In the ten years since she founded the Spectrem Group of San Francisco, Amy Errett has regarded the mutual fund industry as an explosive "revolution."
"One of the reasons why I am still fascinated by the financial services industry is that we at Spectrem have been involved in the business during the revolution of the 1990s - the new entrants, the Internet and e-commerce, the boom of mutual funds, a huge bull market, the movement of the 401(k) market and the creation of more affluence than there ever has been in this country," said Errett, chairman and chief executive officer of Spectrem.
Now, however, Spectrem's mutual fund clients are telling Errett that things are not looking so good. Clients of Spectrem, a consulting, research and investment banking firm that concentrates on financial services and operations, are now expressing fears about a leveling off of net new assets, Errett said.
But, Errett believes that while the industry faces challenges, those firms that rise to meet the challenges can look forward to a bright future.
The fastest growing segment of the investing population is "penta-millionaires," or those with $5 million and above to invest, Errett said. Reaching these people and keeping them from taking their money out of mutual funds to place it in individual stocks and separately-managed accounts, is a major concern of mutual funds, she said.
Many fund companies still do not know what to make of the Internet, how to communicate via the Internet while still maintaining a personal touch and what their strategy should be for selling on the Internet, she said.
Consolidation in the mutual fund industry in the coming decade is also a very strong possibility, she said.
"The realization is setting in that the mutual fund industry is a hard place to play in," Errett said. "I see the convergence [of so many aspects of financial services] every day, and business models shifting. Every day we here at Spectrem have opportunities to see things that are the future of our business. As someone who enjoys being intellectually challenged, it's like being a kid in a candy store. I like hard problems."
Errett built her business from four people at its inception to 50 people in 32 countries today. Fidelity Investments and Putnam Investment Management, both of Boston, T. Rowe Price of Baltimore, Md. and The Vanguard Group of Malvern, Pa. are among Spectrem's many clients, she said.
It was a challenge for Errett to found her business at the age of 32, surrounded by a staff of only men. Errett had already attained the rank of senior vice president at Bankers Trust Company of New York.
During her 10 years at Bankers Trust, she worked in many core areas of the bank, including operations, retirement/pension plans, corporate trust and mergers and acquisitions, she said. Although she was content with her career at the bank, she left because she realized that if she allowed herself to remain there, she would probably never leave. Stock options and other enticements to stay put would prevent her from fulfilling her dream of starting her own firm.
Starting the Spectrem Group may have seemed like a stretch to those who knew Errett at the time because she had eschewed consultants for all of her career, she said. Consultants who she encountered never seemed to know more than their clients did, she said. And few had professional experience that paralleled their clients', she said. That is why Errett conceived of her own consulting firm.
She landed her first client within six weeks of opening for business. Today, her firm competes "with the likes of Andersen, KPMG and McKinsey," she said.
Errett enjoys, "bringing new strategic vision and rejuicing [clients'] business," she said.