One-Stop Shopping Is Questioned
May 31, 1999
WASHINGTON - One-stop financial shopping is not necessarily the wave of the future for financial services companies, according to top executives of three mutual fund firms.
Increasing market segmentation, the Internet and price competition will lead investors or their financial advisors to pick and choose products and services from a crowded, competitive field, according to top executives from Fidelity Investments, Putnam Investments and OppenheimerFunds.
The executives predicted that investors will increasingly use advisors and firms which offer a range of products from competing companies rather than just the proprietary products and services of one firm.
Proponents of one-stop shopping - one company offering virtually all financial services to its customers - are "missing the boat" on the future of investor demand, said Robert Pozen, president and CEO of Fidelity Management & Research Co. of Boston.
Pozen made his comments in a discussion among industry leaders at the Investment Company Institute's general membership meeting here two weeks ago. Lawrence Lasser, president and CEO of Putnam Investment Management of Boston, and Bridget Macaskill, president and CEO of OppenheimerFunds of New York, were on a panel with Pozen.
Pozen cited Fidelity's unsuccessful efforts with its own credit card business as an example of the perils of assuming that cross-selling proprietary products is a successful business strategy. Although Fidelity was able to distribute the credit cards, the business was not profitable because customers paid off their bills each month while insisting on paying no annual fees for the service, Pozen said.
Pozen said the experience demonstrated how there are some business lines in which fund companies are unlikely to build a competitive advantage over those who already dominate the business.
The future is more likely to lie with those firms who are able to serve as the coordinator of investors' needs while providing some of the products, Pozen said.
Macaskill expressed a similar viewpoint, saying advisors who serve as "integrators" for investors will dominate in the future. Investors will rely on a single individual to design and execute a plan to meet all of the investor's financial services needs by integrating proprietary and non-proprietary products and services, Macaskill said. Investors will seek "one person to really be their right-hand person," Macaskill said.
The financial services industry has debated the merits of one-stop shopping for more than a decade. In the 1980s, American Express built what was commonly described as a financial supermarket, one company offering a wide array of proprietary financial products to investors. The American Express effort was widely viewed as unsuccessful. Top executives at Citicorp and the Travelers Group based their formation of Citigroup of New York last year on the premise that they effectively could cross-sell a variety of products to one-another's customers. (MFMN 4/13/98)
The Internet will further erode one-stop shopping for financial services firms, Lasser said. By using the Internet, investors are able to compare prices from a wide variety of providers, Lasser said. That diversity of providers will be fostered by a consumer market broken into segments, each with its own specialized needs, Lasser said.
Lasser and other executives, however, were skeptical about the ability of the Internet to provide advice and build relationships with investors. Pozen said that even firms which sell directly to investors such as Fidelity have come closer to offering advice, a step direct sellers traditionally have avoided for regulatory reasons.