Lincoln, Mass. - When is a mutual fund company also a technology company? There is no confusion over that question at The Quant Funds, which sees itself as both.
One of the first mutual funds to offer completely paperless account applications, Quant Funds (formerly The Quantitative Group of Funds) essentially has automated the investment process for its own funds and soon will offer its internally developed automated investment and record-keeping services to other funds later this year. With only $230 million under management, Quant Funds has established a business plan based on integrating technology and e-commerce that rivals those of its much larger peers.
Its emphasis on internal technology development and automation soon could propel Lincoln-based Quant Funds into the online 401(k) business, in direct competition with startup online providers such as emplanet, Fast401(k) and GoldK. Unlike those new-economy service providers, however, Quant Funds has been around for several years. Quant Funds is the equivalent of a bricks-and-mortar business taking its technology services to the web.
Already Quant Funds is offering its back-office administration and record-keeping capabilities to other mutual funds and it expects to launch an online 401(k) product by mid-2001, according to Fred Marius, president of Quantitative Advisors, investment adviser to the Quant Funds. He said the firm is talking with six to 10 other mutual fund companies about adopting its integrated web-based record-keeping and client servicing system.
Mr. Marius, an e-commerce specialist who joined the Quant Funds in May 1999 from Putnam Investments Inc., Boston, was charged with overhauling the company's approach to using technology.
Starting with a clean slate, one of the first steps was to get rid of outdated or inefficient systems and start building a new e-commerce platform. Mr. Marius abandoned any semblance of the traditional legacy system and implemented a web-based platform tied to an internally developed and managed record-keeping and shareholder-servicing system. Firm officials declined to release information on technology spending.
"We were able to start fresh with new technology. Being a smaller company, we were able to cut out a lot of the politics sometimes found in larger organizations," said Mr. Marius. "We are first and foremost a mutual fund company that has automated the most efficient processes. So, you receive the same functionality as with Fidelity or Putnam. But the difference is that we don't have the thousands of pages of content.
"The primary problem with large companies is that they make use of consultants (to guide their technology development). The business people know what they want, and the technology people have no understanding of the business. We have cut all that out; we are not at the whim of consultants. We hire and train all of our people in technology. All of our people understand how a database works and how things run through a consolidated system.
"Fund families need to not only have the latest technology, but they need to understand how to get the most out of it," he said. "Technology for technology's sake only leads to an industry disconnected from the true needs of its customers. It's not enough to simply be online - a fund company must understand how to excel online."
Mr. Marius said politics has no place in a technologically driven company. "If we think it is a good idea, we implement it. We are nimble and able to implement technology whenever and wherever it is needed. We don't want to be a company that misses the boat because we didn't see it," he said. "One of our fundamental philosophies is that no one gets to make a business decision unless they understand the technological implications of that decision. Our people understand how the new economy works."
Quant Funds hired its own programmers, although Mr. Marius declined to say how many. He did say, however, that Quant Funds has an abundance of "smart people" and is able to deliver its services with fewer full-time employees than similarly sized mutual fund companies because of its use of technology and automation. The firm has 30 full-time employees.
Quant Funds processes all transactions and handles all customer service issues internally, Mr. Marius said.
The integrated record keeping and administration developed by Quant Funds is expandable and can handle multiple plans and plan participants, supported by a call center to field participant telephone inquiries.
Mr. Marius hopes to deliver that system to other mutual fund companies, becoming their front- and back-office operation. Other fund companies would outsource their record-keeping and administration services to Quant Funds through its Fund Resource package, using a customized single portal website to access the same automated services applied at the Quant Funds, including reporting, content and portfolio information. "We would go in and create a web interface using our integrated record keeping and transfer agent system, customized for their business and their people."
Breaking into online market
But offering outsourced record keeping to other mutual fund companies is only the first phase of a larger effort Quant Funds is making to break into the online 401(k) business by mid-2001. If the outsourcing business grows as expected, Quant Funds will have a solid base of mutual funds to offer plan sponsors as an extension of its outsourcing efforts.
"Once everyone is on the same (record keeping) system, it gives us the ability to consolidate it all into a 401(k) package for small and midsized companies. And, because of our investment in technology, it won't cost us any more to do it," said Mr. Marius.
He said the objective is to compete head-to-head with startup online 401(k) providers by using Quant Funds' record keeping systems and mutual funds, combined with mutual fund offerings from firms that outsource their administration and record keeping to Quant Funds.
Mr. Marius said he expects to begin offering the online 401(k) program by mid- to late 2001.
Reminded that several startup online 401(k) providers don't expect to become profitable for at least another year, and some are actively soliciting outside investments, Mr. Marius responded that Quant Funds is already profitable and won't have to solicit outside funding to support its online efforts.
"We don't have to be `well backed'; we make money off of our (record-keeping) services," he said. "Adding a 401(k) business isn't rocket science. We can add that type of service without a huge additional expenditure. The goal with the 401(k) product is to find another avenue to bring assets into the mutual funds, another way to build assets. We are not a dot-com company; we already have 15 years in the business. The difference between the newer online 401(k) companies and us is that we aren't trying to create an industry, but bringing an existing business to the market. We're already in the black."