Moving Forward: The Industry Must Continue to invest in Innovation
October 14, 2008
The mutual fund industry has a long tradition of innovation and creative problem solving in times of challenge. These past months have been sobering, and the uncertainty around the financial services sector is not yet waning.
In a volatile market, when individual investors are seeking a level of security, the mutual fund industry must take a leadership role in providing solutions that continue to meet the investment and savings objectives of shareholders.
We believe that mutual funds remain the most appropriate product for the majority of investors, taking a long-view of savings and providing investment diversification to help minimize risk. Even as alternative products such as managed accounts and exchange-traded funds emerge, mutual funds will continue to be a mainstay in investors' portfolios.
Innovators in the mutual fund product space are focused on developing new solutions that provide investors both the growth and the security they demand. As Baby Boomers reach their peak earning years, concerns regarding the accumulation of wealth are compounded by concerns about how to distribute their savings throughout retirement. Many of the next big product innovations in our industry will focus on wrapping income-producing components within mutual funds to provide a guaranteed revenue stream in retirement.
Ten years from now, the market for mutual funds and other investment products will look very different than it does today. Generation Y will demand different ways of communicating and accessing information, and will buy and use products in a different manner than we see now. In light of the complexity of many new products, as well as consolidation brought on by market conditions and competition, the key to our success as an industry will be our ability to invest in innovations that meet the demands of today and tomorrow.
Investing for the Future
As investment firms evaluate new strategies, business models and products, third-party technology and service providers have an important role to play-both in the development of new solutions and in support of them.
Often, the technology needed to provide operational support for a new product is considered late in the development process. Ideally, however, technology and operations professionals have a place at the product innovation table. Here they can help identify opportunities and solutions-facilitating swift technology deployment and processing in support of new products.
Further, as firms adjust their strategies to focus on core competencies (managing assets and developing investment solutions rather than building technology and maintaining servicing staffs), they rely on third-party providers whose business it is to remain innovative on these fronts.
As technology and service providers, we at DST Systems and Boston Financial Data Services have learned that to remain competitive, we must continuously invest in our technology and our people, even in tough times. Because our core business is technology and operations, we are able to very quickly bring resources to help our clients deliver solutions to shareholders.
By outsourcing core recordkeeping and ancillary technology and servicing needs, investment firms leverage their provider's investments and expertise. They also benefit from the scale a large provider can offer-from disaster recovery services to regulatory compliance capabilities.
A number of outsourcing trends have emerged in recent years.
One trend we observe is a shift toward the selective outsourcing of shareholder servicing. Firms increasingly opt to outsource specific servicing tasks, such as front-end processing or check processing, in addition to core shareholder recordkeeping. As their business needs change, they adjust their outsourcing strategies accordingly.
New technology enables servicing trends in our operations, as well, such as our ability to support a "virtual workforce" for our clients. Part-time staffers located in service centers around the country can share work and help manage servicing volumes. Meanwhile, the growth of the Internet continues to drive self-servicing, further reducing operating expenses for asset managers.
Finally, we see an increase in firms looking to their providers to help support global strategies. As technology and service providers, we work with our international affiliates on platform development to support markets around the world, and on system front-ends to enable seamless servicing, no matter where on the globe that servicing is being handled.
We are all familiar with the adage that necessity is the mother of invention. Challenging times remain ahead, and the mutual fund industry must do its share to restore investor confidence in markets, relying on our collective culture of innovation to lead the way.
(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.