"If you're doing anything neat or interesting on your websites -- those features can pretty much be replicated over a couple of weekends by a few high-school kids."

This glowing endorsement of first-mover advantage was issued by Neil Bathon, president of Boston's Financial Research Corporation, at IIR's Mutual Fund Distribution 2000 conference, its third annual forum on mutual fund sales and distribution issues, held on December 9-10 in Boston.

The above quote was fairly typical of Bathon's opening address which stressed the difficulty of gaining a competitive advantage in the mutual fund industry -- where there is a glut of funds, not to mention more and more four and five star funds and continued sales concentration among a select few fund families.

"Companies are being protected by the strong overall market moving assets forward," Bathon added. "I think we're nearing the end of that and a lot of the weaker fund companies will be exposed."

None of this was especially new to the conference attendees, many of whom were not representatives of the top 10 fund sales companies, who are accounting for 85% of the industry's new sales.

Basically, Bathon's point was that as marketers, mutual funds leave much to be desired and any downturn in the market would be quick to expose that fact. His exact words -- "As an industry, we're horrible at marketing."

But that said, his presentation also concluded that the top tier funds and the niche funds will continue to have success, with consolidation in the middle, as many mid-sized firms become commoditized and unable to differentiate their products. Those firms will either be swallowed up by the industry players or be forced to find a better niche as they bleed away assets.

Richard Sincere, president and CEO of Sincere and Co. agreed with Bathon that marketing would be the key for the upcoming year, especially as it pertains to the RIA market.

"This is the toughest marketplace around ... that said, many of your competitors will be dinosaurs if you're an excellent marketer."

But Sincere forecasts growth in the mutual fund market as players like Merrill Lynch increase overall interest and visibility. "It's a marketplace you can walk through," said Sincere, alluding to the fact that advisors are accessible if you actually visit them, "but you have to be value-added, if not you have to step back and figure out what you can add."

One of the more interesting points of Sincere's presentation was his contention that the larger independent advisors will not eventually merge and become small fund companies, as Mark Hurley of Undiscovered Managers recently opined.

The predominant form of an advisor's business is entrepreneurial, so attempts to consolidate will be contrary to the individual(s) push to remain outside of a corporate system. In addition, concerns about price pressure will be assuaged by investors' continued belief that good advice is worth the money. To paraphrase, Sincere says that people are price-insensitive if they get good advice.

Value-added continues to be a favorite catchphrase of fund distribution executives as the role of wholesaler changes to reflect the growing need to customize the pitch to reps. Frank Maselli, the dynamic senior vice president of New England Funds stressed the importance of the "new" fund wholesaler's role expanding to assist intermediaries in all aspects of their business.

Most speakers agreed that the days of simply offering the latest technology in golf balls were a thing of the past, and fund wholesalers will have to commit to new ideas and programs for the intermediary in the years to come.

No Fighting, No Biting

One would think that when representatives from three of the major custodial platforms get together in a public forum that at least some sparks would fly -- nothing doing at Friday's Supermarkets session. Carol Larkin, representing TD Waterhouse, Joyce LaBelle representing Fidelity and Bruce Fear representing Datalynx all refrained from any real competitive digs and, remarkably, all present strayed away from any Schwab-bashing, unusual strategy considering the fairly unique opportunity to compare, contrast and pitch their respective programs.

One of the few points of differentiation brought up was spurred by a fund company executive questioning the availability of information through the various platforms in terms of advisors' activity. Although all three supermarkets offer advisor activity info on the NTF side, only Datalynx offers the same for the transaction fee side.

The most interesting issue to arise was the continued move towards redemptions fees at popular funds, with all present expressing approval for the institution of said fees, with Waterhouse's Larkin advocating even stiffer withdrawal penalties.

"Fund companies that have put redemption fees in place ... all have said that they wish they'd done it sooner," said Larkin. "But make sure that the fees are high enough -- in my opinion, 1% is not enough, if a trader thinks that he can make it up in the market, he'll continue to trade."

Larkin also suggested instituting a grandfather clause for RIAs for funds that are closing to new investors, as those RIAs often recommend the same fund/funds to clients and that decision process can take some time. Clients already working with an RIA would have the opportunity to invest in a closed fund, if the advisor had other clients' money invested in it. 

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