Technology is important to the mutual fund industry. During his keynote address at this week's annual NICSA conference, Tom McDonnell, president and chief executive officer of DST, stressed the role that technology has had in making and breaking various players in the business.

McDonnell also pointed out that technological innovations within the industry take place faster and faster. When technology started to have a presence, firms had to translate primitive systems into more sophisticated ones; today, with relatively sophisticated systems in place, the shift can be effected more swiftly. This abbreviated time frame also increases the risks inherent to the adoption of new technology.

But, what does this really mean to the fund industry?

Of course, firms need to have the technological flexibility to innovate and have to keep up with the Joneses, if they aren't ahead of the curve. McDonnell presented a number of common sense criteria that can be used while considering the implementation of new technology: acceptable time frame; acceptable cost; reasonably determined to be durable.

Furthermore, McDonnell related the cautionary tale of big complexes that lost ground in the market between 1975 and 1978 because they weren't following the money market trend. He asserted that this innovation transmuted the mutual funds into a product industry.

"Some industry leaders were not ready to adapt money fund products," explained McDonnell. "The key was underlying technology: a number had decided not to bring out money funds because of the cost of implementation."

What is the money market fund of the new millennium?

McDonnell did not offer this savory bit of prognostication. "Technology," as a concept, is both alluring and dangerous: it can be the passkey that unlocks a new world or the siren song that smashes ventures against the rocks.

The financial services industry is a trust industry, and that trust cannot be created, enhanced, or salvaged through electronic interaction. The explosion of free information on the Internet has both commoditized advice and also has given investors more reason seek the services of an advisor. This should be a warning to firms not to rely too heavily on technology to replace human interaction.

New technology can be used to streamline operations and both enhance and reduce the cost of customer servicing, but it cannot be used to replace that service. Certainly, this is can be done with existing technology in a relatively short time frame.

The most pressing danger is that of our love affair with tech. At the conclusion of his address, McDonnell quoted a Dilbert cartoon with the following alarming punchline: "Technology is already way more interesting than people."

Only when we start selling mutual funds to computers will that become true.

 

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