BOSTON - The Internet has become an important distribution channel and marketing tool for mutual fund companies of all sizes. However, as web technology becomes more complex and expensive, smaller firms are finding it more difficult to compete with the larger ones in the e-commerce world, according to industry executives who spoke here late last month at a technology forum sponsored by the National Investment Company Service Association of Boston.

"Big companies are forcing new technologies onto the web and are innovative on a daily basis, which makes it really hard for smaller firms with smaller budgets to compete," said Steven Miyao, CEO of kasina of New York, an e-commerce consulting firm for the mutual fund industry. "Leading firms use the web to play a key role, not only in customer service and marketing, but also from a branding perspective. Branding is becoming much more of an important part of the web."

Small firms have to prioritize web initiatives and investment spending when it comes to e-commerce and web development because of their smaller budgets in relation to some of the larger firms, according to Steve Hardy, e-commerce manager at Thornburg Investment Management of Santa Fe, N.M. Thornburg had $4.2 billion in assets under management as of May 1, according to the company.

"We look at all the different initiatives and different trends that come forward, and really the bottom line is, What can we get the most bang for the buck out of?'" said Hardy. "Since we have a smaller budget, we really do have to be very, very careful as to what we spend money on. And if we're able to find programs that provide a lot of value to whatever audience we're shooting for, those are programs we're really going to move forward on."

Nvest Funds of Boston prioritizes its web initiatives based on the overall business initiatives for the corporation, according to Suzanne Billante, vice president of e-commerce for Nvest. For example, if the firm has just launched a new fund, it might be justified to put some relevant flash presentations on the company site. But that might not be worth it without a company-wide campaign to promote the fund, she said. Nvest's e-commerce division tries to leverage whatever else is happening in the company and take advantage of it on the web, especially by extending marketing campaigns, according to Billante. Nvest had $6.23 billion in assets under management as of May 1, according to the company.

In order to keep up with the sites of the larger firms, smaller ones are going to have to go outside their organizations to develop content management systems, according to Miyao. The average mutual fund company has 77,000 pages of content on its site, which is nearly impossible to update manually, he said. Because of that, most firms either are using an outside content management system or are moving to do so, he said.

"You're not going to be able to compete in the future if you don't have some of those main tools available to you," said Miyao. "I think that's one of the things the smaller fund companies have noticed. In the past, you were able to do a lot with little. You had small budgets, but because you could do a lot with HTML, you were able to have a pretty good website. Now, because of personalization, because of the 70,000 pages, etc., it makes it very difficult for those small companies to compete on those older, [simpler] platforms so they do need to really look at content management systems."

Firms with smaller budgets can also compete on the web by providing services online that are unique and differentiate their site, according to Hardy.

"The features mutual fund companies are offering on their websites [are] becoming a commodity," he said. "If you want to find a total return calculator, you can go to 500 websites and find the same calculator. So what we do is look internally and say, What is it that we have inside of our firm that we can provide to the visitor of the website that they can't find anywhere else?'"

Thornburg's answer was to have all of its equity portfolio managers write a two-paragraph comment on each of its portfolios' holdings and update it with every change in position, according to Hardy. That has been a huge success because the information is not obtainable anywhere else and no one else provides a similar service, he said.

"It is important to keep up as best you can, but it's also a great idea to try to latch on to even just one innovation that you can focus on," said Billante. "You won't be able to tackle everything with a budget the size of mine ... Try to find something that you can handle that no one else or only a few people are doing and go for it as much as you can. Make a splash with it and then wait for the next one to arise for you to tackle. We just can't do 15 things at once. It's just not possible."

Providing fund data for the websites of wirehouses is an important aspect of sales and marketing for small firms, but the firms have to be careful not to lose their identities with financial advisors when firm information is disseminated, according to Julia Binder, director of e-commerce at the Calvert Group of Bethesda, Md. Financial advisors will continue to use those portals and so firms cannot ignore them, however Calvert will continue to push its website to financial advisors until the wirehouses offer the company a way to retain its uniqueness, said Binder. Calvert had $7.2 billion in assets under management as of May 1, according to the company. Thornburg has addressed the problem by providing the data through hidden links, on wirehouse websites, to a website Thornburg has designed, which gives both parties some control of the content, said Hardy.

"We've been pretty proactive when we write our annual marketing agreements with each of these firms to include some sort of an e-marketing clause in there and most of them have been pretty open to that," said Hardy. "Normally what that translates to is building some sort of a co-branded website that we will actually invent within their Intranet, so they don't have to leave their domain and come out to our financial advisor website."

Many firms have online transaction capabilities and wireless communications to their sites. All types of transactions are possible on Nvest's site. But, even though customers appreciate the capability, it is used much less than the company anticipated when it installed the capabilities, said Billante. Although it may not be widely used, small firms must have transaction capabilities because customers expect it, said Hardy.

"I think often [these] type of services offered on websites are there not necessarily because they get a lot of use, but if they weren't there they'd be noticed," said Hardy. "We just launched a wireless account inquiry and transaction system, which probably about one percent of our shareholders will use, but there are shareholders coming down the line who, if we don't have it, won't invest with us even if they never use it."

While all companies are being affected by the current downturn in the market, small firms may be more vulnerable than large ones and budgets may have to be reduced, according to Miyao. E-commerce budget cuts have not hit yet, but they may in the next budget cycle, according to Thomas McLaine, Internet development manager at United Asset Management of Boston. Still, Internet infrastructure is unlikely to be one of those cuts, he said.

"We have not had a decrease in our current initiatives funding, but for future fundings, we have seen some of a drop-off from some of the discretionary type of initiatives," said Hardy. "But when it comes down to infrastructure, that's pretty much a blank check."

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