Increasing competition and rising distribution costs in the fund industry have prompted a growing number of companies to adopt Web-based strategies designed to cut distribution costs as well as differentiate their products and services to advisors and investors.
Last month alone, at least five different fund companies launched some sort of online initiative. Whether it was adding new online tools to improve navigation on their Web sites or offering funds through online advisor portals, the ultimate goal of such initiatives is to ease advisors' and investors' access to investment products, said Lee Kowarski, a consultant with New York-based technology consulting firm, kasina. "Two things are going on. Firms are realizing that clients are struggling with the usability of their Web sites. At the same time companies are trying to take a closer look at who they are reaching and how they can more effectively reach the markets they are looking for and they are exploring different tools that may help them."
Meeting Needs With Technology
That may have been the reason OppenheimerFunds started offering its funds on DST Systems' Vision Web portal. The site allows advisors to view their clients account data from more than 150 different product providers on one screen. The portal provides some 15,000 advisors that use the service the capability to buy and sell funds and variable annuity products in one central location.
By offering its funds through the portal, Oppenheimer can meet advisors demands for a greater amount of information, said Andrew Ruotolo, OppenheimeFund Services' CEO. In addition, earlier this summer, OppenheimerFunds began offering an online portfolio product called Portfolio Builder. The product allows advisors to build and customize portfolio products for their clients for a minimum of $25,000.
Late last month Fidelity Investments Brokerage Group added new technology that allows brokers to offer their clients customized views of market information and also allows them to make online bill payments. While the upgrades were implemented by Fidelity's brokerage group, the strategy behind adding the technology highlight why fund companies are adding new technology at such a frantic pace. "With the brokerage industry more competitive than ever, and with the investors increasingly expecting more from their brokerage firms, it is imperative that firms look for new ways to differentiate themselves and better serve their clients," said Pat Jancsy, VP Fidelity Investments Institutional Brokerage Group, in a statement.
AIM Management Group, Montgomery Asset Management, T. Rowe Price and Alliance Capital have also in the past month either redesigned their Web sites or added new features to improve online services for advisors and investors.
Using Online Tools to Enhance Distribution
"What's happening is groups are looking for ways to differentiate themselves because they can't just do it on product alone," said Dave Haywood, an analyst with Financial Research Corporation of Boston. "The natural extension of that is through electronic services and through the Web."
Those services are designed to tie the fund companies to their distributors and the more online services they can provide, the tighter the relationship will be, Haywood said.
Another factor in the race to develop new technology is a shift in control that has taken place from product provider to product distributor. As the financial intermediary emerged as the preferred distribution channel for many investors, control of product distribution shifted to broker/dealers and wirehouses, Haywood said. Consequently those groups are leveraging that control to ask for increased service and funds must provide those services to remain competitive.
Cost Cutting Technology
Funds are also using the Web as a way to cut costs associated with wholesaling to independent broker/dealers and financial planners who tend to be in smaller offices scattered around the country. By using Webcasts and even e-mail, fund wholesalers can target smaller representatives and provide a greater level of contact than they have in the past, Haywood said.
But fund companies are facing competition from other firms that are also targeting the advisor channel. Chicago-based fund tracker Morningstar announced last week that it will begin bundling a set of online tools with a product it's calling Morningstar Advisor Workstation. The site aggregates daily updates of stock and mutual fund information, portfolio level alerts, portfolio analysis and asset allocation tools, hypothetical models, client management tools and individual batch reports, all in one application, according to Morningstar.
The idea is to make it easier for advisors to manage and run their businesses, according to Chris Brouff, president of Morningstar's advisor business, in a statement. "Advisors typically spend long hours piecing together different software systems," he said. "With the Workstation, advisors will be able to streamline their practices, produce powerful new reports, and spend more time with their clients."
