Ah, the catch-22. With mutual fund firms concentrating on the bottom line now more than ever, any spending that is not deemed critical to business has all but come to a halt, according to a variety of mutual fund consulting firms.
Mutual fund companies continue to use those firms for certain projects, however, the discretionary types of consulting which had grown when the market soared and which were intended to boost the bottom line later on, have been cut.
By and large, fund companies have utilized consulting services on a project-by-project basis. Consulting firms offer services relating to nearly every aspect of the business including product line, distribution channel and market entry strategies, employee compensation, marketing plans, fee structures, and a wide array of services ranging from very broad to very narrow.
The current state of the market has created a lot of challenges, and so business advice might seem to be as crucial as ever. However, when budgets are pared and employees are fired, consulting tends not to be a priority, according to Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I.
"In terms of change, I think people are doing more soul searching, but not necessarily more outreaching to consultants," said Bobroff. "I'm enough of a realist to recognize that if you just laid off employees, it can be extremely difficult to justify signing a consulting contract for several thousands of dollars. There's a difference between the two, but I also recognize that it may be somewhat awkward to bring in consultants on the heels of employee layoffs."
Much of the money spent on consulting serves as an investment in the company and is intended to generate business growth. However, growing the business in a weak economic market is difficult and companies are focusing more on maintaining a certain level of business, as opposed to developing new initiatives, said Avi Nachmany, director of research at the New York-based consulting firm Strategic Insight.
Stephen Miyao, CEO of kasina, an
e-business consultant for financial services companies, agreed. "Discretionary spending has essentially gone to zero," he said. "The primary change is that in the past mutual fund companies were able to do some of the things that are not 100% necessary, but now they can only afford to do those things that are absolutely necessary."
Types of fund consulting that will suffer as a consequence of the prolonged down market are those that are very narrow in focus, said Burton Greenwald, president of industry consultant, B.J Greenwald and Associates. Technology consulting, an area that garnered a tremendous amount of spending in the late '90s when the market was doing well, is one example of the type that has been cut back, he added. Still, kasina, which focuses on technology, has not seen that type of impact, according to Miyao.
Basic strategic consulting, according to Greenwald, continues to be a necessity and will likely continue to be sought out. Despite the reduction in consulting spending, most consultants say they continue to garner new business. "Perhaps some of the players' appetites have shifted in terms of using consulting services," said Andrew Guillette, managing director of Cerulli Associates, "but it seems, for us, that for every one who has left, someone new has come in."
The nature of consulting services that fund companies continue to request relate, in general, to operations affecting the bottom line or the short term potential return on an investment, according to consultants. "The work I'm doing lately is mostly product pricing oriented: sales loads, 12b-1s, internal management fee structures," said Bobroff. "Market positioning and product line are the areas firms are focusing in on right now."
Finding new distribution channels and developing new products to compete in hot' areas are what firms continue to contact Financial Research Corp. and Cerulli about. Firms continue to seek advice regarding exchange-traded funds, managed accounts, 529 college savings plans and hedge funds. Firms also want to ensure that the focus of their sales efforts are where they should be, according to Neil Bathon, president, FRC.
The tragedies of Sept. 11 have had only a slight effect thus far, relative to that of the prolonged downturn, on how mutual fund firms are using consulting services, consultants said. If anything, the events acted as a catalyst for things that were already on their way.