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Source: Securities Technology Monitor, June 26, 2012 article

Securities Technology Monitor





Fund Managers Start to Like Social Communications

June 26, 2012
Tom Steinert-Threlkeld

Fund firms are beginning to like social media and the devices their staffs use to communicate online with customers.

Fully 50% of respondents to the 2012 Money Management Executive Technology Survey said that their companies were adopting social media such as Facebook, LinkedIn and Twitter for the first time.

That's a big step up from the 2011 survey, when fewer than 20% of respondents said their firms used either Twitter or Facebook to communicate with present or future customers.

That stepped-up presence was reported by a select sample of 77 director-level and above executives at mutual fund, exchange-traded fund and alternative investment firms. Respondents included top-level executives in technology, operations, marketing and overall fund management.

Of these, nearly a fifth say they are using social media as means of reaching customers and increasing revenue. The top two: Twitter (19%), for communicating with customers; and Facebook (17%) for promoting products or services.

That does not reach the level of Web site usage, for reaching customers and generating revenue, by far. Currently, 74% of fund firms are using their Web sites as the primary use of digital technology to reach out to customers. And 25% are using their sites as direct commerce sites, allowing visitors to purchase or redeem shares.

Still, the shift toward social media as a means of reaching out appears to be picking up mind share at fund firms. In 2011, 84% of respondents cited a Web site as their firms' top means of reaching customers, to increase revenue.


Accompanying that movement is acceptance of the sorts of mobile devices that make it easier for marketing and other staff members to communicate, around the clock, with customers through social media.

Thirty-six percent of respondents said that their firms were allowing employees to use iPads and other tablet computers for the first time; and, another 20% said their firms had begun to embrace iPhones and other 'smart' phones that make it easy to 'tweet' or update Facebook and LinkedIn pages on the go.

In fact, those kind of devices were seen as the number one means of increasing executive of staff productivity. In the survey, 51% of respondents said iPads and other tablet computers were the best technological means of increasing productivity at this point and another 32% pointed to smartphones.

After that: Replacing desktop computers with laptop computers and giving broadband mobile access to the Internet to those laptop computer users.


That embrace appeared also to signal a re-embrace of spending on technology, throughout the fund industry.

Last year, fully 38% of respondents said they could not predict whether their firms' spending on technology would rise or decline.

There was no such uncertainty this time. In this year's survey conducted in May and June of fund executives across the country, 41% expected spending on technology at their firms to pick up. Only 10% expected it to decline. Thirty percent expected no change. Nineteen percent weren't sure what to expect.

Of those that were certain that spending would pick up, by contrast, 13% said it would pick up by 5% or more.

Some of those more aggressive spenders clearly expect to use technology as a means of differentiation. Nineteen percent of respondents said their firms would spend 5% or more of their operating budgets on technology.

That is up from last year, when 16% of respondents said their firms would spend 5% or more of their operating budgets on technology.

And, in 2012, 42% of firms expect to spend 3% or more of their operating budgets on technology.


As with the past, however, firms clearly are expecting their technology departments to do more, with less.

Ranking as the top spending priorities for fund firms were projects involving back office and administrative operations and customer relationship management systems. These each were put at the top of their spending lists by 29% of respondents.

But when these same executives were asked where they expected to cut costs, these two areas also hit the top of the list. Thirteen percent of managers said they would cut back office and administrative operations costs, while another 8% targeted CRM software.

Also high on spending priority lists were risk management systems, given the steady advance of Wall Street reform regulation and the adoption of new cost-basis reporting rules by the Internal Revenue Service. The industry is awaiting a second set of reforms, for instance, in how money market funds can operate, from the Securities and Exchange Commission.

But, often, very prosaic, basic information technologies made the top of the spending priority lists.

Twenty-six percent of managers said integrating existing systems was a top priority in their spending plans, another 25% put operating system upgrades at the top of their lists. And mobile computing initiatives garnered 21%.


One San Antonio-based technology manager said he was watching for technology that had been commercialized on a "large scale in fast-growing markets that have 'leapfrogged' costly legacy infrastructures.''

For many respondents, that sort of search ended up being spelled "cloud.''

Seventeen percent said they were looking at using public processing and storage capacity that can be rented or paid for by the drink. Another 5% were trying to create their own private clouds, where they would charge departments internally for those drinks.

But cloud thinking was clearly on information technology and other managers' minds, in seeking to cut costs.

Fully 21% said they would reduce the number of different types of hardware in use, to save money, another 17% said they would "virtualize" storage, another 17% said the number of applications would be reduced, and, not surprisingly, 14% planned to cut staff.

Not high on anyone's list were such technology advancements as better means of processing corporate actions notices (5%), improving tax reporting (4%), interactive reporting of financial information using the extensible business reporting language (XBRL) (also 4%), or proxy solicitation and electronic voting systems (3%).

When it came to individual technology initiatives inside companies, though, security seemed to again getting widespread attention.

LinkedIn, for instance, was involved in the publication of 8 million encrypted passwords this year by a hacker who was seeking help unscrambling them. Last year, the RSA SecurID tokens that many technology shops use as extra security beyond user names and passwords for secure access to networks was breached.

"Securing the information technology environment" was the top concern of an operations manager of a Denver fund firm. "Adopting new technology that prevents and quickly responds to fraud" was the object of a Philadelphia finance operations manager. And a New York fund executive wanted to upgrade technology "to meet any challenges that pose a threat to the organization.''


In the end, 'integrating' systems however did not always mean getting different old systems to talk to and work with each other better.

With the adoption apparently at hand for the majority of fund firms to communicate with customers through web-based marketing, "social media integration" also was cited as a priority.

To stay competitive, fund firms must build, buy or rent systems that let them communicate with customers on a one-to-one, one-to-many and even many-to-one basis. And do so without running afoul of securities industry regulation on how to conduct and keep records of communications with customers.

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.

Discussing a mutual fund on a social media site triggers disclosure to regulators and clear tracking of what was posted, W. Hardy Callcott, a partner at Bingham McCutchen who concentrates on regulatory issues affecting broker-dealers, investment advisers and mutual funds (See "Secret to Success in Social Media: No Financial Advice," May 28, 2012).

Practically speaking, it can be costly, as well. If you're posting eight times a day, five days a week, to your Facebook page, for instance, "it can get quite expensive filing with FINRA,'' according to Shayna Beck, head of social media at Vanguard.


© 2012 Securities Technology Monitor and SourceMedia, Inc.


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