MIAMI -- Technological advances are allowing investment firms to add ever-increasing layers of information to their products, but leaders say the financial services industry should be doing more to reduce complexity for the end user so investors can make sense of it all.
"Reduced complexity will improve quality, bring about innovation and improve customer loyalty," said Abigail Johnson, vice chairman of parent FMR LLC and president of Fidelity Investments' personal and workplace investing business, speaking at the National Investment Company Service Association's annual conference at the Doral Golf Resort & Spa.
"Sustainable, high-quality customer service is not possible without a determined focus on operations quality and efficiency," she said, adding that the financial services industry should be pushing for greater leeway in its ability to present and deliver information electronically, also known as e-delivery.
"We as an industry should make it a priority to advance this common-sense initiative," she said. "You can do a lot more with a website than you can ever do on paper."
The legal requirement to mail investors mountains of printed prospectus information is wasteful and overwhelming to the average investor, she said. Customers don't want piles of papers mailed to them; they want intelligent information they can understand and use (see related story, "R.R. Donnelley Releases Prospectus iPhone App," page 5).
"We need help from policymakers to allow customers to accept e-delivery," Johnson said. "Regulators should reverse the opt-in requirements and allow e-delivery to be the default option" in cases where an e-mail address is available. Customers should still be able to opt-out of e-delivery, she said.
Growing Complexity
Johnson said Fidelity maintains records for 22 million workplace participants in 19,000 defined contribution plans, for 12 million retail brokerage accounts, and handles an average of 212,000 commissionable transactions a day. On an average day, three million users visit its two websites, fidelity.com and netbenefits.com.
Gathering, storing, processing and delivering all that information has become such a major part of running an investment firm that all but the largest companies have outsourced some or all of these services.
"We at Fidelity view ourselves just as much as a financial information processing company as an investment management firm," she said. "Technology underlines everything we do."
All this technology doesn't bother Johnson, who admitted she enjoys analyzing and managing large-scale transaction processing platforms, recordkeeping, administration and brokerage trading services.
She said Fidelity has maintained its premier position due to its determination to constantly increase efficiency by streamlining operations and eliminating non-value areas.
If not kept in check, increasing processing speeds and ever-expanding data capacity in today's operational systems can easily lead to "featuritis" or "feature creep," the proliferation of extra features that go beyond the basic function of the product and result in over complication, instead of simple design. Even a screaming-fast processing system will have trouble if the underlying code is glitchy and poorly written.
"Ops and tech is only noticed when things go wrong," Johnson said. "There is a torrential flood of investment information coming at you all the time. When computer systems cause errors, you can end up with the Dreaded NIGO-the 'not in good order' transaction," and risk alienating customers.
She said Fidelity's large size-nearly 38,000 U.S.-based employees, 60,000 personal computers and 10,000 servers-helps it manage this flood of information, but the fund giant is able to stay at the top of the industry due to its disciplined approach to large-scale transaction processing and its focus on customer service.
'Fast and Flawless'
While the speed of processing large-scale transactions continues to improve, it seems like it's never fast enough when a customer is buying their first car, getting a loan to pay college tuition or arranging financing for their first home. Not so when it comes to setting up a mutual fund or brokerage account.
"We are determined to make transactions fast and flawless," Johnson said. "There is a reasonable expectation that a transfer of assets should take place in a few days. If everything goes well, the process can take four to five business days. If something goes wrong, it can take twice as long."
She said the complicated processes involved when transferring assets can be very frustrating for the customer, but a careful, concerned approach can result in deep, lasting relationships with clients.
The technology isn't quite there yet, but someday soon the tracking method for asset transfers will be as easy and as fast as the way the United Parcel Service tracks its packages, she said.
"This is the right thing to do for our customers," she said.
With $1.5 trillion under management and more than $3 trillion under administration, Fidelity's massive size creates unique operational challenges that smaller firms will never face. Most firms don't have the resources to design and build all their own products and are satisfied with buying a product solution from a vendor or outside service provider.
"The reason Fidelity builds these products itself is because they can't find them elsewhere," said Steven Miyao, CEO of the consulting group kasina. "The distinction between big and small firms is different today that it was a year ago. There is a certain amount of work that you can outsource, but you still have to be able to compete."
Firms of all sizes are looking for outside service providers that have the scale to handle their services at a price they can afford.
"Budgets aren't what they used to be," said Michael Roland, chief operating officer at ING Funds. "You have to get creative."
"Everybody is rethinking their business models," said Julie Monaco, managing director and North American head of global transaction services at Citi. "These days, information has to be transparent and readily available. Firms should focus on their core competencies and use value-added technology to drive efficiency."
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