cognitively
respond to it by attempting to relate the message to their
existing attitudes, knowledge, feelings, etc. (Wright, 1973). As
such, negative cognitive responses are believed to result in less
favorable attitudes, whereas positive cognitive responses would
result in positive attitudes because the valence of consumer’s
cognitive responses polarize their evaluation of the object in the
valence-congruent direction (Petty and Wegener, 1998).
Contemporary models of persuasion such as the Elaboration
Likelihood Model (ELM (Petty and Cacioppo, 1986)) and the
Heuristic-Systematic Model (HSM (Chaiken et al., 1989) use
this measure as a reliable predictor of advertising persuasiveness.
Stemming from the EOI and ST perspectives, research
suggests that advertising disclosure can help consumers reduce
the costs in time and effort taken to process and verify
advertisement claims and information prior to purchase
decision making (Boulding and Kirmani, 1993; Ford et al.,
1990). Similarly, many theoretical and empirical findings into
the behavioral influence of advertising show that providing
consumers with advertising disclosures improve their awareness
of specific brand information (e.g., factual characteristics) and
enhance the personalized thoughts and beliefs about the brand
(Kozup et al., 2008; Torres et al., 2007). Based on the review
above, we predict that advertising disclosure potentially has
meaningful cognitive impacts on mutual fund investors. Thus,
this leads to the following hypothesis:
H4. Compared with a mutual fund advertisement without
disclosures, a mutual fund advertisement with
disclosures generates more positive cognitive
responses to the advertisement than negative
cognitive responses.
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Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
Attitude toward company
As discussed above, as people process advertisement claims
and information, they react to them mentally, and the valence
of these cognitive responses contributes directly to attitude
change (Petty and Wegener, 1998). Specifically, negative
cognitive responses (e.g., counterarguments and source
derogations) are proposed to lead to less favorable attitudes,
whereas positive cognitive responses (e.g., support arguments
and source bolstering) would result in positive attitudes
(Greenwald, 1968; Wright, 1973). Research on persuasion
suggests that these valenced thoughts can mediate individual
message acceptance and, in turn, subsequent evaluations and
judgments of the object (e.g., ad, sponsor) (Chaiken and
Maheswaran, 1994; Gürhan-Canli and Batra, 2004).
Thus, it is proposed that the net valence of investors’
cognitive responses to mutual fund advertising mediates the
effect of individual perception of responsible advertising and
risk perception on attitude toward the mutual fund company,
especially in the presence of advertising disclosures.
Specifically, in the presence of advertising disclosures,
positive cognitive responses are likely to mediate the
relationship between perception of responsible advertising
and attitude toward the mutual fund company. In contrast,
negative cognitive responses may not generate enough drive to
mediate the relationship between risk perception and attitude
toward the company, given that the presence of information
disclosures should logically indicate to investors whether the
mutual fund company would perform as uncertain
(unreliable) or safe (credible) (Chaiken and Maheswaran,
1994; Gürhan-Canli and Batra, 2004). This leads to the final
hypothesis:
H5. Under the presence of advertising disclosures, attitude
toward the mutual fund company is a function of the
direct influence of perceived responsible advertising
and its indirect influence via the mediating role of
positive cognitive responses. On the other hand, under
the absence of advertising disclosures, attitude toward
the mutual fund company is influenced by the direct
influence of perceived responsible advertising.
Method
Content analysis method
Content analysis of print advertisements has been used in
research to document the actual advertising practices of the
financial services industry (Lee et al., 2011). Mutual fund
advertisements included in all 2008 through 2010 issues of
BusinessWeek, Economist, Forbes, Fortune, Money, SmartMoney,
Barron’s, and Kiplinger’s were analyzed to assess practice of
mutual fund advertising disclosure and to help in the design of
the test advertisements for this study. These eight publications
were chosen because each are among the most widely read
investment magazines (SRDS, 2010) and have served as the
sample for an earlier mutual fund advertising study (Huhmann
and Bhattacharyya, 2005; Jones and Smythe, 2003). Magazines
were sampled for the three-year period (2008-2010) of
economic recession that followed the 2007 sub-prime
mortgage crisis. Since then, mutual fund advertising has
consistently employed similar types of claims, information, and
appeals due to significant changes on economic and regulatory
environment surrounding the investment industry (Lee et al.,
2011). Overall, a total of 391 full-page, color advertisements
that were in the typical format for mutual fund magazine
advertising were coded (SRDS, 2010). When duplicate
 Effects of mutual fund advertising disclosures Journal of Services Marketing
Taejun (David) Lee, TaiWoong Yun and Eric Haley Volume 27 · Number 2 · 2013 · 104 –117

advertisements within the same issue of a magazine were
identified, the second advertisement was not counted.
In order to ensure the objective description of information
disclosure practices in mutual fund advertisements, the
operational definitions of all coding categories were drawn
from the SEC’s investment company advertising rules (Federal
Register, 2003) as well as prior mutual fund advertising studies
(Huhmann and Bhattacharyya, 2005). After the coding sheet
and coding instructions were developed, each mutual fund
advertisement was coded for the presence or absence of the
following advised information disclosures:
. investment objectives;
.
legend statement;
.
risk-return estimation; and
.
price-related information in the advertisements.
Table I shows a summary of coding categories and operational
definitions.
Three coders (all graduate students with financial
knowledge and investment literacy) were hired to analyze
mutual fund advertisements. One of the authors trained the
three coders with a sample of advertisements to familiarize the
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coefficient of agreement indices can inflate intercoder
reliability as the number of coding categories decreases, and
have recommended the use of Perreault and Leigh’s (1989)
reliability index (Ir) for a more rigorous reliability test. The
coders achieved satisfactory percentage of agreement on all
categories across the sampled advertisements (ranging from
95 percent to 98 percent). The reliability index (Ir) was quite
high ranging from 0.97 to 0.99. Finally, validity was checked
by randomly splitting the data into two subsamples and
assessing subsample statistical differences (Hair et al., 1998).
Despite the modest subsample sizes, the statistical outcomes
did not change in the split sample test. The positive results
from the validity tests provide evidence for sampling and
construct validity of content analysis data.
Findings
As shown in Table II, the majority of mutual fund companies
were likely to provide the four information disclosures in the
advertisements. During the three years, about 70 percent
of the advertisements included investment objectives
(67.1 percent, n ¼ 100 in 2008, 73.1 percent, n ¼ 87 in

coders with the coding scheme and instructions. The coders
reviewed and discussed the coding categories, previewed a
sample of advertisements and practiced using the coding
instructions. The coders independently conducted a pilot test
of 40 adverstisements. Each advertisement was coded as a
dichotomous decision (yes/no) for each category. Unclear and
disputed items were discussed and clarified before changes
were made. When disagreements arose, the coders discussed
their interpretations and a final decision was made by
consensus. After the pilot coding, the three coders
independently analyzed the advertisements placed in every
issue of the eight magazines using the same coding book. The
issues, years, and magazines were randomly assigned and
systematically rotated.
Intercoder reliabilities were computed using percentage of
agreement, which was the ratio of agreements to the total
number of coding decisions. Researchers have noted that
2009, and 74.8 percent, n ¼ 92 in 2010), legend statement
(71.8 percent, n ¼ 107 in 2008, 71.4 percent, n ¼ 119 in
2009, and 69.1 percent, n ¼ 123 in 2010), risk-return
estimation (65.1 percent, n ¼ 97 in 2008, 68.9 percent, n ¼
82 in 2009, and 71.5 percent, n ¼ 88 in 2010), and price-
related information (64.4 percent, n ¼ 96 in 2008, 63 percent,
n ¼ 75 in 2009, and 65.9 percent, n ¼ 81 in 2010). There was
no significant change in the availability of the four types of
disclosures in the advertisements during the period. In
contrast, the number of advertisements with all four
disclosures had been far more increased since 2008 as
indicated in Table II. This pattern showed a significant
difference in the use of the four mandatory disclosures in the
given period (x2 ð8Þ ¼ 15:6, p , 0:05).
There are two main implications from this content
analysis. First, the results indicate that approximately 70
percent of the mutual fund companies presented the four

Table I Operationalized definition of coding categories

Category Detailed description of variables studied
Investment objectives The discussion/information concerning the fund’s investment objectives
The discussion/information to allow investors to more easily compare the objectives of competing funds
Legend statement Discussion stating that past performance does not guarantee future results and that current performance may be lower
or higher than the data quoted
Discussion stating that investors need to be more aware of the limitations of relying on performance data for investment
decisions
Risk-return estimation The risks associated with investing in the fund
Risk-return estimation
Risk adjusted return
Price-related information The fund’s fees and expenses; the expense ratio (e.g., 12b-1 fee, a yearly fee/, that is deducted from an investor’s
account each year)
The fund’s price per share (or net asset value)
The fund’s sales charge, if any (e.g., load, as a percentage of initial investment, paid by the investor to the fund company
at the initial purchase; additional types of load fund such as contingent deferred sales charges and level loads); costs of
fund operations (i.e. loads) such as sales commissions, management fees, brokerage costs, etc.
The minimum investment required to invest in the fund
Sources: The operational definitions are drawn from SEC’s Investment Company Advertising Rules (Federal Register, 2003), Investment Company Institute
Factbook (2010), Jones and Smythe (2003), and Huhmann and Bhattacharyya (2005)

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 Effects of mutual fund advertising disclosures Journal of Services Marketing
Taejun (David) Lee, TaiWoong Yun and Eric Haley Volume 27 · Number 2 · 2013 · 104 –117

Table II Incidence of disclosures in mutual fund advertisements during the recession of 2008-2010
2008 2009 2010 Total
Type of disclosures n % n % n % n % x2 df p
Investment objectives 1.7 2 n.s.
Not included 49 32.9 32 26.9 31 25.2 112 28.6
Included 100 67.1 87 73.1 92 74.8 279 71.4
Total 149 119 123 391
Legend statement 0.2 2 n.s.
Not included 42 28.2 34 28.6 38 30.9 114 29.2
Included 107 71.8 85 71.4 85 69.1 277 70.8
Total 149 119 123 391
Risk-return estimation 0.9 2 n.s.
Not included 52 34.9 37 31.1 35 28.5 124 31.7
Included 97 65.1 82 68.9 88 71.5 267 68.3
Total 149 119 123 391
Price-related information 0.2 2 n.s.
Not included 53 35.6 44 37 42 34.1 139 35.5
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Included 96 64.4 75 63.0 81 65.9 252 64.5

Total 149 119 123 391

types of information disclosures that were mandated or
recommended by regulatory guidelines aimed at financial
literacy. However, results from this study suggest that a
number of retail investors might not be exposed to pertinent
information disclosures in the mutual fund advertising
context. Although mutual fund companies must present the
disclosures in advertisements regardless of medium (Federal
Register, 2003), all mutual fund companies did not fully
address and incorporate the advised disclosures in
advertisements. Yet, a sizeable literature on behavioral
economics has suggested the positive role of these
affirmative disclosures in retail investors’ perceptions,
beliefs, attitudes, and purchase intentions in marketing
circumstances (Ratner et al., 2008). Thus, it has been
proposed that exposure to well-designed and timely-provided
information disclosures can improve investor competence
and partially offset the influence of investors’ biased
perceptions and suboptimal behaviors (Bone, 2008). Since
some mutual fund advertisers are including mandated
disclosures and some are not, what is the difference from
the consumer’s point of view between mutual fund
advertising with and without mandated disclosures.
Experimental study
The current experiment manipulated advertising disclosures.
Two full-page, color mutual fund magazine advertisements
(mutual fund advertisement with disclosures vs mutual fund
advertisement without disclosures) were created by a
professional advertising designer for the study (see
Figure 1).A fictitious brand name was used to control for
potential confounding effects like prior brand attitude and
knowledge. The executions included a limited visual element,
the company logo, visual image on the top, and advertising
copy and headlines. Only advertising disclosure was varied.
All other advertisement features (picture, headline and body
copy, font size, color, brand-name location) were held
constant. To enhance validity, the test advertisements were
modeled after the typical representations of American
Association of Individual Investors’ mutual fund guides and
actual mutual fund advertisements (e.g., Kozup et al., 2008).
Advertisements with disclosures included the four mutual
fund advertising disclosures (investment objectives, legend
statement, risk-return estimation, and price-related
information) as suggested by the SEC’s regulatory guidance
and observed in the preceding content analysis.
The test advertisements were reviewed by three advertising
professors and one expert financial advisor. Based on their
recommendations, the executions were revised several times to
meet the intended operationalization of advertisement stimuli
and fix advertising executional problems (e.g., text-picture
congruity, advertising readability, typography, etc.).
Subsequently, 24 focus group participants, including 14 actual
investors who were involved in mutual fund and ten potential
investors who were willing to purchase mutual fund in the near
future, saw and discussed the test advertisements. Participants
were given the definitions of mutual fund advertising
disclosures taken from the SEC’s (2003) guidelines and
asked to read and classify the advertisements based on the
definitions. There was consensus among the participants’
classifications of the advertisements, and their evaluation of the
stimuli matched the intended operationalization. Furthermore,
the test advertisements were pre-tested with 26 graduate
students to assess advertising clarity, believability, and
likeability. There were no significant differences among the
two test advertisements on these dimensions.
This study collected data from actual and potential
investors. A total of 148 subjects were recruited from a
nationwide online market research company. Subjects were
given monetary rewards in exchange for their participation.
Consistent with the recent statistics of the US mutual fund
shareholders from the Investment Company Institute (2010),
subjects selected in this study approximately mirrored the
socio-demographic and financial characteristics of US
investor’s mutual fund ownership.1 The mutual fund
advertisement stimuli were presented to subjects in a static
file that mirrored traditional print mutual fund
advertisements. Subjects were randomly assigned to the
experimental conditions along with the survey questions.

109
 Effects of mutual fund advertising disclosures Journal of Services Marketing
Taejun (David) Lee, TaiWoong Yun and Eric Haley Volume 27 · Number 2 · 2013 · 104 –117

Figure 1 Stimuli for the mutual fund advertisements with/without information disclosures
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After examining the advertisements, subjects were given the attitude toward company. Previously developed measures of
questionnaire. Subjects answered questions pertaining to the the constructs were used.
five constructs – perception of responsible advertising, risk Perception of responsible advertising was measure with a
perception, recall, cognitive responses to advertisements, and four-item, seven-point Likert type scale used in Torres et al.

110
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
(2007). These four items were developed to cover the
contractual circumstances implied between a company’s print
advertising disclosure and their prospective customers. The
items are: “I’d be wary of mutual fund companies that hide
disclosures in ads”; “It doesn’t matter to me where a
disclosure is positioned in an ad” (reverse coded); “Mutual
fund companies have an obligation to noticeably provide
consumers with potential financial disclosures in ads”; and
“When mutual fund companies openly place disclosures in
advertisements about financial products and services, my
trust in them increases.” Cronbach’s alpha for the scale
showed reliability of 0.91.
Risk perception was measured with a four-item, seven-point
Likert type scale used in Jordan and Kaas (2002). This scale
was designed to assess private investors’ risk-return
perceptions and understand the effectiveness of advertising’s
persuasive impact in the context of investment decision-
making. The items were: “This mutual fund product bears a
high risk of losing money or of missing personal investment
objective”; “I feel uncertain about investing in this mutual
fund product, as I feel uninformed and incompetent about
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it”; “Investing in this mutual fund product also entails good
changes to realize higher, above-average returns”; and
“Regarding this mutual fund product, I reckon there will be
significant performance variations over time.” Cronbach’s
coefficient alpha estimate for this scale was 0.95.
Consistent with prior studies (e.g., Greenwald, 1968;
Wright, 1973), the method of measuring recall and cognitive
responses to a mutual fund advertisement is the thought-
listing technique in which an individual is asked to list
everything coming to mind during advertisement exposure.
The section of questionnaire assessing subjects’ recall and
cognitive response to advertising was formulated into a single
open-ended question. Subjects were asked to write down
everything they had thought and imagined while reading the
advertisements. Three coders, unaware of the study
hypotheses, independently coded subjects’ responses to this
question and assessed the number of correctly recalled
advertising claims and information regarding the advertised
mutual fund. Next, these subjects’ cognitive responses to
mutual fund advertising were categorized as positive or
negative. Each response was divided by the total number of
thoughts to create indices for positive and negative responses.
In addition to the valence of thoughts, cognitive responses
were categorized into attribute-related and source related to
assess the extent of systematic processing during advertising
message processing. To ensure the quality of the nominal
data, reliability was checked using Rust and Cooil’s (1994)
proportional reduction in loss (PRL), an approach that takes
into account the proportion of intercoder agreement, the
number of categories coded, and the number of coders. The
interpretation of the PRL is similar to Cronbach’s a; The
PRL ( ¼ 0.86) was above the recommended level of 0.70 for
acceptable reliability. Coding disagreements were resolved by
discussion among coders.
Finally, attitude toward the mutual fund company was
assessed with three items (favorable/unfavorable, good/bad,
and positive/negative) via seven-point semantic differential
scale by Nan and Heo (2007). Cronbach’s alpha for the scale
was 0.94.
Manipulation and confounding checks
Advertising disclosure manipulation was checked by
comparing subjects exposed to mutual fund advertisement
with disclosures and control group exposed to mutual fund
advertisement without disclosures based on a response to one
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Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
item seven point Likert-type scale (“I noticed the advertising
disclosures”) used in Torres et al. (2007). As expected,
subjects in the treatment group indicated the presence of
advertising disclosures more than the subjects in the
control group (Mtreatment ¼ 4:79 vs Mcontrol ¼ 1:94,
tð146Þ ¼ 15:60, p , 0:001).
However, given that the presence or absence of advertising
disclosures may also affect other unwanted factors such as
advertising believability, we did a confounding check between
treatment and control groups of advertising believability to
rule out alternative explanations. Advertising believability was
assessed via one item seven point semantic differential scale
(“The advertisement is believable.” vs. “The as is not
believable.”). As predicted, there was no difference between
treatment and control groups on their beliefs of the test
advertisements (Ms ¼ 5:10 vs 5.09, tð146Þ ¼ 0:043, p ¼ n:s:).
Analysis and results
To see any differences in the effects of the presence versus
absence of information disclosures in mutual fund
advertising (H1-H4), we performed independent sample t-
tests (see Table III).
H1 predicts that the presence of mutual fund advertising
disclosures would lead to more positive perceptions of
responsible advertising. As expected, it was found that
subjects exposed to advertisement with disclosures had more
positive perceptions of responsible advertising than subjects
exposed to advertisement without (Mad with disclosures ¼
5:47 vs Mad without disclosures ¼ 2:81, tð146Þ ¼ 24:23,
p , 0:001). This result supports the premise that
advertisement disclosures are effective in enhancing
consumer’s perception of responsible advertising of a
mutual fund product.
H2 predicts that mutual fund advertisement with
disclosures will produce higher level of risk perception of
mutual fund product compared to mutual fund advertisement
without disclosures. As expected, exposure to advertising
disclosures resulted in higher risk perceptions of mutual fund
product than the absence of advertising disclosures (Mad with
disclosures ¼ 5:46 vs Mad without disclosures ¼ 2:40,
tð146Þ ¼ 31:99, p , 0:001). H2 is supported.
H3 posits that subjects exposed to information disclosures
exhibit higher level of advertising claim/information recall. As
predicted, findings indicate that subjects exposed to mutual
fund advertisement with disclosures exhibited higher levels of
recall than subjects exposed to mutual fund advertisement
without disclosures (Mad with disclosures ¼ 4:07 vs. Mad
without disclosures ¼ 2:84, tð146Þ ¼ 5:98, p , 0:001). H3 is
supported.
H4 postulates that the presence of advertising disclosures
leads to more positively valenced cognitive responses to
mutual fund advertisements than the absence of disclosures.
Compared to mutual fund advertisement without disclosures,
mutual fund advertisement with disclosures would result in
more positive and fewer negative thoughts on the advertised
mutual fund. As predicted, subjects exposed to the condition
including advertising disclosures exhibited more positive
cognitive responses to the advertised mutual fund than
counterparts exposed to the no disclosure condition (Mad
with disclosures ¼ 0:62, Mad without disclosures ¼ 0:23,
tð146Þ ¼ 10:32, p , 0:001). Conversely, subjects exposed to
the condition containing advertising disclosures generated
fewer negative responses to the advertised mutual fund than
their counterparts (Mad with disclosures ¼ 0:18, Mad
without disclosures ¼ 0:42, tð146Þ ¼ 25:22, p , 0:001).
Advertising disclosures were found to increase favorable
 Effects of mutual fund advertising disclosures Journal of Services Marketing
Taejun (David) Lee, TaiWoong Yun and Eric Haley Volume 27 · Number 2 · 2013 · 104 –117

Table III T-test results for H1 through H4

DV IV M SD t df Sig.
H1 Responsible advertising Disclosure 5.47 0.68 24.23 146 0.00
Non-disclosure 2.81 0.66
H2 Risk perception Disclosure 5.46 0.63 31.99 146 0.00
Non-disclosure 2.40 0.53
H3 Recall Disclosure 4.07 1.29 5.98 146 0.00
Non-disclosure 2.84 1.20
H4 Positive cognitive response Disclosure 0.62 0.23 10.32 146 0.00
Non-disclosure 0.23 0.23
Negative cognitive response Disclosure 0.18 0.18 25.22 146 0.00
Non-disclosure 0.42 0.34

thoughts and reduce unfavorable thoughts on the advertised Figure 3 Path analysis results for the mutual fund advertisement
mutual fund product. H4 is supported. without disclosures
Finally, H5 assumed that the presence of advertising
disclosures, the effect of advertising disclosures on attitude
toward the mutual fund company is both a direct function
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(i.e. perception of responsible advertising) and an indirect

function (i.e. mediating role of positive cognitive responses).
However, attitude toward the mutual fund is predicted to be
the direct function of perceived responsible advertising under
the non-disclosure condition. To test these predictions, path
analyses were performed. First, independent sample t-tests
indicate that there is statistically significant difference between
mutual fund advertisement with disclosures and without
disclosures (Mad with disclosures ¼ 5:67, Mad without
disclosures ¼ 2:66, tð146Þ ¼ 24:50, p , 0:001). Based on
this finding, how “perception of responsible advertising” and
“risk perception” affect attitudes toward mutual fund Attitude toward mutual fund company
company under the presence vs absence of advertising
disclosures was examined. We further examined if cognitive ¼ 0:198* positive cognitive response
responses mediate the effects of the two predictor variables
(risk perception and perception of responsible advertising) on þ 0:173 negative cognitive response
attitudes toward the mutual fund company. We selected EQS,
one of a few statistical programs along with LISREL that can þ 20:238 risk perception
assess path analyses with two or more mediators. Path analysis
þ 0:295* perception of responsible advertising:
results are provided in Figures 2 and 3. Under the presence of
advertising disclosures as presented in Figure 2, attitude However, as shown in Figure 3, attitude toward the mutual
toward mutual fund company is an indirect function of fund company is only influenced statistically by perception of
positive cognitive responses and a direct function of perceived responsible advertising under the absence of advertising
responsible advertising, the result of regression equation is disclosures. The resulting regression equation is as follows:
put forth:
Attitude toward mutual fund company
Figure 2 Path analysis results for the mutual fund advertisement with ¼ 20:169 positive cognitive response
disclosures
þ 20:116 negative cognitive response

þ 20:116 risk perception

þ 20:378* perception of responsible advertising:

In sum, our results show that positive cognitive response and

perception of responsible advertising are statistically
significant predictors of attitude toward mutual fund
company. However, negative cognitive response and risk
perception are not statistically significant predictors to
attitude toward mutual fund company. Unlike the presence
of advertising disclosures, our study reveals that positive

112
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
cognitive response is not a statistically significant predictor to
attitudes toward the mutual fund company under the absence
of advertising disclosures. Instead, perception of responsible
advertising is only a significant predictor under the absence of
advertising disclosures. Taken together, H5 is corroborated.
Discussion and implications
With regard to the effects of advertising disclosures on
consumer responses, findings of this study support and
extend those of previous studies on financial services
advertising and behavioral economics. In our experimental
study, the presence of advertising disclosures can results in
higher levels of risk perceptions among retail investors
whereas advertising disclosures may counterbalance
individual risk perception by helping investors to recall
salient advertisement claims and information and positively
respond to mutual fund advertisement. The results from our
path analyses reveal that regardless of the influence of risk
perception, perception of responsible advertising not only has
a direct influence on attitude toward mutual fund company,
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but is also mediated by positive cognitive responses when
advertising disclosures are present. In contrast, under the
absence of advertising disclosures, attitude toward mutual
fund company is influenced only by the direct influence of
perception of responsible advertising. Taken together, it can
be inferred that in mutual fund advertising contexts, the
mediating role of investors’ positive cognitive responses plays
a more important role in influencing outcomes variables of
advertising communication under the presence of advertising
disclosures.
So what do these findings mean for financial marketers? In
general, risk perception is a crucial construct in the context of
investment decision-making. Research in behavioral finance
and behavioral decision making has suggested that investment
risk is a precise, abstract, and purely technical statistical
concept whereas ordinary investors’ understanding of this risk
concept is intuitive, less quantitative, and emotion-driven
(Johnson and Tellis, 2005; Jordan and Kaas, 2002). However,
studies show that risk perception can affect judgmental
heuristic biases (i.e. so-called mental shortcuts or rules of
thumb which are used systematically but often unconsciously
to simplify decision making) in cases where there is limited
cognitive capacity and incomplete information (Johnson and
Tellis, 2005). It has been suggested that suboptimal financial
decisions due to these underlying judgmental heuristic
processing forces can have a negative impact on marketing
activities and advertising programs (Jordan and Kaas, 2002).
However, our results suggest that advertising disclosure
plays a role in helping investors rely more on information
search and processing, which might reduce the transfer of
negative effects from risk perceptions of mutual fund product
onto attitudes towards mutual fund company. More
importantly, it should be noted from our results that
advertising disclosure can be helpful to retail investors by
leading them to generate attribute-related and positively
valenced rather than source-related and negatively valenced
thoughts on mutual fund product, which lead to more
favorable attitudes towards mutual fund provider. As noted
earlier, the ELM (Petty and Cacioppo, 1986) and the
Heuristic-Systematic Model (Chaiken et al., 1986) suggest
that advertising messages viewed as relevant, credible by
consumers are likely to induce greater message elaboration
and lead to enhanced consumers’ responses. This in turn
suggests that advertising disclosure can contribute to the retail
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Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
investor’s systematic/central (vs heuristic/peripheral)
processing for investment decisions.
Last, our content analysis on the use of financial disclosures
in mutual fund advertising was performed based on the SEC’
regulatory guidance, which helped to provide a more lucid
picture of the information provision practices of mutual fund
advertisements. Such findings may lead to more effective
experimental designs when studying the effects of mutual
fund advertising disclosures and may help practitioners –
especially those who lack understanding of the use and
adherence of advertising disclosures – to better achieve
regulatory compliance and liability protection and serve
investor literacy and financial welfare.
Managerial implications
Our findings suggest that consumers find mutual fund
providers more socially responsible when they use
advertising disclosures in marketing contexts. Corporate
ethics and corporate social responsibility (CSR) activity are
areas of intense and increasing interest both in practice and
academically, especially in the financial services industry
(Gelb and Strawser, 2001). From a corporate management
standpoint, many financial institutions view CSR programs as
an economic asset and use them as a defensive mechanism to
avoid legal problems, consumer protest, and adverse publicity
(McDonald and Rundle-Thiele, 2008). From a consumer
response perspective, as investor interest in corporations that
engage in CSR activities has grown dramatically, a variety of
CSR strategies lead to target customers’ favorable responses
toward the socially responsible business (Torres et al., 2007).
Our findings indicate that financial companies will benefit in
terms of favorable consumer evaluations of the company and
products by providing the required disclosures in their mutual
fund advertising. In this respect, financial marketers may wish
to incorporate advertising information provision strategies
into different advertising media and other financial services
advertising. For instance, since recall is higher and cognitive
responses are more positive under the condition of advertising
disclosures, financial marketers might enhance recall and
cognitive responses for other pertinent product and service
offerings through different advertising disclosure practices. As
found by Alba and Hutchinson (1987), compared to experts,
novices give greater weight to product information that is
easier to understand and memorize. Thus, if financial
marketers fail to provide pertinent, readable, an
comprehensible advertising disclosures, there could be little
benefit from information provision efforts.
Public policy implications
Because tens of millions of Americans invest in mutual funds,
ensuring they receive fair, objective information and are not
misled by advertising for such funds is an important
regulatory goal. The present study found that advertising
disclosure can play a role in investor decision-making by
helping them recall salient and pertinent mutual fund
advertisement claims and information. As such, advertising
disclosure can be an important antecedent to consumer
welfare and financial security by boosting an investor’s
cognitive ability to make investment decisions. As stated
earlier, investors often neglect the consequences of distributed
choices for financial offerings and make choices that are not
necessarily good for them due to judgmental heuristic biases
(so-called, suboptimal information processing strategies and
unconsciously simplifying decision-makings), limited
cognitive capacity, and incomplete information (Jordan and
Kaas, 2002; Ratner et al., 2008). But, Gilbert and Ebert
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
(2002) found that a simple informational intervention is likely
to reduce biased perceptions and suboptimal decision in
difficult decision-making context, particularly when choice
alternatives force individuals to make trade-offs as with
mutual fund investing. Findings from behavioral decision
research indicate that informational interventions (e.g.,
advertising disclosure) can help consumers avoid making
problematic choices and correct errors in choices (Ratner
et al., 2008). Likewise, results of this study suggest that
advertising disclosure can be a useful intervention that helps
retail investors overcome internal and external limitations in
the investment decision task and, in turn, make better choices
for financial welfare.
Much of the policy debate has centered on financial literacy
and market transparency through information remedy and
communication approach in response to increasing
complexity and insecurity in the financial services
environment (Kozup and Hogarth, 2008). The results of
this study give hope that appropriately providing and using
advertising disclosure may be an important part of public
policy objectives and other interventions that improve
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financial welfare. Specifically, in terms of policy
interventions, we advance the notion that it could be
important to identify primary intervention points (e.g., the
format, quality, and content of financial information) at which
investors are motivated to pursue financial disclosure in
advertising and marketing contexts (Bone, 2008; Warren,
2008). The optimal method of providing advertising
disclosure may be also complemented by educational tools
(e.g., computer software, mobile application, virtual forum,
etc.), which directly improve investors’ understanding
(personal finance knowledge) and experience (personal
finance application). For instance, a number of studies
suggest the importance of educating consumers to strengthen
literacy (e.g., reading and writing) skills and leverage
personal, situational, and social coping skills on marketing
message based on consumer autonomy and sovereignty
(Adkins and Ozanne, 2005; McGregor, 2011; Viswanathan
et al., 2005).
Mutual fund companies have expressed concerns that as
regulatory changes have occurred, additional disclosure
requirements are added for advertisements, although such
disclosures have already become voluminous and complicated
in terms of the space restrictions or readability of
advertisements (Government Accountability Office, 2011).
Although our findings confirm the positive role of advertising
disclosure, regulators need to refine rules and conduct
additional research, oversight and enforcement of fund
advertisements to help ensure that advertisements do not
include complex, misleading, and overload disclosures. It
might be effective to employ a review process for fund
advertisements and develop sufficient mechanisms for
ensuring that new interpretations of existing rules are
communicated evenly to all fund companies. Consequently,
these approaches might decrease the potential for investors to
be misled.
Limitations and future research direction
The findings of this study should be interpreted in light of
several limitations. First, for parsimonious reasons, our study
incorporated only two types of advertising disclosure:
presence and absence. Future research should examine
different conditions of advertising disclosure, which could
allow for more comprehensive accounts of whether the
relationships we studied are found in other contexts. Future
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Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
research should identify an optimal condition between the
kinds of information and the amount of information provided
in advertising disclosures. Moreover, future research needs to
substantiate and test the role of advertising disclosure formats
and readability that can reduce search costs and increase the
likelihood of optimal decision-making.
Second, the characteristics of different financial offerings
may affect the way in which investors process information.
Given the variety of financial product and the inconsistency of
financial disclosures (e.g., open-ended vs closed-ended
credits, money-market mutual funds vs long-term mutual
funds, stocks vs retirement plan, etc.), additional research
opportunities exist regarding investigating and validating
(e.g., learning-based and memory-based) communication
effectiveness and related advertising disclosure approaches.
Third, demographic, geographic, psychographic, and
behavioral aspects that may explain individual financial
decision-making have gone largely unexplored. For instance,
our data were collected outside of the actual mutual fund
investment environment and excluded important extrinsic
(e.g., contextual, situational, and cultural) factors that may
affect the generalizability of findings. Future research should
take into account these factors.
Finally, the level of investors’ financial literacy, which was
not measured in our study, might influence their processing of
advertising disclosure (e.g., risk perception of the
informativeness of the advertisement). Recently, research
has suggested that financial expertise/experience affect the
perception, attitude, belief, and behavior in varied issues and
contexts of personal financial management and investment
decisions (McGregor, 2011). An interesting extension of this
study would be to assess and incorporate the investors’
financial literacy that may affect financial decision making. In
a similar vein, research suggests that information provision
may not be enough to help novice and vulnerable investors
who are prone to judgmental heuristic processing and
oversimplifying decision making (e.g., Jordan and Kaas,
2002).
Conclusion
In summary, our study confirms the scholarly belief that
advertising disclosure is an important communication strategy
for financial companies and consumer financial welfare. This
research shows that the presence of advertising disclosures
can result in more accurate consumer processing of important
financial information presented in advertising. The results
also suggest that fund companies can benefit with regard to
consumers’ positive perceptions of the company and product
by including disclosures in their mutual fund advertising. In
short, the study shows potential for a win-win situation
between marketers and consumers via the provision of
financial disclosures
Note
1 According to the Investment Company Institute (2010),
in the US the median age of average mutual fund
shareholders was 40. A toal of 82 percent of shareholders
invested in mutual funds for retirement, healthcare, and/
or education; 76 percent had married or lived with a
partner. Median household income was $80,000 and
median mutual fund assets were $80,000.
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
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About the authors
Dr Taejun (David) Lee is an Assistant Professor in the
Department of Advertising at Kookmin University, Seoul,
South Korea. His research interests are in advertising strategy,
financial services advertising, brand placement, cross-cultural
consumer behavior, and advertising regulation. He has
published or has work forthcoming in Journal of Consumer
Affairs, Journal of Consumer Policy, Journal of Applied
Communication Research, Journal of Services Marketing,
Journal of Financial Services Marketing, International Journal
of Advertising, Marketing Intelligence & Planning, Journal of
Promotion Management, and Corporate Communications: An
International Journal, among others, as well as in several books
and numerous conference proceedings.
Dr TaiWoong Yun is an Assistant Professor of Advertising
and Public Relations at Hongik University, Korea. He has
published articles in major Korean journals in the field of
advertising and psychology. In addition, he has published
articles in such international journals as Journal of Consumer
Affairs, Journal of International Consumer Marketing and
Advances in International Marketing. His research interests
include consumer psychology, advertising effect and statistical
methods. TaiWoong Yun is the corresponding author and can
be contacted at: taiwoongyun@gmail.com
Eric Haley is Professor in the School of Advertising and
Public Relations at the University of Tennessee, Knoxville. He
teaches a variety of advertising courses and a doctoral seminar
in qualitative research. He is an active research consultant
helping national clients with custom research information
needs. His publications have appeared in the Journal of
Advertising, the Journal of Advertising Research, the Journal of
Current Issues and Research in Advertising, the Journal of
Consumer Affairs. In addition to his academic work, he is an
 Effects of mutual fund advertising disclosures
Taejun (David) Lee, TaiWoong Yun and Eric Haley
active research consultant who has conducted research for
entertainment and travel/tourism companies such as MCI/
Universal Studios Theme Park Division and EMI records. He
has also worked as a syndicated research contractor for Roper
Starch Worldwide, Simmons Market Research and Just Kids
Inc.
Executive summary and implications for
managers and executive readers
This summary has been provided to allow managers and executives
a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
research undertaken and its results to get the full benefit of the
material present.
Investing in mutual funds offers you a simple, efficient way to
meet your retirement or education goals. So say the
advertisements inviting you to avail yourself of a financial
services company. There will be other information too, such
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as encouraging comments about the way their portfolio
managers have helped customers to have peace of mind in the
past and how the company can help you too.
When looking at mutual fund advertising, however, it is
wise to consider not just what is being said, but what is not.
True, you cannot put everything in an advertisement which
has to be concise to catch the eye. But there are some
fundamental pieces of information – mandatory disclosures –
which ought to be there. Information such as fees and
expenses, risks and returns and pointers to where you can get
much fuller information about the sort of arrangement you
are contemplating.
It all boils down to that simple matter of trust. Given the
general lack of trust globally concerning financial institutions,
it is important for responsible organizations to lay their cards
on the table. Transparency, honesty, responsibility are, after
all, pretty good selling points for anyone trying to attract
customers.
However, although governmental bodies and financial
companies are increasingly asked to conduct consumer tests
of whether and how advised advertising disclosures affect
average consumers’ financial decision-making, academic
literature has given little attention to this issue.
Consequently, in “Effects of mutual fund advertising
disclosures on investor information processing and decision-
making” Taejun (David) Lee et al. take a look at whether and
how mutual fund companies provide information disclosures
and investigate how disclosures contained in mutual fund
advertising affect investors’ processing of and receptiveness to
products and companies.
Advertising disclosures are viewed as important elements to
the symmetrical correspondence between consumers and
marketers that can prevent misleading, deceptive impressions
and facilitate information transparency. Indeed, previous
study has revealed that an appreciation of responsible
advertising actions (i.e. providing clear risk disclosure in
advertisements) results in more positive perceptions and
beliefs of the brand and company.
This study confirms the belief that advertising disclosure is
an important communication strategy for financial companies
and consumer financial welfare. The presence of advertising
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Journal of Services Marketing
Volume 27 · Number 2 · 2013 · 104 –117
disclosures can result in more accurate consumer processing
of important financial information presented in advertising.
Fund companies can benefit with regard to consumers’
positive perceptions of the company and product by including
disclosures in their advertising. In short, the study shows
potential for a win-win situation between marketers and
consumers via the provision of financial disclosures.
Consumers find mutual fund providers more socially
responsible when they use advertising disclosures in
marketing contexts. Corporate ethics and corporate social
responsibility (CSR) activity are areas of intense and
increasing interest, especially in the financial services
industry. From a corporate management standpoint, many
financial institutions view CSR programs as an economic
asset and use them as a defensive mechanism to avoid legal
problems, consumer protest, and adverse publicity. From a
consumer response perspective, as investor interest in
corporations that engage in CSR activities has grown
dramatically, a variety of CSR strategies lead to target
customers’ favorable responses toward the socially-
responsible business.
Regardless of the influence of risk perception, perception of
responsible advertising not only has a direct influence on
attitude toward a mutual fund company, but is also mediated
by positive cognitive responses when advertising disclosures
are present. In contrast, if disclosures are absent, the attitude
towards a company is influenced only by the direct influence
of perception of responsible advertising. Taken together, it
can be inferred that in mutual fund advertising contexts, the
mediating role of investors’ positive cognitive responses plays
a more important role in influencing outcomes variables of
advertising communication under the presence of advertising
disclosures.
So what do these findings mean for financial marketers? In
general, risk perception is a crucial construct in the context of
investment decision-making. Research in behavioral finance
and behavioral decision making has suggested that investment
risk is a precise, abstract, and purely technical statistical
concept whereas ordinary investors’ understanding of this risk
concept is intuitive, less quantitative, and emotion-driven.
However, studies show that risk perception can affect
judgmental heuristic biases (i.e. so-called mental shortcuts
or rules of thumb which are used systematically but often
unconsciously to simplify decision making) in cases where
there is limited cognitive capacity and incomplete
information. It has been suggested that suboptimal financial
decisions due to these underlying judgmental heuristic
processing forces can have a negative impact on marketing
activities and advertising programs.
The authors note concerns that, as regulatory changes have
occurred; additional disclosures are required for
advertisements, even though disclosures have already
become voluminous and complicated in terms of the space
restrictions or readability. Regulators need to refine rules and
conduct additional research, oversight and enforcement of
fund advertisements to help ensure that advertisements do
not include complex, misleading, and overload disclosures.
(A précis of the article “Effects of mutual fund advertising
disclosures on investor information processing and decision-
making”. Supplied by Marketing Consultants for Emerald.)
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