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Web Budgets to See Less Slashing in 2003


After several years of spending sprees and then drastic cuts, Web development budgets at fund companies may be finally finding a happy medium.

In its annual survey of Web initiatives at 100 top fund firms, New York Web consultancy kasina discovered that 60% of mutual fund companies plan to maintain current spending or increase it.

Web development has at least reached a "plateau," commented Lee Kowarski, a kasina consultant.

In addition, of the top 10 Web initiatives singled out by kasina, five were based on budgets of $1 million or more. Forty-two percent said their Web budgets were less than $1 million.

Firms may not be slashing the spending this year because the most drastic cuts have already been made, Kowarski said.

To be sure, prospects are still uncertain for fund complexes, but, having already scaled back their Web initiatives, many companies have figured out which technologies are the most valuable and are pressing forward with those efforts.

Arms Race'

Two years ago, the situation was much different. Fund complexes were injecting millions into Web budgets in what Kowarski called an "arms race." The logic was that the more features a Web site included, the more likely investors were to visit it. But in this prolonged bear market, companies are "not able to compete so aggressively on the Internet," said Kelly O'Donnell, a senior consultant at the Boston consulting and research firm Cerulli Associates.

Web technologies, such as data feeds and planning engines, have become easy to imitate, she said. More still, fancy Web tools have proved ineffective in luring new business. What were once hot new technologies are now considered mere commodities, she said.

For example, Kowarski said that many firms spent millions on customer relationship management (CRM) systems. But, after long implementation periods, many found CRMs to be wanting, and some, such as Fidelity Investments, complained publicly about the problem, Kowarski said. "Almost the whole industry has stepped back," O'Donnell said.

And, whereas fund firms once looked to the Internet as a new way to streamline distribution, just as kozmo.com once thought it would bring the Web to America's doorstep, the Web has not replaced bricks-and-mortar, traditional ways of doing business - or people, O'Donnell said.

"In fact, it became an extra expense," she said. Contrary to what firms had hoped, O'Donnell said, customers who used the Internet to perform fund transactions and to get information about their investments were more likely to pick up the phone and call a company's service center.

This year, instead of scrambling to adopt more feature-rich technology than competitors, firms are simply asking themselves which Web projects make the most sense. "A lot of focus now is moving beyond Web sites [now that] all of the larger firms have established a fairly robust Web presence," Kowarski said.

For example, he said, e-mail marketing systems are becoming a popular means of "pushing" information to intermediaries and investors.

Firms are also syndicating data and other content to the intranet platforms at large broker/dealers and consulting firms. Fund complexes are "focusing on larger" business-to-business relationships, Kowarski said. However, for the time being, budget constraints are also impeding the widespread adoption of intranet syndication, which can cost between $250,000 and $1 million.

All large wirehouse brokers have access to an intranet, and 86% of those brokers spend time on those intranets daily, Kowarski said. The rest use them at least once a week.

"When you compare that to usage of mutual fund company sites, it goes down considerably," he said. Thirty-eight percent of independent representatives visit mutual fund sites daily, Kowarski said, and less than 20% of the wirehouse brokers use a mutual fund company site on a daily basis.

"That's why firms want that exposure on that intranet platform," he said.

In fact, Fidelity Investments started using syndication technology, known as AdvisorXchange, two years ago. It pumps data into large wirehouse intranets. In addition, MFS began using similar technology earlier this year.

More firms will follow suit, although Kowarski said many complexes are waiting for a technology standard, much the same way html, the code upon which Internet pages are based, became the standard. In Germany, investment companies have formed a consortium to agree on such a standard.

Firms are also adopting other tools to help sales teams in the field, including high-end teleconferencing systems and mobile devices, such as wholesaler PDAs [see MFMN 10/7/02]. Putnam Investments, for example, just began arming its sales staff with personal data assistants and tiny laptop-like computers, which can hold addresses, phone numbers and other information.