David Rainville, senior vice president of client support at MFS Investment Management in Boston, is the co-chairman of the National Investment Company Service Association's Operations Conference Committee. Rainville, who is responsible for technology issues at the MFS investors' service center, discussed key operations issues facing the industry with Mike Garrity, a Mutual Fund Market News reporter. An edited account of their conversation follows.

MFMN: The obvious operations issue for mutual fund companies is the Year 2000 computer adjustment. Have there been any particular surprises?

Rainville: I don't think there have been any surprises. Investors may think that this is something that has just been worked on for the last few months. Actually this has been an ongoing process for several years.

I think the good thing about Y2K is that the SEC is playing a very active role in this. That's just another level of comfort that ties into the whole Y2K process.

MFMN: My sense is that prosperity in the mutual fund industry has put some pressure on mutual fund operations groups. They find themselves having to service more and more new shareholder accounts and provide more services to existing shareholders. What are companies doing to adjust?

Rainville: I think the firms that are well-positioned and able to handle (growth, particularly in retirement plans) are the firms that really refine their processes constantly. You can't take what was the paradigm three or four years ago when something worked and just say it will work now. It's continuous improvement and process change without losing the focus on quality. Quality is the key driver. It's part of the whole retention package. It's not just fund performance, but how well your customers perceive what you're doing for them.

I think people are trying to do a lot of different things from a human resources perspective. The issues are really attracting, hiring and retaining the staff. From an attracting standpoint, we have to get creative. It's not just money that gets people, it's your quality of life. It's what you provide. How happy are (new employees) coming in. What do you give them to retain them. From a training perspective, I think (continuing) education is a very good thing.

MFS (with other firms) is part of an initiative supporting the New England College of Finance. Working with the Urban League and some of the inner- city schools we're able to create a program that provides training, information, and the background necessary to bring a whole other group of people into the workforce. I think we're seeing in the Boston area that unemployment is so low, the ability to attract entry- level people is very difficult at this point.

There are other opportunities out there. People don't have to be in-house any longer because what we've done with technology allows us to bridge the gap between cities, counties, states and even countries at some point.

MFMN: Companies can be structured less traditionally to try to attract and retain staff?

Rainville: Absolutely. The leaders in the industry are really looking at different things. We have to think outside the box because the box is changing. As the business changes, we need to be ahead of that curve for our staffing, our technology issues and our ability to provide quality service to our shareholders.

MFMN: MFS has had tremendous growth in the past year. Are there one or two things that you've done on the operations side to respond to that growth?

Rainville: What we've tried to do is consolidate some of our processes from a technical standpoint. We want to stay ahead with the technology.

We knew the growth was coming. We knew we had space constraints in (MFS's current home office). The service center is actually moving to a new site (in Boston) dedicated exclusively to the service center.

MFMN: As the Internet becomes a more popular communication method, do you see that making operations smaller or simpler or will the complexity move from a paper and telephone orientation to a cyber orientation?

Rainville: I think probably the latter. If you look at the industry in the late 60s, the early 70s, there were 300 mutual funds. And now look at the proliferation of mutual fund product and nuances of the classes and the features of some of the retirement plans.

I think the shift will go from paper, but the nuances stay the same so you'll still need all of the support mechanism. Shareholders will be able to do certain things over the Net that probably will relieve some of the operations tasks that are necessary, but you still need the communications contact and all of the activities that go on in the background.

MFMN: From the outside looking in, the transition to the euro appeared to go smoothly enough. Were there any surprises in that process?

Rainville: From a euro perspective, it was almost a non-event. The only impact I saw from the euro was probably a little more caution on the first day of business following the euro conversion to insure that all of the prices were correct for any holdings that were held in the previously individually-denominated currencies. But other than that, there were no impacts at all. And we didn't have pricing problems.

MFMN: Excluding the year 2000 issue, what do you see as the most prominent trends in operations for this year?

Rainville: Our goal in putting this conference together - we really tried to focus on what we saw were the trends for 1999. Globalization is a big one. We're seeking worldwide operations set up, 24 (hours) by seven (days a week) access and the support necessary to maintain that; the communications necessary to support it as well.

There are currency constraints with that as people start opening offices in different countries such as Japan.

MFMN: You mean being able to respond in the instance of market volatility like last year or maybe a market break?

Rainville: Exactly. One can never tell what will happen. It's preparedness. It's always trying to stay ahead of the curve.

MFMN: Is there anything else you would highlight?

Rainville: Technology is a great enabler, but process improvement is another key component. We can't take new technologies and overlay previously used processes on them without a complete review. I think it's critical that they go hand in hand so that we get the efficiencies and the economies to support that.

I think it is important for us to continually look at new technologies. One of the things we're looking at at MFS is really creating - and this is future - the hands-free processor using voice recognition. We have employed some voice recognition here within the company more from an administrative standpoint. But if we can tie that product into (computers which service center representatives use), at some point in the future, someone with a headset can sit and tell the computer exactly what to do.

If a document is scanned into the system, someone can say "That's a redeem" and the (computer) will send it off (for the next step in executing the redemption).

MFMN: What a way to speed the processing of transactions if you can do it all orally.

Rainville: It's a great concept. I've seen the actual voice recognition piece work from an administrative standpoint. Some of the senior people here have it. They're actually telling the PC (personal computer) what to do as it's taking dictation from them. It will change the font size. It will change the background. It will make corrections. It's a fantastic tool, very very powerful and very accurate.

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