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CRM Extends Beyond Customers to Profit Margins


So your wholesaler for the Midwest pulled in $8 million in new mutual fund assets in February, with a 1.8% average annual fee. Is that really going to be $144,000 in additional revenue to your firm's bottom line, or is the amount of time it took for your wholesaler to drop those tickets, the fact that the bulk of them were C shares and you've locked yourself into a high commission structure, really going to knock that down to $87,000?

Or, perhaps you've improved your market share of assets under management by 0.5% (not a small feat in the highly fragmented fund industry), but in so doing, you have sacrificed margins.

These are the types of careful questions mutual fund companies, which used to cheer about amassing more and more assets under management, are now asking themselves.

"You need to be more precise about where you are making money, where you are not, and why," Sanjiv Mirchandani, executive vice president, brokerage and asset management product groups, Fidelity Investments, said at last month's National Investment Company Services Association operations conference in Miami. "The technology is available today for us to measure profitability on a very granular level."

Sophisticated CRM

That technology is a second-generation, more sophisticated use of customer relationship management (CRM) by both the sales and marketing and finance departments, said Stephen Miyao, CEO of kasina, a New York financial management consulting firm. CRM culls sales information internally from fund companies, as well as from transfer agents, other distribution partners and communication vendors to determine sales patterns and the cost of servicing these various sales partners - all to determine margins.

"Profiling the data is very important to make predictions for the future," Miyao said.

As to whether even Fidelity is handily using CRM to determine its most efficient sales avenues, Miyao said even the biggest fund company in the nation may not have CRM down pat. Many firms have the systems in place - either from financial service software leaders such as Access Data, Sales Focus and Sales Page, or the big giants like Sybase and Siebel - "but they are only beginning to analyze the data. No firm has done everything possible," Miyao said.

And why not? "The asset management business is certainly more complex than a lot of other industries," said Frank Polefrone, senior vice president of Access Data of Pittsburgh. A sophisticated CRM system, however, can help a firm ask such critical questions as, "What's selling, where and when? Over what time frames, by which distribution channels and by which firms or partners? And is revenue sharing coming into play?" Polefrone said.

Even at a time when assets are down and technology budgets are pressed, mutual fund companies are expressing a great deal of interest in using CRM to improve the bottom line, Polefrone said, adding that the return on investment is fairly immediate.

SalesPage of Kalamazoo, Mich., has been equipping a number of leading fund companies with such CRM technology, including State Street Research, PIMCO, Enterprise Funds and Northern Trust. Many of these firms are not only using CRM to pinpoint better margins, but also "to control how much literature should be sent to individuals to control costs," said Michael Pessettti, a VP with SalesPage.

Like many CRM vendors, SalesFocus is creating daily, customizable reports, and delivering them to PDAs and other wireless devices, said Sam Go, a product manager with the San Rafael, Calif., company. In line with this, SalesFocus aims to make its system as user-friendly as possible, Go said, for one of the downsides to CRM is the complexity of the systems. "The best technology doesn't do much good unless your organization buys into this whole thing," he said.

At the same time firms are better able to quantify the numbers, they are also making allowance for aspects of a sale that cannot be measured.

"Relationship-building" and "consultative selling" are two new buzzwords among product managers, according to a new report from Financial Research Corp. (FRC) of Boston. In "Distribution in a Downturn: Controlling Costs & Making Difficult Decisions," FRC states that financial advisers' march toward fee-based compensation will underscore the new interest in working more closely, often one-on-one, with advisers and investors to find out exactly what their needs are.

While that may mean longer closing times on new assets, firms, nonetheless, are not tolerating lower production. In fact, they are squeezing more profits out of their people and their bottom lines, the report shows.

Top-tier firms reduced staff-related expenses from 54% of all direct expenses in 2001 to 48% in 2002. At the same time, they decreased wholesaler costs 10.6%. And in 2001, tier-one firms realized $507 in gross sales for every dollar of field-wholesaler expense. That figure rose nearly 17% to $592 in 2002, according to FRC. Meanwhile, tier-one firms realized an average $177 million in gross sales per wholesaler in 2001. That figure climbed 6% to $187 million per wholesaler in 2002.

With the help of CRM, fund companies might be able to crunch even better numbers this year.

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