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The Future

By all accounts, the mutual fund industry is not perched on the cusp of any technological revolution. Future technological advances in the fund industry are likely to be made in incremental steps to improve efficiency, offer higher levels of customer service or network with business partners.

Mutual Fund Market News asked visionaries for their take on the future; what will become the "must-have" technologies.

Most agreed on one issue. Companies that once spent freely on new, cutting-edge technologies are now rethinking how to make those past expenditures go farther. "Too much of the technology business is solutions walking around, looking for problems to solve," said Nigel Wilson, president and CEO, Global Investment Systems, Hackensack, N.J.

Firms, for the foreseeable future, will continue to "focus on cost reductions," and what little new technology comes out of the pipeline will not be sexy, said Donie Lochan, VP, global financial services, Cap Gemini Ernst & Young, New York.

Lochan also said IT people on special assignment, what he dubbed "microutilities," will turn around and sell their service to other mutual fund groups.

Open architecture will also enable firms offering multiple products from multiple providers to package them within one platform, Lochan also predicted.

Artificial Intelligence

Highly developed technologies that can mimic the human interactive experience, without the cost of employing a human, are a distinct possibility, as well, beginning with natural-language processing, said Andre Pino, SVP, marketing, iPhrase Technologies, founded by three MIT alumni. Charles Schwab & Co. of San Francisco is an early adopter of iPhrase's natural-language processing. For a fund company, this technology could reduce call center costs.

More sophisticated next-gen natural language applications will pinpoint precise emotion, Pino said.

Videostreaming is another burgeoning technology, predicted Jerry Burnett, founder and CEO, Avistar Communications, Redwood Shores, Calif.

Paralleling the advancements of the phone and then databases, video networks are the wave of the future, Burnett said. Individuals within a single organization - as well as to outside partners, such as a fund's sub-advisor or broker/dealer - will be able to interact via an internal video network that provides TV quality pictures and only a few milliseconds sound delay, in real-time communications.

Perhaps the most desired technologies of the future will add customer account aggregation into the mix, and allow for an investor's financial adviser, lawyer, CPA and others to simultaneously collaborate online anywhere - including via wireless personal digital assistants, said John MacIlwaine, chief technology officer at EnvestnetPMC of Chicago. Extensible markup language, better known as XML, will become the standard that will allow different systems to talk to one another.

Account aggregation is also likely to become a core mainstream technology, according to several visionaries. Now "in its infancy," account aggregation "will be a must-have technology for banks and financial institutions," said Neil Jacobstein, CEO, Teknowledge, Palo Alto, Calif. It will allow firms to have a much deeper understanding of their customers, and react more quickly to their needs, he said.

Not so far into the future, fund advisors will strive for improved efficiency by automating their back-office functions, now labor-intensive, said Wayne Withrow, EVP, SEI Investments, Oaks, Pa., the asset management and investment technologies company.

"The whole process will be e-transformed, and more and more automated [so] that middle-office functions will be performed by technology, not people," Withrow said.

Everyone: Out of the

Mutual Funds Pool!

True customization and personalization are also on the forefront. Future technology will also permit today's mutual fund investors to forgo swimming in the community mutual fund pool and have customized portfolios and accounts built just for them [see related story, facing page]. "The technology is not here yet, but we are getting very, very, very close to offering built-to-order, customized funds," said Richard Michaud, president and chief investment officer at New Frontier Advisors, Boston, a portfolio-optimizing consultancy.

Down the road, mutual funds may even face extinction. "If the current tax laws hold, then separately managed accounts will effectively take over mutual funds as a category in the next 10 to 15 years," said Randy Bullard, president, Placemark Investments, Dallas, which offers financial advisers a tax-managed separate accounts program. Mutual funds are inherently tax disadvantaged to investors, Bullard noted. "In the future, everybody will have a completely individually configured portfolio," he added.

And, in the future, technological advances will allow investors to receive a higher level of more integrated, automated and personalized services from advisers, no matter the size of their portfolio.

"Everyone in the future will be treated the way today's $5 million to $10 million investors are," Bullard summed up.