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Funds Tap New Revenue with Added Services


Not all advisors to a family of small proprietary funds are content to just nurture and grow their funds. A few that are familiar with the challenges facing small funds are offering back office services to managers of other small funds in an effort to develop a new source of revenue stream.

Premier Fund Solutions of San Diego is the newest entrant to the business of servicing fledgling start-up funds. Premier, which officially started its business last October, recently helped start up Check Capital Management's Blue Chip Investors Fund. The Costa Mesa, Calif., advisor launched the no-load fund December 31, 2001, and became the new company's first client.

Premier is the brainchild of Ross Provence and his son Jeff Provence, co-founders of Value Trends Capital Management of San Diego, Calif., which has managed assets for institutions and wealthy investors since 1995. Value Trends is the advisor to the $7.7 million Wireless Fund which debuted in April of 2000 and is co-managed by the father-and-son team.

The two decided to enter the fund servicing arena after repeated conversations with other registered investment advisers who were interested in establishing a mutual fund but scared off by industry estimates of $250,000 in start-up costs, and predictions of $50 million to $100 million breakeven points. According to Ross Provence, whose new firm charges $25,000 in initial start-up costs, those numbers are greatly inflated.

Besides Premier, the father-son team's other business offers mutual funds. Value Trends had managed two other funds, the Value Trends Links Fund which was converted to the Value Trends Focus Fund in the summer of 2000, and the Value Trend Large Cap Fund. Both funds were liquidated this past June, leaving the firm with just the Wireless fund.

A New Revenue Stream

But both Provences see an opportunity to make money in providing administrative services. Under a servicing agreement with Check, Premier will provide administrative services to the Blue Chip Fund at a rate of .007% of the first $200 million in assets, .005% on the next $500 million and .003% on the excess, with a minimum monthly fee of $2,000.

While Premier will handle the fund's day-to-day administrative functions and has helped design the fund's Web site, it doesn't want to handle every task. Premier hired an independent custodian, transfer agent and auditor who will provide other specific fund services.

Transition Makes Sense

Transitioning to the operational side of the mutual fund business, including helping funds leap start-up hurdles, made a lot of sense to the firm, said Ross Provence. "We've done registrations for our own funds," Provence, an attorney, said.

Premier isn't the only company to find a home managing mutual fund assets in one office while it handles administrative details for outside funds in an adjacent office.

This past November, Quantitative Advisors of Lincoln, Mass., signed on its first client and is providing the fund advisor, Parnassus Investments of San Francisco, with Web hosting, Web site data storage and data presentation. Although Quantitative manages its own fund family with $180 million in five funds, executives seized the opportunity to pursue other avenues as other small funds sought Quantitative's advice and counsel on how to provide more-in-depth online servicing, including allowing investors to purchase shares via the Web. Quantitative was the second fund company, behind INVESCO, to allow online share purchasing.

Building Inside and Outside

After three years of building the infrastructure necessary to implement the latest technology to service its own funds, Quantitative sought to recoup its costs. It named its new fund servicing venture Fund Resource and is expecting to add another eight to 10 clients to its roster in early 2002, said Fred Marius, President of Quantitative Advisors. "We're not trying to create a cash cow to support our daily lives. But it gives us all a better advantage," he said.

Marius is working to create an online "hub" for use by small-fund groups who want to aggregate both fund and account information to investors as well as financial advisers at one site. The site would be the small fund equivalent to DST's VISION program or the new AdvisorCentral.com, a product spawned from a partnership between Fidelity Investments, Franklin Templeton, Putnam Investments and PFPC. "We understand the business and we understand the technology side," said Marius, who previously led Putnam's e-commerce efforts.

Marius said he is also negotiating with a bank to begin offering electronic checks online from fund investors that will clear the same day.

ND Holdings of Minot, ND, manages nine of its own proprietary mutual funds, including the five Integrity Funds and four Ranson mutual fund portfolios that it acquired in 1996. But in 1997 the fund group shifted into also providing back office services, including transfer agency and fund accounting, to other small mutual funds through its ND Resources unit. "We had the capacity -- the people, the equipment -- to farm work in. It represents incremental revenue to us," said Robert Walstadt, CEO of ND Holdings. "If the asset pool isn't growing at an acceptable pace, other alternatives are looked at."