When people think of mutual fund supermarkets, they often think of Charles Schwab's OneSouce or Fidelity's FundsNetwork. But WhatifI Financial of San Francisco plans to sell its proprietary mutual fund family in a different kind of supermarket--where shoppers can pick up a dozen eggs, a fresh loaf of bread and a steak for dinner.
WhatifI has signed an agreement to offer its mutual fund investment technology platform to Marketplace Bank, which operates 123 banking pavilions in Winn-Dixie Supermarkets throughout Florida. Marketplace expects to open another 25 pavilions by year end.
The technology alliance with WhatifI will allow Marketplace Bank customers to get investment guidance invest in any of five WhatifI-sponsored funds, which are all sub-advised by Barclay's Global Fund Advisors. The funds are provided through a master/feeder fund arrangement with Barclay's. Investors will be allowed to open a fund account with a $100 minimum investment.
WhatifI isn't the first to sell mutual funds alongside fresh produce. Mellon Financial Corp. of Pittsburgh has been selling Dreyfus Funds through 72 of its bank branches established in different supermarket chains throughout the Mid-Atlantic region. But it is hard to know just how successful the supermarket distribution outlet is since Mellon doesn't separately break out its fund sales through supermarket satellites.
However, Dreyfus Funds may not be available to grocery shoppers much longer. In July, Mellon announced it would sell its retail bank operations to Citizens Financial Group of Providence, R.I., the U.S. unit of Royal Bank of Scotland. A Dreyfus spokesman confirmed that negotiations are taking place to determine if Dreyfus' funds will continue to be sold in supermarket branches once the Citizens' acquisition is completed.
The WhatifI fund lineup includes two domestic equity index funds, an international index fund, a bond index fund and a money fund. The WhatifI banner will no longer be included with its funds. This past May the group dropped its WhatifI name and adopted the Van Ness Funds moniker, in honor of the San Francisco street location of WhatifI's first office.
Online Funds Stumble
WhatifI may be a rare case study in how an online fund firm navigated around the changing nature of the Internet.
Most other struggling dot-com mutual funds, including X.com Funds, StockJungle.com, Allied Owners Action Fund, and most recently MetaMarkets.com, have pulled the plug on their operations.
"The main flaw in their thinking was that you can solely focus on only one channel," said Lee Kowarski, a consultant with kasina, a New York e-business consulting firm. Moreover, the stock market decline helped uncover the flaws and caused some strong online mutual fund start-ups to falter, he added.
WhatifI originally launched in early 2000 as an online financial services company determined to tame the Internet frontier by allowing time-starved Generation X online investors to build a portfolio of low cost index mutual funds.
WhatifI originally saw the Internet as a successful distribution channel for investors in middle America who were largely ignored by highly incentized agents who sold funds to wealthier investors, said WhatifI CEO Harris Fricker in an interview. "We never envisioned the Internet as a way to run money differently. There's no competitive advantage to that."
Rethinking the Online Strategy
But after failing to attract cost-sensitive investors or their assets, WhatifI decided to switch gears. "We took a good hit over the head," Fricker admitted. "The Net doesn't change the ability to brand. There was no compelling reason to create a new (mutual fund) brand."
In February of this year, CIBC Capital Partners of New York, a venture capital firm and a unit of CIBC World Markets of Toronto, provided $8 million in second- round financing to WhatifI. Shawmut Capital Partners, an independent Boston-based venture capital firm was also a second- round partner, after providing the initial financing to launch WhatifI, Fricker said. The additional funding allowed WhatifI to change its business model so it could begin seeking other distribution channels.
Instead of pinning its hopes on building that entirely new brand of mutual fund on its own, WhatifI went looking for companies to partner with. It sought financial firms that already had their own brand identity, traditional methods of distribution and an existing customer base, Fricker said. WhatifI was ready to provide the technology to firms that couldn't or didn't want to build their own proprietary investment and mutual fund capability, he added. It subsequently renamed all five of the funds the Van Ness Funds.
Growth Through Partners
CIBC's equity investment paved the way for a partnership between WhatifI and Marketplace Bank.
Marketplace Bank is a subsidiary of Amicus Financial the electronic financial services arm of CIBC. Amicus was originally created by CIBC in 1999 in order to offer private- labeled electronic financial services through multiple channels including its President's Choice Financial unit of Canada, and U.S.-based Safeway SELECT Bank and Marketplace Bank subsidiaries. According to Fricker, within its first 18 months of operation Amicus now has a collective 500,000 customers.
Despite redesigning its business model, WhatifI hasn't lost sight of its core audience. Fricker still believes that audience includes savers and investors between the ages of 25 and 39, who already own one mutual fund, have an investment in a bank certificate of deposit.
WhatifI's alliance with Marketplace Bank is not an exclusive arrangement, said Fricker. But Fricker said that he is being choosy in signing on other partners and has turned some down because their customer profile simply wasn't a good fit.
Furthermore, WhatifI is looking at expanding its investment offerings. Fricker doesn't expect to launch another index mutual fund. But he is toying with offering exchange traded funds which, from an electronic standpoint are simple to offer and fit squarely into the expertise of Barclay's Global, WhatifI's current fund investment management partner, Fricker said.