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Funds Fail to Spend Wisely on Internet

At a time when the Internet is so important, mutual fund companies cannot afford to misuse their technology budgets.

But according to a recent study, not all of the country's fund managers are doing the best they can with their Internet spending.

Investment Counseling, a San Francisco money management consultant, concluded in a recent study that less than half of all fund web sites can even be called "good," while only 12 percent deserve to be called "excellent."

The study, released this month, also found that those fund companies catering to institutional and high-net-worth clients are doing an even worse job than the average fund companies with their web sites. Nine percent of sites of institutional firms were rated excellent and no sites of firms catering to high-net-worth customers were. Thirteen percent of institutional sites were rated good. Half of the sites of firms targeting high-net-worth sites were poor.

Historically, the fund industry has not embraced technology as readily as other industries have, so the study's findings were no surprise to Steve Unzicker, director of growth and competitive strategies for Investment Counseling.

"There are a lot of firms that are spending money poorly," Unzicker said.

Unzicker said that some of the worst decisions are being made by larger fund firms that have a lot of money to spend, but are just spending without a clear-cut plan in place. For instance, some companies are spending a lot to develop Internet strategies for their retail business but not their institutional side. Technology initiatives must be made across all businesses, Unzicker said.

Some fund companies are also trying to use the Internet to become distributors when they should stick to just manufacturing, he said. Companies who have created their own online fund supermarkets and brokerages from scratch may be wasting their money because it is not what they are good at, Unzicker said.

In general, small and mid-sized fund companies tend to do better with their technology spending because they are more focused with their spending, Unzicker said.

Across all industries, smaller companies have taken better advantage of the Internet than larger companies and it is no different in the money management business, Unzicker said.

Overall, the study found that most fund companies are not spending enough on technology. Technology spending rose from six percent of budgets in 1997 to only 6.4 percent in 1998. The average retail fund manager spent $9.2 million in 1998, and that was seven times that of the high-net-worth manager.

"A lot of firms haven't grasped the importance of this," Unzicker said.

In Boston last week, mutual fund consultants were saying many of the same things to fund executives at the MarkeTrends conference sponsored by Graylyn Associates of Chatham, Mass. and Financial Research Corp. of Boston.

The Internet is important because people now expect businesses to be run on the web, said Charles O'Neill, chairman of Diversified Management Resources of Boston. They expect to be able to have immediate access to company information and company support through a company's web site.

"It's not about technology," O'Neill said. "For our customers, it's their new definition of value. They're looking for what technology promises."

William J. Militello, director of marketing of financial services at SRA International of Fairfax, Va., also said that the Internet has created a different customer. An Internet strategy is necessary because all consumers and investors will use the web in the future.

Internet-savvy consumers expect a web site to give them a complete picture of a fund company, he said.