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Down Market Gives Technology a Squeeze

After a long period of investing in technology and Internet-related systems, mutual fund firms are looking closely at information technology departments for potential cost savings and chief information officers are being pressured to show results, according to industry executives.

A group of chief information officers discussed the current climate for technology in the mutual fund industry at a technology forum here last week sponsored by the National Investment Company Service Association of Boston.

The declining market has put a spotlight on information technology department budgets and company management has a new outlook on Internet spending, according to Jeff Neufeld, chief information officer of Fidelity Investments Institutional Services Company of Boston.

"We've automated our transactions," said Neufeld. "We've pushed our servicing, we sent every type of content possible out there, we're syndicating it, integrating it, aggregating it, and, by the way, we spent an awful amount of money doing this and where is the money? Are we really driving costs down? Are we really making money by going to these things? Are our customers really stickier to us? Are they more likely to do business because of the things we've deployed? Are we building in long-term costs that may or may not pay off? I think those questions are really coming to the floor."

Because the down market has raised those questions, failures with regard to technology are highlighted, according to John Deane, chief technology officer of AIM Management Group of Houston and chairman of the corporate technology committee for AMVESCAP of London, AIM's parent company. AIM spent a lot of time and money on its websites, and they work very well for retail consumers, but they only make up 10 percent of AIM's global assets under management, he said. Institutions, which account for about a third of its assets, do not want to use the websites the company developed specifically for them because they want to see all of the money they have invested aggregated, and not by AIM, he said. The website AIM developed for financial planners, who account for close to two-thirds of the company's assets, has been equally unsuccessful, he said.

"We've built many servicing elements where the economics clearly show that if [investors] move off of whatever method they're using with us today and moved to the Internet, we could save a ton of money," said Neufeld. "Well, hey, the consumers aren't behaving the way we expected. They don't want to do that and, for whatever reason, we haven't figured out how to motivate a certain group to move over and they're still in the expensive channel. So now we have the expensive servicing - we're certainly not going to turn against those customers - and we have an expensive infrastructure that would be cheap if they used it, but how do you force the volume through it? So I think, across the board, we're looking at those economics and saying it's time to make this stuff work or figure out a little different tuning of the strategy."

With the declining market bringing down revenues, CIOs have to keep costs down, according to Barry Strasnick, CIO of CitiStreet of Quincy, Mass. The markets are forcing CIOs to know the business well enough to reduce the scope of projects to keep costs down, he said. If someone in the company wants to build or implement a new technology system, it is important to know if it is the right thing to do for the business now, he said.

"[Current market conditions] are forcing us to look at our cost structure," said Neufeld. "We can get more attention around some things that were always on the back burner. I think we're taking steps around tightening up on the normal things you can, the discretionary spends. Anything that doesn't have to happen this year, you question very strongly about pushing it out."

The down market is also putting pressure on information technology departments with regard to staffing, according to John Fiore, CIO of State Street Corporation of Boston. Although many areas of the business are cutting staff to reduce costs, information technology personnel is still in high demand as companies try to increase cost savings using technology, he said.

"In my mind, that's the paramount thing right now," Fiore said. "It is a worldwide dilemma for all of us in terms of the availability of qualified information technology professionals. We're all going to have to respond to figure out how to keep up with the demand that's coming from our business partners."

The staffing dilemma is different everywhere you go, according to Deane. In Houston, for example, AIM's largest site, there is a huge need for information technology personnel because trading operations there have hired so many people and because younger employees are not quite sure what a mutual fund is, according to Deane. However, in Denver, where INVESCO, another AMVESCAP subsidiary is based, there is a supply of employees because of the recent cuts at Janus, also of Denver, he said. Although many of those laid off were in other departments, many employees who were not laid off are on the job market because they are looking for more stable situations, he said.

The down market not only has an impact on recruiting, but on current staff as well, according to Neufeld.

"A lot of people in the organization have never been through one of these cycles," said Neufeld. "How do you keep that focus? How do you keep the morale up? You get a subtle attitude change in the team."