Six months after terrorists attacked the World Trade Center and the Pentagon, investment management executives say the way they conduct business has changed. "In many respects it's the same business, and in many respects it has changed forever," said Christopher Abbott, head of institutional marketing and client service at State Street Research & Management Co., Boston.
Among the post-Sept. 11 differences:
* Sales and marketing professionals are scheduling fewer appointments per day on out-of-town trips because air travel takes more time.
* Money managers and plan sponsors are using alternative modes of communication to reach each other, such as video conferencing.
* Search activity has slowed as plan sponsors assess their asset allocations.
* Plan sponsors want to know if managers and custodians have disaster recovery plans in place.
* Plan sponsors are increasing their due diligence of managers and their portfolios in light of the recent bankruptcies and blowups in the stock market, and money managers are assisting them by offering web access to their portfolios.
In general, tough markets are causing managers and plan sponsors to budget their time and money more efficiently.
Sales professionals have been significantly affected by terrorism not only because of airport travel delays, but also because of the push for additional revenue in a tough market.
Kurt Wood, chairman of the communications committee at the Association for Investment Management Sales Executives, Washington, said many members reassessed their priorities following the terrorist attacks. "Sales professionals spend a great deal of time traveling, being away from our families," said Mr. Wood. "The initial reaction is to step back and consider what's important in your personal life." Mr. Wood, partner at Atlanta-based JRW Partners, was flying into New York's LaGuardia Airport at 9: 15 a.m. Sept. 11 and saw the burning twin towers from the window of his airplane.
The other side of the issue, said Mr. Wood, is that client meetings and travel have become more important because of increased market volatility and uncertainty among investors. "There's a lot of pressure now to increase sales, to get revenues back up," said Mr. Wood. "It's a tough balancing act. But if you don't get out there and do it, your competition will."
While travel is starting to get back to normal, said Mr. Wood, airport delays and budget concerns have been more of a deterrent than fear of flying. He said sales professionals are a lot more cautious now of spending related to client servicing, which means staying in cheaper hotels and finding more efficient travel. For example, cross-country flights merely to take the client to an expensive dinner are few and far between these days.
Travel hassles have prompted changes. Because it takes twice as long to move through airport lines, executives at State Street Research & Management Co., Boston, find they can't schedule as many meetings per day. Mr. Abbott said the once-typical four calls a day has been knocked down to two or three because of logistics. To meet its goal of 1,000 face-to-face sales calls this year, Mr. Abbott said sales people probably will have to make more trips. One thing they've already started doing is flying out the night before because morning travel is busier.
In addition to travel, State Street Research executives are using more direct mail to communicate with clients, as well as the web. The firm developed a client-only website that allows clients to access portfolios online. "We're trying to build in a degree of self-sufficiency on the part of the client so that they can get information when they want it," he said.
Other firms have seen an increase in the use of technology to communicate with clients and prospects and to save money.
Kevin Rochford, managing director of global sales and client servicing at Northern Trust Global Investments, Chicago, said his firm has used video-conferencing and Internet presentation tools more frequently in the past few months, quite often in lieu of traveling. He said clients have been more sensitive to the issue of business travel. Technology can't completely replace face-to-face meetings, especially with prospects, but efficiency is increasingly important from both the client and money manager side of the table, he said. Clients have been more receptive to the idea and appreciate the use of technology.
"I think people are a bit more mindful of how they manage their time," said Mr. Rochford. "I think everyone is a tad more aware that time is more precious than it was pre-Sept. 11."
Joseph Trainor, president of MFS Institutional Advisors Inc., Boston, concurred, saying clients have exhibited an increased acceptance to alternative modes of communication. "We've done a lot more video-conferencing with clients, consultants and prospects," said Mr. Trainor.
Craig Husting, chief investment officer of the $18.8 billion Public School Retirement System of Missouri, Jefferson City, said fund executives now schedule three video conferences a year with executives from each of their money managers. Previously, he said, they would meet representatives of each firm twice a year, face to face. He said the video-conferencing has increased communications and saved time and money. "We want our portfolio managers spending their time managing money, rather than traveling out to see us," he said.
Those that don't have the technology are looking to add it. Rob Woodard, chief investment officer at the $8.7 billion Kansas Public Employees Retirement System, said the Topeka-based fund has looked into getting video-conferencing hookups this year. With improvements in technology in recent years, Mr. Woodard said, "it might be of a little more interest now, given the time and energy it takes to travel."
Meredith Brooks, managing director at Frank Russell Cos., Tacoma, Wash., detects a focus on efficiency: "People are managing business more cleanly and more efficiently. There's a tone of frugality; it seems inappropriate to act otherwise."
While business travel is starting to pick up, Ms. Brooks said investment professionals are watching their expenses. "People have less money to throw around; they are more prudent with their travel dollars."
Consultants and money managers agree volatile markets have led to a slowdown in search activity and an increase in long-term planning. Larry Zuntz, director of institutional business at Strong Capital Management Inc., Menomonee Falls, Wis., said many plan sponsors are stepping back and looking at their asset allocation. He expects search activity to pick up in the coming months, after the asset allocation studies are completed (see related story on page 3).
John Brown, head of institutional business as Putnam Investments Inc., Boston, said that while search activity has been slow, Putnam's sales and client service people have stepped up communications with clients. "Clients are demanding a lot more communication," said Mr. Brown, "and we're pushing as much as they're pulling." Rather than short-term performance concerns, Mr. Brown said clients are more interested in macroeconomic issues and market trends as they focus on long-term goals.
Heightened due diligence
Some investment pros, such as Susan McDermott, consultant with Stratford Advisory Group, Chicago, cite heightened due diligence by sponsors and managers.
Kathy Taylor, managing director at Barclays Global Investors, San Francisco, agreed. "They used to come in and kick the tires. Now they're looking under the hood, crawling under the car."
Brian Hersey, senior consultant at Watson Wyatt Investment Consulting, Atlanta, said the period of heightened due diligence presents opportunities for active managers to shine. "The tide will not lift all boats in this environment," said Mr. Hersey, so managers will have to be discriminating and skillful at choosing the good companies and avoiding the bad ones.
He also believes investment management fees will come under scrutiny: "There are going to be situations where investors are going to get very anxious about seeing poor performance and paying high fees."
In addition to due diligence on portfolios and investment processes, plan sponsors also want to know if their managers have disaster recovery plans in place.
The terrorist attacks "heightened our awareness to make sure they have appropriate disaster recovery plans in place," said Missouri School's Mr. Husting.
Indeed, officials at several firms have said the plans put in place in anticipation of Y2K problems that never materialized were executed to perfection when disaster struck Sept. 11.