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Technology Transforms the Challenge for Wrap Management Companies


BOSTON - When FundQuest opened for business seven years ago, its focus, as a wrap program management company, was to assemble packages of the most attractive mutual funds to sell to financial advisors.

Now, like many of its rivals, FundQuest focuses its attention on using technological advances, especially the Internet, to convey information about its wrap programs in the most appealing and useful manner to its customers.

Since FundQuest's inception, creating wrap programs has become nearly a commodity business. Now, what differentiates one company from the next is how well they can package the wrap programs they offer. In developing packaging, wrap program providers like FundQuest are striving to ease the job of financial advisors in order to help fund companies attract the best of this ever more prized group.

Several large companies are using the highly personalized and sophisticated wrap programs FundQuest designs to do just that. FundQuest manages wrap programs for broker/dealers, banks and insurance companies. These services not only include portfolio management and back-office functions, but also shareholder communications for which it uses print materials and the Internet.

In the past year, the company has doubled in size and has filled its office space to capacity after a move from smaller quarters. The company currently has $500 million in assets under management but it expects to more than double that by the end of the year to $1.3 billion.

In all, wrap programs had $85 billion in assets under management and net inflows of $22 billion in 1998, up from $56.8 billion and $19 billion in net inflows in 1997, according to Strategic Insight, a mutual fund research and consulting company, of New York. In 1992, there were $2.9 billion in assets under management.

Although FundQuest has a small share of the market, Robert Del Col, president of the company, says that its business is distinctive because of the technologically-enhanced services it offers.

"What we're becoming even more well known for is the technology," Del Col said.

FundQuest services 22 institutions and has attracted such high profile clients as John Hancock of Boston, Lincoln National of Fort Wayne, Ind., Bank of America of Charlotte, N.C., Commercial Bank of New York and Allmerica of Worcester, Mass. All of these companies put their own name on FundQuest wrap programs.

Much of FundQuest's growth stems from the changes in the industry that the Internet has brought about. Half of the company's 30 employees are now directly responsible for technology programs. In 1992, the company started out with just four employees. One of those was Del Col.

Another service for which FundQuest stands out is its printing of personalized quarterly reports for clients which include a breakdown of an investor's portfolio and a market analysis relevant to the individual investor's holdings in long-hand. These types of highly personalized reports can help a broker develop and maintain clients.

To make this service more valuable to the advisors and their clients, the company also puts the same report online, in password-protected websites that it maintains but which are privately-branded. Putting the reports online enables advisors to see what their clients are being sent in the mail, gives them instant access to information, and affords them the opportunity to be responsive to their client's questions. Advisors can also obtain information about a clients' entire holdings online through these sites. These sites are maintained in the FundQuest offices.

By doing this, FundQuest is trying to make the financial advisor an "expert and capable of servicing this client with efficiency and high-touch, high-feel expertise," Del Col said.

"You get to feel that you're being treated like a big shot" by your advisor, said Del Col. "What's making this possible is the Internet."

FundQuest also provides its service to smaller clients, many of whom do not private label. These smaller clients gain access to their accounts through the FundQuest website itself.

The growing demand for advice has dramatically increased the value of what FundQuest does. Even though the Internet has created a whole new segment of do-it-yourself traders, it has also made the financial landscape more complex. Anyone can make a trade, but few know what they are doing. That has made brokers more valuable for their advice than for the products they sell.

"The value of execution is diminishing in the eyes of the investor," Del Col said. "The only thing left is the value of guidance." Competition among financial services companies to keep and maintain brokers is also increasing, and a highly sophisticated wrap program can help attract the best salespeople.