Kim King is managing director, global investor services, for NewRiver, which provides e-fulfillment services for the financial industry. NewRiver's clients include INVESCO, Merrill Lynch, Nvest, UBS PaineWebber, SalomonSmithBarney and T. Rowe Price.
Before joining NewRiver, King was president of The King Company, a financial services consulting firm. Prior to establishing the firm, she was divisional VP of Prudential Investments, where she was involved in building all facets of the company's third-party investment business.
Mutual Fund Market News caught up with King to discuss online initiatives in the industry. An edited version of her conversation with Jerry Minkoff follows.
MFMN: How far have mutual fund companies come in adopting Internet capabilities? Where do they fall short?
King: As a general rule, I think you're going to find that mutual fund complexes, as a whole, large or small, got involved in using the Internet very early compared to other financial institutions. One interesting point is that most of them focused, and still do, on the marketing aspect. Most fund complexes, both large and small, have Web sites where prospects can learn about the company, look at products, obtain general information. But, at least from our experience, only about 10% to 12% have the functionality to allow consumers to open an account online.
Another point is that many companies distribute their products through intermediaries. Some of them have been extremely reluctant to put accounts online, because they perceive this as a direct conflict with having intermediaries sell in person.
Large companies are very easily able to aggregate accounts--your mortgage, your bank account, your brokerage account, your funds--so you virtually have one financial services account. The smaller ones do not have that ability.
Large companies also take a very proactive approach to personalized marketing. They're able to do outbound e-mail campaigns, very targeted e-mail campaigns. Smaller companies tend to have their Web site for reactive purposes, if a customer wants to pursue looking at them, see what they have to offer for funds, and so forth. Very little proactive marketing, if any, is currently done by the smaller companies.
Large companies allow the consumer to personalize the site. If you're a customer, you can customize the home page so you can circumvent all the navigation and get to your personal interests and your personal information. The smaller ones don't seem to be that advanced or technologically sophisticated.
The biggest difference I've found, however, and this is not based on size, is the company's perception of the need for e-sales and e-servicing.
You'll see companies that view the Web and e-communication as a necessary evil: "I've got to have a Web site to stay competitive," or "I've got to find a way to attract the small percentage of customers who use the Web." You'll see other companies, though, that see e-commerce as an absolutely vital method of sales and servicing, and an absolutely critical method of attracting sales and customers. They really get it; they get the point that it's important, it's necessary.
It's not only important. You must enter the customer's space. You have to do business by the customer's preferred method. They get it. Unfortunately, some of the smaller companies don't have the internal resources to get there quickly.
MFMN: What are the typical steps a fund company follows in setting up a Web site?
King: Typically the first thing they do after general marketing is to move forms online. The next step is to give the customer account access.
Normally, they then start looking at service at the other end, the e-delivery of documents. They say, "Wouldn't it be nice if we offered all of their compliance documents, annual reports, semi-annuals, online?" And that's the evolution that they go through.
Once they get through all that, they say, "Wouldn't it be nice if we could be the one place that a customer stopped if they have a question on any financial product that they own? They may be a Fidelity customer and have a Fleet mortgage and a Schwab brokerage account but could they get information or do transactions on all those accounts in one place? And then, if we understand all that about the customer, wouldn't it be nice if we could market to that person?"
If I know the size of your mortgage, and I know basically what's in your brokerage account, I've got a pretty good idea how to market to you because I know a lot about you. You don't have to send out, "Take a look at our equity-income [fund]." You can focus on interests, lifestyle, age, all those sorts of things.
My belief is that the next step is going to be smart marketing and servicing, which is Boolean logic. There are folks already talking about it. "If you own this, and you are x age, and you live here, and you have four children, what are the investments and products that you will most likely need and be interested in purchasing?" It is the "If...then" approach and is based on your own personal data and characteristics. They will hook all of their systems together to get a complete view of a customer and do, not one-to-one marketing, but intelligent marketing.
That's no easy feat. The biggest challenge is integrating all of your information systems together, and having a repository that not only has that information, but interprets it. But I think you'll see that within the next five to eight years. And I could be wrong. It could be as quickly as one to two years with some firms.
MFMN: It's kind of scary.
King: Do you think so? The retail world does it and has done it for years. And actually, it's a nice customer convenience. It's nice to go on the Web and know that what you're getting from a company is what you're interested in, and what makes sense in your life. They have all that information on you anyway. It's information you've freely given.
So they're not playing Big Brother. They're simply taking the information provided them and using it in a much smarter, more intelligent way for the customer's benefit. Instead of getting 10 pieces of direct mail, you may get one that makes logical sense and impacts your life.
MFMN: What challenges do you see for mutual fund companies?
King: Over the past year, the volatility of the market has made a lot of companies hunker down and look at their priorities differently. There is less money and there are fewer internal resources to devote to new initiatives such as e-commerce.
Another challenge is that the actual technology is often ahead of consumer behavior. Consumers are leery of account aggregation. It requires giving out a PIN number and a lot of them are reluctant to give PIN numbers and join all of their accounts in one place.
Another challenge is that few consumers have high-speed lines, such as cable or DSL. It becomes time consuming to download some kinds of documents. Companies are learning to transmit less and have the transmission be more meaningful.
Also, the companies themselves are pretty new to marketing on the Web and there's a learning curve there. Marketing through the Internet is very different from creating a flat brochure. You need different fonts, different colors, a different placement of pieces. Some of the companies are struggling with that.
I think the biggest challenge is that it is expensive to create a good Web site. They're trying to find ways to save money--which they do get on the back end with e-delivery of electronic documents
MFMN: What works best in getting consumers to consent to receive e-mailed documents?
King: If you look at the industry statistics, [they] say it's a 1% to 2% acceptance rate. I think that's probably pretty accurate, with the caveat that few consumers have been asked and few companies have begun e-delivery solutions.
So it's pretty difficult to talk about general acceptance rates. They're all over the board, and it depends on the companies that are doing it and their marketing sophistication. Probably the biggest factor is their commitment to e-commerce and their current customer profiles. Some investors will immediately sign up. Those are the frequent traders, people with multiple accounts, people who are used to doing e-commerce, and especially people who are ecologically oriented. They really want to save the paper.
The other rates I've seen are as low as 1% in a company to as high as 35%. The companies that get the high percentages are the ones that are fully committed to e-delivery. In other words, they'll hit every customer touchpoint that exists. They'll advertise, they'll do statement stuffers, they'll do direct mail, they'll do VRU campaigns, they'll do customer service intros and they'll do outbound campaigns. They may not do all of those on the same day but they are constantly marketing to get consents. It has become a constant and consistent way of doing business.
As far as what will work the best, normally outbound campaigns will have the highest positive consent rate. But being an outbound veteran, outbound normally works the best because you're offering a service and you're not trying to sell something. And it's true it is a good service and one that people want, if they know about it.
I know of one company that reached one-third of the list, which is very good in outbound campaigns. And of those, between 30 % and 50% of the customers that owned computers said, "Sign me up. I'd love to get my documents electronically." But when you're doing outbound it's a lot more multidimensional--you're having a conversation--vs. a one-dimensional piece of paper.
It's also very new. Like any marketing program that attempts to change consumer behavior on a large scale, it takes time and needs to build momentum. Companies know that.
MFMN: What savings will mutual fund companies see from moving account applications online? What about electronic delivery?
King: On the front end--and this is approximate but it's based on some pretty good accounts that we know of-if you were to do an online account opening vs. the traditional methods, such as by phone or walking into a brokerage office, you will save between 50% and 80% of the cost. The reason that spread is so wide is a lot of companies may do an electronic application, but if you fill out an IRA application online, let's say, and forget to fill in a beneficiary, one company has people that make an outbound call to you--very, very expensive. Others communicate by e-mail and that's far less expensive. That's where that spread comes in.
At larger companies, to deliver all of their compliance documents, they're paying per customer per year between $7 and $10. They could do the same thing electronically for $4 or $5. The actual dollar amount they're saving may be only $2 or $3, but it's 30% and when you're looking at volume the dollar savings may be huge.
At smaller companies, because they don't have the relationships with the fulfillment houses where they get a volume discount on price, their average cost could be $15 per customer and they're able to get it down to $4 or $5. That's a huge savings but they're sending out lower volumes. So it's all in proportion.
Either way, you're looking at the large companies saving 20% to 30%, depending on their relationships with their vendors and what they do inside. On the smaller companies, if you went from $15 down to $5, that's 66%.
But in fairness, to get into the e-delivery business it's going to take some systems money, some set-up money and a few resources.
The good news is that a firm could be completely in the e-delivery business very quickly, within four to six weeks. Firms such as NewRiver have a really good turnkey, plug-in solution. The cost is small, and it's a sunk cost, whereas the savings are dramatic, ongoing and escalating as more and more consumers elect e-delivery as their preferred method of servicing.