Table of Contents | Published in April 1999

Smart Tools and Financial Services: Strange Bedfellows

In the hypercompetitive retail online market, firms are selling below cost in the hope of purchasing loyalty. In financial services, the same outcome would be disatrous.

By PS | April 1999

In the hypercompetitive retail online market, firms are selling below cost in the hope of purchasing loyalty. In financial services, the same outcome would be disatrous.
Steve Burnett
Burnett Group

Mutual fund companies are now coming under the unforgiving scrutiny of comparison engines. These shopping tools are perhaps the most significant driver of technology, carrying the potential to completely change the way people do business. Already, they make it possible to compare credit card rates and terms online and even support competitive mortgage rate auctions for individual customers. But what happens when intangible factors such as management quality, investment risk, and other variables come into play?

Good question. Mutual fund companies are now looking at ways to encourage consumers to value intangibles and buy funds on criteria other than price alone, thus insulating the mutual fund industry from what is happening in the online retail sector. Companies are finding it increasingly difficult to compete online on brand strength alone when the environment is filled with search engines that can quickly find the best price for virtually any item. Expenditure on product promotion and brand support is hard to justify when price is the sole driving factor.

For many consumers, price is the decisive criterion. But price is not the only issue when it comes to asset management services. Historical rates of return and management fees also matter. For decades, regulators have warned consumers that past performance is no guarantee of future rewards. Nor can management fees alone predict what profits will eventually find their way into the pockets of consumers. Every online investor needs to understand these issues. The question is whether technology can accommodate that need, and educate consumers in intangible issues such as continuity, organizational strength, integrity of investment style, and value-added services.

The jury is still out on this question, but nearly everyone involved is mindful of the dangers of replaying what happened in the retail sector. The lowest cost for a stock trade (market order) has now fallen to $5.00-with many services offering the incentive of multiple free trades for new customers. Once truly electronic brokerage becomes available, the variable cost per trade might easily fall to nearly zero. Imagine a site that allows investors to trade for free in exchange for the greater advertising dollars that more site traffic will attract. Fortunately, trends emerging elsewhere in financial services technology indicate that price is not everything.

One of the most effective marketing tools emerging from new Web technologies is the development of highly personalized interfaces. Their success hinges on their ability to personalize the vast, impersonal marketplace. Take Dell Computer. When DellÕs corporate customers visit the Dell Web site, they are greeted with a customized Web page that lists only those products already approved by the site visitor's information technology and purchasing departments. Should a visitor select a computer for purchase, Dell automatically routes the request through the proper purchasing channels on behalf of the customer. Depending on the customer's seniority and/or ability to authorize purchases, Dell will either ship the computer immediately, or send the request to the appropriate manager for approval.

Another trend encouraging loyalty on the Web is the addition of personal attention and human contact to online services. Technology is already available which makes it possible for customers to "meet" online with their financial advisor, while sharing access to powerful databases. The implications of this capability are enormous in terms of client convenience and communications. For example, a customer unable to meet her financial advisor in person because of time or geographical constraints, could still meet him from anywhere at any time, using a secure Web site that allows both parties to view and manipulate financial planning software while discussing the presentation over the telephone. A broker suggesting an adjustment in asset allocation, for example, could key in the new variables and instantly demonstrate the effects of her recommendations. This interactive technology-which adds value by both increasing convenience and personalizing information-may well prove to be a key advantage in attracting new online customers in the years ahead.

Multimedia technologies add striking new visual and content possibilities. Already, text-only research reports are being supplemented with optional audio and video commentary. This approach improves content and communication with the customer, while catering to the attention spans of today's media-savvy consumers. The irony, of course, is that the very same Internet tools which made sweeping comparisons based solely on price possible now allow personality to become more of a factor in the buying decision.

Consumer education
In the physical world, a big part of winning new business is simply locating the right prospects and making initial contact. The Web has changed all that. By reversing the process and providing instant, unlimited access to information on literally any subject at any hour of the day, it is now possible for a new customer to come looking for a financial services firm, and find one within seconds.

Show how you "think"
To win new customers, financial services companies must demonstrate their intelligence, highlight their unique strengths, create compelling reasons to be the company of choice, and show their willingness to respect and accommodate the needs of consumers. Some of the most effective tools now being used to illustrate these principles are online models that demonstrate how a financial services company thinks in terms of management concepts and consumer needs. Done right, they leave a lasting and indelible impression. They also provide the Web user with a valuable experience, and any user who leaves a site feeling better educated than when she arrived is more likely to return as a client.

Educating investors
The financial services industry is leading the entire online community in terms of proving how education can lock in customer loyalty. The Web and its information capabilities have given new meaning to the term "educated investor." Even the most modest investor now has access to information which was once available to information brokers only. They can print out pages of data on any public stock, chart the absolute and the relative performance of their own portfolios in 3-D, and set up customized news feeds on articles that mention specific stocks. Schwab excels in sophisticated screening tools that allow investors to search for funds or stocks that meet their customized criteria.

The greatest opportunities lie in helping customers sift through the enormous volume of information, evaluate their needs, and identify the products which meet their requirements. Schwab and Fidelity were early converts to this approach. They learned quickly that selling their own products only was not going to work. They realized that helping people evaluate offerings from other providers could build loyalty to their tools and methods-allowing them to push their own products at the same time and keep their names in front of consumers.

Smart tools
The development of additional smart tools that educate the consumer, accommodate their personal needs, and add intelligence to the information-gathering process will be the next big area of creativity and innovation True one-to-one marketing is still in its infancy, but the foundations are being laid. Yahoo! is an excellent example of progress in this respect. On Yahoo!, the consumer can keep track of an entire portfolio; receive customized news; keep track of portfolio performance; and take advantage of tools that gather financial information. This has enabled Yahoo! to build a strong following among its consumers, even though they have never actually spoken to anyone at Yahoo! or purchased a Yahoo! product (banner ads aside). They just like what Yahoo! can do for them-and they vote with their fingers each time they log on and head for the Yahoo! site first.

The next big step towards true one-to-one marketing is likely to be customized financial services interfaces. The challenge is to find ways not only to measure and value portfolios today, but also to illustrate how and where they might head in future. Where is the economy going and how might it affect my portfolio? What should I be doing with my taxes over the next five, 10 and 15 years? What are the best retirement planning steps I can take, based on my specific situation? These are all questions in the minds of consumers that smart tools need to address.

In short, there is a hungry market out there for smart tools. I expect these tools to evolve rapidly in the years ahead to keep pace with consumer demand. As the online financial marketplace continues to evolve, those companies that can provide thorough information matched with personalized planning tools and interpretative services will be in the strongest possible position to compete and win.

Steve Burnett is president of Burnett Group, a New York-based communications firm established in 1979. The Burnett Group was an early pioneer in the development and design of corporate Web sites and other multimedia tools.