Broker/Dealer Web Standards on the Horizon? Fund Firms Tire of Individual Extranets for Each Broker
May 27, 2002
Mutual fund companies distributing investment content to broker/dealers have not had success convincing them to retrieve it off their Web sites. Broker/dealers are insisting that fund companies individually deliver such information as fund prices, performance, market materials and fact sheets to their own Web sites, and these individual extranets are proving costly for fund firms.
But that may change in the near future. Some fund companies are automating the process to provide information to multiple broker/dealer sites, and the industry is starting to talk with broker/dealers about developing standards for Web content syndication.
Currently, only 21% of broker/dealers visit an asset management Web site on a daily basis, according to kasina, a New York-based technology consulting firm serving the financial services industry. On the other hand, 97% of broker/dealers retrieve information from their own intranets. Consequently, mutual fund companies have been forced to create multiple systems to interact with the varying broker/dealer intranets to ensure that their data can be easily accessed by registered reps.
"The way it's working now is that asset management firms that want to deliver content to broker/dealers are having to create customized extranets that broker/dealer reps can link to," said Derek Evans, an analyst at kasina. "The problem with that is that everyone's doing their own thing. An asset management firm has to use one to satisfy Merrill Lynch and another to satisfy the next broker/dealer. They're being pulled in a lot of different directions."
The costs associated with this scattered approach are substantial, Evans said. Although he could not specify an overall industry cost, he did say it is high enough that smaller fund companies have found that they can't afford to compete with larger companies that are creating multiple extranets for each and every broker/dealer.
"It's essentially building another Web site for each one of the distribution partners," Evans said. "It's an enormously costly endeavor, not just in building the extranets, but the time it takes to maintain them and handle all of the compliance issues."
What some companies have started to do is automate the process using outside vendors so that one system can communicate with multiple broker/dealer extranets. Earlier this year, MFS Investment Management of Boston announced that it had partnered with technology service provider Context Integration of Burlington, Mass., to provide an automated system that could handle broker/dealer requests for information.
"Context Integration helped us develop a highly flexible mechanism to directly access current content either managed by our own servers or delivered in XML format to be customized according to the partner's needs," said Jerry Potts, senior VP and director of marketing and communications for MFS. "We used to maintain several ad-hoc extranets for certain customers, but by working with Context Integration in defining and implementing the content syndication solution, we have created a much more cost-effective tool that maintains, updates and delivers our online content."
While the industry is leaning toward automated solutions such as the one MFS offers, that type of system still has a number of problems, according to Evans. For example, fund firms that use an automated system will lose a touchpoint with individual registered reps because firms would only be able to see what information was requested on a firm level. Currently, firms can see what data each individual rep is pulling.
Another issue is that asset management firms are worried that unless they provide the broker/dealers with individually customized content, the broker/dealers will take the data and manipulate it however they see fit. Fund firms do not want to relinquish control of that content, Evans said.
Need for Industry Standards
In order to satisfy both broker/dealers and asset management firms, standards for Web content syndication will have to be developed, whereby all asset managers will deliver the same format of data via automated systems, according to Evans. While that idea sounds great, it will likely be a difficult thing to implement.
"The issue is, can we get all of the broker/dealers to agree on a format?" Evans said. "Also, can we get all of the asset management firms to agree to that standard, especially for firms that have already built their own extranets? If the standard looks entirely different, those firms will not want to spend even more money to create new systems."
Earlier this year, kasina hosted a roundtable of top asset management firms and broker/dealers to discuss the possibility of such standards, and everyone was very receptive to the idea, Evans said. Even though broker/dealers are being catered to now, they still receive data in many different formats from the various asset managers and standards could simplify the process on their end, as long as they still receive the information they want.
Smaller asset management firms would clearly benefit from it as well, because they could contribute content to broker/dealers more easily if they only had to create one uniform system. And the large firms, although many have invested a lot of money already in their own systems, could realize substantial savings if they only have to maintain one system, Evans said.
The intervention of an industry group such as the Investment Company Institute, the National Association of Securities Dealers or the National Investment Company Institute will be critical to advance the effort to create standards for Web content syndication, according to Evans. In fact, kasina is currently looking into where those associations would stand on the issue and how they might help provide a solution. The firm will contact one or more of them within the next couple of months in an effort to motivate action on the part of the industry's representatives, Evans said.