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Innovation Advised to Boost Small Funds

BOSTON - The Internet has become an important distribution channel and marketing tool for mutual fund companies of all sizes. However, as web technology becomes more complex and expensive, smaller firms are finding it more difficult to compete with the larger ones in the e-commerce world, according to industry executives who spoke here late last month at a technology forum sponsored by the National Investment Company Service Association of Boston.

"Big companies are forcing new technologies onto the web and are innovative on a daily basis, which makes it really hard for smaller firms with smaller budgets to compete," said Steven Miyao, CEO of kasina of New York, an e-commerce consulting firm for the mutual fund industry. "Leading firms use the web to play a key role, not only in customer service and marketing, but also from a branding perspective. Branding is becoming much more of an important part of the web."

Small firms have to prioritize web initiatives and investment spending when it comes to e-commerce and web development because of their smaller budgets in relation to some of the larger firms, according to Steve Hardy, e-commerce manager at Thornburg Investment Management of Santa Fe, N.M. Thornburg had $4.2 billion in assets under management as of May 1, according to the company.

"We look at all the different initiatives and different trends that come forward, and really the bottom line is, What can we get the most bang for the buck out of?'" said Hardy. "Since we have a smaller budget, we really do have to be very, very careful as to what we spend money on. And if we're able to find programs that provide a lot of value to whatever audience we're shooting for, those are programs we're really going to move forward on."

Nvest Funds of Boston prioritizes its web initiatives based on the overall business initiatives for the corporation, according to Suzanne Billante, vice president of e-commerce for Nvest. For example, if the firm has just launched a new fund, it might be justified to put some relevant flash presentations on the company site. But that might not be worth it without a company-wide campaign to promote the fund, she said. Nvest's e-commerce division tries to leverage whatever else is happening in the company and take advantage of it on the web, especially by extending marketing campaigns, according to Billante. Nvest had $6.23 billion in assets under management as of May 1, according to the company.

In order to keep up with the sites of the larger firms, smaller ones are going to have to go outside their organizations to develop content management systems, according to Miyao. The average mutual fund company has 77,000 pages of content on its site, which is nearly impossible to update manually, he said. Because of that, most firms either are using an outside content management system or are moving to do so, he said.

"You're not going to be able to compete in the future if you don't have some of those main tools available to you," said Miyao. "I think that's one of the things the smaller fund companies have noticed. In the past, you were able to do a lot with little. You had small budgets, but because you could do a lot with HTML, you were able to have a pretty good website. Now, because of personalization, because of the 70,000 pages, etc., it makes it very difficult for those small companies to compete on those older, [simpler] platforms so they do need to really look at content management systems."

Firms with smaller budgets can also compete on the web by providing services online that are unique and differentiate their site, according to Hardy.

"The features mutual fund companies are offering on their websites [are] becoming a commodity," he said. "If you want to find a total return calculator, you can go to 500 websites and find the same calculator. So what we do is look internally and say, What is it that we have inside of our firm that we can provide to the visitor of the website that they can't find anywhere else?'"

Thornburg's answer was to have all of its equity portfolio managers write a two-paragraph comment on each of its portfolios' holdings and update it with every change in position, according to Hardy. That has been a huge success because the information is not obtainable anywhere else and no one else provides a similar service, he said.