GREENWICH, Conn. -- PlanSponsor.com will roll out a new cyberspace business model combining information and e-commerce for pension funds early in July.
The site, which will allow sponsors to conduct searches online, also will provide a lot of content about all of the different providers that sell to sponsors, from custodians to investment managers, said Charles Ruffel, chief executive officer.
The new website will compete with eFrontiers Inc., San Francisco, and InvestorForce.com, Wayne, Pa.
The new portal is being bankrolled for an undisclosed sum by venture capitalists whom Mr. Ruffel declined to name, saying he would release these details after the formal launch in July.
Sources said BARRA Rogers-Casey, Darien, Conn., will provide performance data to the new enterprise. David Katz, managing director at BARRA, said he could not confirm the alliance.
Cosmos Smith, vice president of business development at Plan-Sponsor.com, said his company will make its money from advertising and from the e-commerce fees paid by providers if they are selected by a sponsor. The actual fees haven't yet been set, but consultants and plan sponsors would not pay for access, Mr. Smith said.
That could mean more competition for consultants.
Greg Allen, executive vice president and director of operations at Callan Associates, San Francisco, believes the sites are changing the dynamics of money manager searches.
"Plan sponsors have traditionally paid us (consultants) to do searches. Now these outfits are offering manager data bases, but they're no different than other databases. At the end of the day they are trying to get managers to pay for searches. We're waiting to see if the managers will. Others have tried to do this in the past and it never worked because public funds and other sponsors who are liability-sensitive have balked about paying managers. They would rather pay consultants and have them do the searches which would be more objective. Paying the managers is perceived as a conflict of interest."
Callan is watching carefully to see if the online services do change the business, Mr. Allen added.
"If we see that sponsors expect free searches, Callan will say to those sponsors: `We've got a database. Hire us. We'll assign a senior consultant who will do the search, and you'll get it for free, as long as the manager pays us."
He predicted that if the new online model does work, every consultant in the country will offer sponsors free searches with managers paying as an option. But he also expects a good cross-section of managers will refuse to pay. "Many of them, particularly small-cap managers, can be very picky about taking on new clients if they're oversubscribed. They won't discount fees or bid on new business because they don't need to, so they're certainly not going to pay to be in a database," he said.
There are differences
Executives at each of the three websites insisted they are different from each other. PlanSponsor.com has been designed by plan sponsors who know what they need and want, said Mr. Ruffel. It has appointed an advisory board consisting of 50 plan sponsors who have been helping with the model.
Eileen Leahy, assistant treasurer, benefit finance, SmithKline Beecham Corp., Philadelphia, who is on the PlanSponsor board, said in an interview that she is not sure she would do any manager searches online. "I have my own RFPs. I e-mail or hard-copy them to managers I want to consider. I'm not sold on the idea of a third person looking over my shoulder at what I'm doing."
Although she might use any of the three sites to get information, she noted she doesn't spend much time online. "If I have a question for a manager, I find it easier to pick up the phone or send an e-mail rather than to wait for an answer through a chat room."
On the other hand, Ms. Leahy conceded she has been selecting managers for 16 years and has her own short list.
"If I were new to this business, I'd probably see this as a really neat way to do RFPs, but I've already created my own."
She added that all of the pension funds on the advisory board have different needs and want different things out of the PlanSponsor site. "I don't know if they can offer all of it, but they'll get close."
Room for a third
Executives at InvestorForce and eFrontiers said they welcome the new arrival and believe the business is big enough for a third website for manager searches.
But Steve Cohen, president of eFrontiers, insisted his business is different: "We are not a portal and we don't have advertising. We're an independent marketplace focused on transactions. Portals are more about content and eFrontiers isn't offering content."
He added the interest in his website has exceeded expectations and that there are several searches in the pipeline. His firm will make money by taking a percentage of the management fees on completed searches: 5% the first year; 2% the second year; and 1% the third year.
Jim Morrissey, InvestorForce president and chief executive officer, said the entry of a third online site will give these fledgling businesses a bigger impact on the money management industry, which in turn will help change behavior.
"It's a huge market out there with tremendous inefficiencies. This can be a win-win for all three sites. And it will help make these markets more efficient," he said. He added that five searches worth $600 million have been completed through InvestorForce. Managers who get hired through the site pay a one-time fee.
But Mr. Allen of Callan and other consultants believe the role the consultant fills cannot be duplicated by websites.
Mike Flynn, senior consultant at Stratford Advisory Services, Chicago, said some of his clients have gone into the InvestorForce and eFrontiers databases to look up different managers' offerings, and then called Stratford for a recommendation.
"The vast majority of sponsors who go to those sites are looking for access, but they still want someone who will make recommendations and actively structure protfolios."
Kelly Haughton, director-client services, Frank Russell Co., Tacoma, Wash., concurred. "We have personal relationships and knowledge of pension funds and money managers. We visit 1,700 managers a year, some a few times in a year. We haven't heard of any of our clients using these websites for searches yet, and it's hard to picture pension funds handing over large sums of money without meeting the managers face to face."