Use of automation and big data is the way providers will most successfully pinpoint competitive opportunities, according to attendees at this year's Investment Company Institute conference in Washington.
Forward, a mutual fund provider, is using big data to help streamline the firm's fund line-up after acquisitions. In 2009, Forward bought Kensington Funds and a minority stake in a subadvisor, Broadmark. As of April 2011, Forward offers more than 30 mutual funds across multiple asset classes, with $5.08 billion in assets under management.
"Today funds can not only dissect the marketplace, to evaluate their best competitive space, they can track advisors' and clients' use of their site," says Alan Reid, CEO of Forward. According to Reid, this opens a huge opportunity with regulatory documents. "It is now possible to understand which pages clients spend most of their time on. This will allow us to take feedback and refine communications to drill down into areas clients are most interested in. This is a true opportunity that snail mail can never offer."
In a Q&A with Money Management Executive, Reid and Robert Naka, chief operating officer at Forward, discuss the subject how fund providers can be more efficient and successful with their marketing and operational efforts.
Robert Naka, chief operating officer at Forward Funds
Q: At the Investment Company Institute conference in Washington just last week, panelists highlighted that cyber security is a growing concern. What are your top takeaways from the event when it comes to cyber security and distribution?
Our industry thrives on buzzwords and phrases that when uttered, become the battle cry for all of the operations professionals. At this conference, two phrases qualify as my top takeaways: "cybersecurity" and 'intermediary oversight." Cybersecurity affects both mutual fund and ETF providers equally. Just like the flu, warnings are issued by the media; get a flu shot, wash your hands thoroughly; plenty of rest; stay home if you are sick and yet, you know that one of your colleagues will bring it into the office.
Cybersecurity strikes me as one of those human conditions that you know how to prevent it, (i.e. change your passwords; encrypt your email; don't open anything from an unknown source; stay away from sketchy websites; don't write down your passwords); but, somehow, you will still get it, because there so many ways that security within systems can be compromised. Operations personnel will continue to be diligent in practicing preventative measures relative to cybersecurity.
The second take-away affects mutual fund providers who distribute through intermediaries; and therefore, collect a sub-transfer agent fee. It seemed that the sessions involving this topic were well attended, as it was standing room only. The popularity of the topic was largely due to the fact that the SEC has conducted an industry sweep on this topic. The SEC, has made it clear that they expect the mutual fund providers (with oversight by the fund's board of trustees/directors), to ensure that sub-transfer agent fees collected from the funds are appropriately paying for those services only, and not any type of distribution expenses to intermediaries. Operations will have to work closely with legal/compliance and corporate accounting to ensure that these payments stay "clean".
Q: What are the two biggest operational pain points providers are facing? How are they overcoming them?
From my perspective the two biggest pain points are:
1) The amount of regulation that has been or will be brought our way.
2) The lack of clarity on such regulation coupled with unknown costs and the difficulty of implementing operationally.
We are overcoming these pain points by constantly communicating and sharing knowledge through industry advocates such as the ICI. Throughout my 25 year career, I have always been able to rely on a network of industry colleagues to seek out best practices and up to date information in an attempt to gain clarity through the ambiguity of industry regulation.
Q: What's your future outlook for the way fund providers a) distribute b) market c) use technology?
a) Disruption to distribution for fund providers is imminent. Our industry is ripe to be disrupted by one of the internet based companies such as Google or Amazon. Peer-to-peer funding, internet banking and even Bitcoin are examples of the type of disruption headed to our industry.
b) Fund providers are already starting to see the future of marketing in the early use of social media, big data and CRM systems. The winners in marketing will be those firms that align the power of these various sources of data and marry it to a cohesive sales process in order to reach the millennial generation.
c) The sky is the limit. Technology continues to move very rapidly. Being based in San Francisco, we see a lot of cutting edge technologies, especially in mobile apps already in use in other industries.
Alan Reid, CEO of Forward Funds
Q: What are some top trends you're seeing based on product development?
Statistics show that long/short and multi strategy funds seem to be today's most popular to launch.
Q: You're a CEO active on Twitter/social media. In what ways does this help you with your role?
Our job is to communicate to our clients. While regulations restrict issues directly related to our portfolios, our clients can get a sense of what we are thinking, how we approach problems, and hopefully a better feel for their investments. I'm very excited to see many of my portfolio managers join me, we active tweets. This allows them to share thoughts from the research road. Social is a two way street, the feedback that I get directly and indirectly is valuable to me.
Q: Are fund management executives doing a good enough job embracing social media?
America has embraced social, the fact that our industry has taken a pass is a competitive advantage for us. I'm glad to see others sit on their laurels, that's not our motto.
Q: What are some ways fund providers are using technology to improve sales and marketing efforts?
Many of the bigger firms are collecting unique IDs, identifying advisors when they come to their site. By analyzing their site routes, and time on given pages, they can predict future actions - like buys or sells. This allows funds to be proactive and call people that match these patterns and attempt to sway their action to the fund companies benefit.
