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New
Study Reopens Tech Debate
By Tom Leswing
Monday, July 7 2003
A new white paper by software provider Envision
Financial Systems has reopened an old debate over whether fund-processing
technology should be centralized or decentralized.
The Envision paper, entitled "Five Truths
on Cost Containment for Shareholder Accounting Software" goes
to bat for client server systems, which the firm sells. With client
server technology, software programs are kept on a variety of smaller
computers, or servers. In contrast, with mainframe technology, software
is hosted on a single, large computer.
Envision is a relative newcomer to the transfer
agency accounting software business, but it is growing. For example,
its system is currently being implemented at the transfer agency
operated by Rydex Funds.
The report takes a swipe at mainframe computers,
which process the lion's share of the fund industry's fund accounting
and transfer agency recordkeeping functions.
In addition, the report spells out the importance
of segmenting clients and using open standards among technology
applications in cutting costs.
Fund firms are struggling to maintain costs. The three-year bear
market has crimped earnings, sparked industry-wide layoffs, and
led to cuts in technology spending as well as the outsourcing of
fund accounting and transfer agency functions. Firms are taking
those measures to shore up or maintain profits, while remaining
aware that excessive costs can drag down fund performance.
Very few in the industry will debate that fees
harm performance. But they are divided over Envision's claim that
client server technology leads to substantial cost savings.
The study's first truth about cost savings is
that using client server technology, such as that offered by the
study's author, leads to cost savings.
Client server technology links server computers
and PC computers. This arrangement is easier and more cost-effective
to modify for specific clients' needs than upgrading a more centralized
mainframe computer, the study says. And that makes functions like
developing customized account statements or calculating investment
performance of specific accounts cheaper, the study asserts.
What's more, client server systems process data
continuously, unlike mainframe computers, which do batch processing.
With batch processing, workers input data and then instruct the
computer to process the data. The paper, of course, acknowledges
that mainframe systems are well known for their brute processing
power, but says they are less cost-effective than client server
systems.
"When computers have to do batch processing,
it takes time and that can cost money," says Tim Kan, chief
technology officer at Envision.
The time lag means that more manual work may
be required. For example, if brokers enter a trade and a wrong price
is used in the transaction, the discrepancy may not be corrected
until after the broker leaves for the day. That complicates efforts
to correct the trade, Kan explains.
While the flexibility of client server systems
is appealing, not everyone is sold on the technology.
UMB Investment Services, for example, recently
converted its transfer agency systems from a Phoenix Systems client
server program to SunGard,
which is a mainframe system.
"I wouldn't say that you spend less with
a client server system," says Maureen Quill, senior vice president
of investor services at UMB. "You just spend the money differently.
We had to have people to maintain the servers and to make the servers
talk to each other."
Workers who maintained the firm's servers now
work in other areas, such as managing the firm's relationship with
SunGard.
UMB would have had to add additional servers
to handle more capacity with the client server system, says Quill.
That's not the case with mainframe systems, however.
"The mainframe gives us unlimited capacity,"
Quill adds.
Additionally, mainframe systems have a proven
track record with handling large volumes of data, she explains.
Envision, for its part, maintains that it has
tested its technology on a simulated 6 million-shareholder account
system. It was able to process the reinvesting and distribution
of dividends for the account in less than two hours and 40 minutes,
says Kan.
Transfer agent Forum Financial Group is sold
on client server technology. It uses a proprietary software program
with client servers, explains David Goldstein, director of business
and product development.
The white paper also addresses the need to have
open technology standards. Open standards allow different technology
systems to communicate. For example, standards on the Internet allow
individuals with different types of computers to transmit data,
including e-mails.
Kan maintains that the technology makes it easier
for the firm to customize its services. For example, the firm can
provide customized account statements for clients. It customizes
statements by adding account performance histories or short notes
from fund firms.
The other cost-savings truths the study expounds
upon were much less controversial.
Among the other points the paper made was that
fund firms and transfer agents need to select technology that will
easily integrate with multiple systems. By doing so, they will reduce
costs for integrating different technology platforms. The systems
that need to be easily integrated include those used for writing
reports, sending and receiving e-mails, data mining, imaging and
document management.
The paper also recommends segmenting clients.
The idea is that firms provide expanded services for larger, more
profitable clients and limited services to smaller customers. Firms
like American Century and Fidelity, for example, have already implemented
such measures.
For instance, high-net-worth investors at Fidelity
get account statements that report the performance of their accounts.
American Century, meanwhile, charges minimum account fees to smaller
investors. Those investors can avoid the fees, however, if they
agree to use only self-service functions, like the Internet, rather
than contact shareholder service representatives.
In the paper, Envision also recommends against
skimping on support services from vendors. When selecting a technology
provider, firms should ensure that their vendor will provide ongoing
services and support, training of employees and systems upgrades.
Contact Tom Leswing at
tleswing@ignites.com
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