The gross domestic product of the United States increased at an annual rate of 1.8% in the first quarter of 2011, according to the "second" estimate released by the Bureau of Economic Analysis. That is down from an annual growth rate of 3.1% in the fourth quarter.

Yet that does not appear to be dissuading the top business, technology and operations executives at mutual fund companies.

In a survey conducted this month by Princeton, N.J., research firm Lodestar, Money Management Executive found that 16% of executives who set down their expectations said their firms would increase their technology spending by 5% or more this year, compared to last. Another 26% expected increases of 1% to 4%. And 15% said they expected no change in the amount of spending their firms would make on technology for either operations or use by employees.

But uncertainty does reign. The biggest response: 38% said they could not predict whether spending would go up or down.

The uncertainty extended most dramatically to areas where fund firms might seek to rein in costs, in hardware, software and systems spending.

With 116 of the total 120 respondents describing the five areas they most expected costs to be cut, fully 45%, or 52 executives, said they did not know.

And the next biggest response?

That there simply would not be cost-cutting, even with the economy in a phase of constrained growth.

In fact, 42, or 36% of the respondents, said their organizations would not cut technology-related costs.

Instead, fund firms appear most inclined to put their bucks at this point into technologies that will serve existing customers better or attract new ones. The point: Spend to increase revenue. Build business.

 

SPENDING PRIORITIES

Out of the top five spending priorities that surfaced in the survey, three dealt directly with improving relations with customers.

The top priority: Investing in customer relationship management software, with 43 respondents, or 36% of the field, naming that as a top priority.

Also getting widespread investment: Sales management software (32 respondents, 27%) and website services for customers (also 32 respondents, 27%).

Most interested in improving customer relationships were smaller fund firms. Half of firms managing under $500 million of assets made this a top priority, while 53% of firms managing between $501 million and $5 billion of assets did.

By contrast, less than a third of firms managing $6 billion to $300 billion of assets list customer management software as a priority.

But really big firms also had building customer relationships in mind: 57% of firms managing more than $300 million made it a priority.

Not attracting much attention is reporting risk-return summaries in the interactive programming format being required by the Securities and Exchange Commission.

Only 3% of respondents put reporting in the eXtensible Business Reporting Language (XBRL) as a priority. This year, the SEC began requiring mutual funds to provide the risk-return summaries they typically show for one-year, three-year and five-year performance in XBRL format.

Also getting rated low on the priorities was cost-basis reporting systems. Only 11% of respondents of any size of investment management firm made that a priority. (See, "Cost-Basis Reporting Getting Ready for Prime Time," in print or online, May 23, 2011)

This, even though complicated, new Internal Revenue Service rules on reporting the original cost of shares in funds and other financial securities take effect for mutual funds at the outset of 2012.

Taking cost-basis reporting most seriously at mid-year 2011 were the biggest firms: those managing assets of $501 billion or more. Twenty-three percent of executives at such firms considered investing in cost-basis reporting a top priority.

Rating higher, across the board: The more prosaic practice of upgrading operating systems, considered a priority by 22% of respondents.

Ranking only slightly higher: Risk management systems, at 23%.

And compliance software, in the wake of the enactment almost a year ago of the Dodd-Frank Wall Street Reform Act?

Investing in regulatory-related software was a top priority of 17% of respondents.

 

COST-CUTTING PRIORITIES

Not knowing where costs might be cut was the response of 52, or 45%, of respondents.

But neither that nor the second-highest response, that 36% of respondents do not plan to cut technology-related costs at all, represents an expense-restraint strategy of any type.

Of those fund executives who did have cost-cutting plans, the priorities were spread wide.

Six percent planned to cut costs involved in replacing existing systems. The same ranking was accorded market data processing.

But because of the relatively small sample size, that is virtually indistinguishable from plans by other executives to cut spending on asset valuation services, corporate actions processing and settlement services.

And even though 22% of respondents had said they were making operating system upgrades a priority, 4% said they were cutting spending on that.

More telling were the mechanisms that the management, operations and technology executives said they would use to control costs.

The top source of savings is the continuing movement to outsource as many processes as feasible to third parties, such as managed service providers.

Other top sources of savings similarly were old standbys: Renegotiating with vendors to get better terms and ... cutting down the number of vendors used, to similarly get better deals with those that survive the cut.

The sweep of "virtualization" of servers, desktop computers, bandwidth and other infrastructure appears to be fairly limited.

Of those saying what their cost-cutting mechanisms constituted, 32% said they were using software to slice and dice computing power on-demand on some type of server. Other forms of virtualizing computing and networking resources did not make the high-priority list.

 

RAISING REVENUE

Money Management Executive specifically asked respondents what new forms of technology they were using to achieve what appears to be their top objective this year: Reaching existing and potential customers, as means of increasing revenue.

Far and away, the main day-to-day mechanism for interacting online with customers remained the company's website. These are websites that are primarily about delivering information about company products and services to present or possible customers.

Eighty-four percent of respondents put this as their top means of reaching customers, to increase revenue.

The hope: That the sites will generate leads, to new customers that can be followed up after they first visit the sites.

It's a big fall-off from there to sites which actually did increase revenue. That is to say, direct commerce sites, where users could actually purchase or redeem shares in mutual funds or exchange-traded funds, online. Only 19% of respondents said they maintained such sites.

Another 18% said they operated sites that acted as front doors for brokers or other distributors of their products. These sites transferred visitors, to these agents.

As for the "hot" social media of 2010 and 2011, fund firms appear cautious about their usage.

In each case, less than 20% of respondents said their firms used either Twitter or Facebook to reach present or future customers.

The survey was taken nearly 18 months after the Financial Industry Regulatory Authority issued its guidelines on social media.

FINRA's Regulatory Notice 10-06, issued in January 2010, tried to establish a distinction between one-to-one communications on such sites, which would be treated as electronic mail, and one-to-many, or "broadcast" messages, which would be regarded as promotion, potentially.

Fund firms' attitude towards social media appears to be in line with other financial market participants. On the first-year anniversary of the FINRA guidelines, a study by Boston's Aite Group found that 84% of investment advisory firms were prohibiting the use of social media, citing compliance concerns.

Brokerage firm Morgan Stanley Smith Barney late last month got widespread attention for announcing it would allow its brokers to tweet and participate on Facebook, later this year.

But all the tweets and messages must be pre-approved, limiting their spontaneity.

 

MOBILE TECHNOLOGY

Getting widespread attention in open-ended questions in the survey about new initiatives were mobile technologies, particularly iPad devices from Apple and, generically, computer tablets.

The reasons for deploying or making use of tablets varied by company size.

Small firms-those with assets under management of $500 million or less-said tablets were being employed for "ease of use in client meetings."

They have become sales presentation tools, in the office or in a "lunch setting,'' the respondents said. They are seen as a "quicker, faster vehicle to view more information readily."

For executives at firms managing $501 million to $5 billion in assets, the tablets are being used more for personal productivity. The purposes: "better option to monitor our portfolio of investments while traveling," "light, easy to read email while travelling" and maintenance of contact with customers.

For firms managing $6 billion to $100 billion of assets, it's a response to customer demands, reduces downtime of latpops and other devices requiring technology department support-and the tablet can be used as a "point of sale" device.

For firms larger than that, tablets are being used to sync with large corporate systems and deliver updated documents and other "deliverables." A side benefit: Less paper (See "iPads Replace Paper, Starting in Board Room," in print or online, June 20, 2011).

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