The fund industry has had a rough year, and by the look of things, next year could be just as ugly. But while some firms are busy trying to find an independent chairman, keeping track of gifts, and complying with many rules for the first time, others will be engaged in something known as competition.
That's because the fund industry may be finally showing signs of a little maturity, says Dr. Ian Scott
, a managing director at Angoss, a Canadian software vendor. Scott warns that the high-margin fund industry will see a coming tide of competition and sophistication in the art of fund distribution.
Although fund firms have information technology departments, they "severely lack…a culture of analytics," says Scott. Ironically, the analysis-heavy investment research side does not bleed over into the operation of the firm themselves, says Scott.
Firms can change that by using predictive analytics to measure and implement effective distribution strategies.
"In a mature industry, everyone is using predictive analytics," said Scott. "Nobody really needs predictive analytics in a non-competitive environment…where you see predictive analytics take off is when a market gets saturated," added Scott.
Angoss' predictive analysis solution, called FundGuard, allows firms to decipher a data dump of sales and redemption data. Scott says Angoss has signed up two customers thus far. Although Scott could not disclose the names of the companies, he did say that one firm turned down an offer for a discount in exchange for public disclosure of the firm's name.
Angoss is targeting fund firms that distribute using in the range of 10,000 to 100,000 advisors; firms using in the range of 1,000 advisors generally have a better idea of their relationships and sales. Scott says funds with a centrally managed sales force are more receptive to Angoss' product.
How did the industry exist without competition until this point? Scott says that the fund industry is now experiencing the evolution that banks and credit card companies experienced years ago. Pre-competition, credit card companies worked off of one credit bureau score, says Scott. "Now, the industry is much more sophisticated," he adds.
Similarly, because the banking industry has been besieged by competitive pressure, banks came to need more sophisticated analysis. "[I have] yet to see a fund company that is as sophisticated as a bank," says Scott.
Additionally, firms' sales head typically are aware of and use predictive analysis, but the information does not tend to "trickle down" to the wholesalers, says Scott.
Fund firms interested in acquiring new customers, however, may have to look elsewhere. While Angoss is looking to work with a third party data vendor, Scott insists that the analysis is not as rich nor as relevant to fund firms: "[t]hird party data is of very little use, as a rule of thumb, when you have operational data."
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