NEW YORK - Although the competitive environment in the fund industry has strongly favored large fund companies that have million dollar marketing budgets, small and mid-size firms are using the Internet to increase sales, develop brand identity and improve their efficiencies, according to fund executives who spoke at a conference on e-distribution and marketing of mutual funds here last week.

The Quant Funds group of Lincoln, Mass. is one such small firm, according to Heather S. Dondis, director of marketing for the firm. The firm was founded in 1985, but did not develop a distribution and marketing team for the funds until a little over a year ago, she said. Dondis spoke at the conference, sponsored by the Institute for International Research of New York.

The firm, which has approximately $240 million in assets under management, assembled a marketing team that examined the firm's target market and how to use its marketing budget. The firm decided to establish a niche for itself by emphasizing online distribution, but without excluding itself from other channels, Dondis said.

"We view the web as an extension of the business," she said. "You can only grow from the web if you aren't totally immersed in one channel."

The firm does not have the resources to sell its funds through wholesalers and brokers and rather than dedicate its marketing budget to trade-show exhibits and advertising, the firm decided to develop all of its back-office and Internet technology in-house, Dondis said.

That strategy is starting to pay off, Dondis said. For instance, on May 1, Quant became only the second company to offer funds through a paperless transaction. Because the firm had already developed and managed its own website, adding paperless transactions was relatively inexpensive and the amount of attention the capability received helped generate some retail sales, she said. The move also generated an increase in calls from advisors who wanted more information about the funds, she said. The firm is currently studying how it can assist the financial planners that are using its services to customize and manage their clients' accounts.

The move has apparently paid off. Since June, the firm has increased new sales through the direct channel by over 50 percent and has increased its sales through brokers by over 40 percent, she said.

In-house customer service technology that the firm has built allows the firm to keep a closer eye on what its clients are requesting, allowing it to react more quickly than if it outsourced the function to a third-party, Dondis said.

By building technology in-house instead of outsourcing, the firm has also been able to collect information about its client base that will allow it to launch future marketing campaigns that are more focused on its clients needs, she said.

Nvest Funds of Boston is taking a different approach to using the Internet to increase its efficiency. In May, the firm's customers began to be able to receive prospectuses, annual reports, quarterly statements and proxies online, according to Suzanne Billante, vice president of electronic commerce for the firm.

The company added the capability to provide its clients with a faster, more efficient method of receiving documents, she said. The company also hopes the online transmissions will eventually reduce fund expenses, but that may take some time, she said.

Without heavily marketing the new service, the firm has obtained consent to receive documents online from two percent of its clients. With a stronger marketing effort, the firm believes it can switch nearly five percent of its clients to electronic delivery within a year and to begin cutting some of the costs associated with document delivery in that time, Billante said.

Reducing costs to shareholders is probably even further off, she said. The firm would need to convert approximately 45 percent of its shareholders to electronic delivery before it could examine cutting expenses, Billante said.

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