Wednesday, December 20, 2000

Financial Services Dot Coms Challenging Mutual Funds

Financial services Dot Coms are challenging the viability of mutual funds by introducing alternative investments. According to a new Brief from Forrester Research, Inc., although these new approaches will face stiff industry opposition, they will overcome their hurdles and crush the mutual fund's dominance as the investment vehicle of choice.

"For years, mutual funds have been US investors' No. 1 way to invest," said Jaime Punishill, senior analyst at Forrester. "By offering all the benefits of funds -- without the detriments -- new approaches to online investing will force more than $1 trillion worth of assets to exit mutual funds. Faced with massive outflows and enormous pressure on fees, Forrester expects the ballooning number of mutual funds to reverse, leaving just 5,000 funds by 2010."

Financial Dot Coms are offering investors new investing options like small-amount dollar cost averaging, customized baskets of securities, lower fees and minimums, and transparent mutual funds. Despite the relative advantages of these alternatives, the new approaches face several hurdles. Investors will need advice to understand the benefits of these options, as well as how they work. The industry is also facing opposition from government organizations that are already trying to regulate alternative investment vehicles.

Forrester believes that three factors will enable these new methods of investing to overcome the obstacles they face. First, online brokerage promotion will let investors create custom portfolios based on comprehensive financial plans. Second, advisors will take advantage of institutional offerings to implement their customers' portfolios and cut costs. Lastly, empowered by 401(k) exchanges and fund supermarkets, investors will frequently switch between funds. Forrester predicts that consumers will adopt alternative investing methods, looking to improve investment performance.

eLearning Spending and Enrollment on Course to Grow
According to IDC's Distance Learning in Higher Education: Market Forecast and Analysis, 1999-2004, the number of colleges and universities offering elearning will more than double, from 1,500 in 1999 to more than 3,300 in 2004. Student enrollment in these courses will increase 33% annually during this time.

"eLearning is evolving at a healthy pace," said Stephen Webber, analyst for IDC's Education Markets Research program. "Technology advances and the changing needs and interests of students and universities have changed elearning from a simple correspondence course with a study guide to a model that includes the myriad high-tech, synchronous, and asynchronous solutions we're seeing today."

According to IDC, four-year schools will continue to spend more than twice that of two-year schools on elearning; however, spending by two-year schools will grow more rapidly through 2004. Over the next four years, the elearning market will develop into a three-quarters of a billion-dollar opportunity for vendors.

"Spending on elearning technology is just one part of the financial commitment that schools are making," Webber said. "Related investments in products and services that support elearning, such as staffing, hardware, and communications services, will push total spending toward the $3 billion plateau."

News Tidbits (appears every day on front page)
- According to Fortune Magazine, "There's no when or if about it anymore. The slowdown is here. Retail sales are down, jobless claims are up, and corporate spending is tapering off. Consumer and business sentiment, at least as measured by such things as confidence indexes, is plummeting...So how scared should we all be? Well, a recession is a distinct possibility. An apocalypse is a lot less likely."

- MP3.com is entering into more legal battles. According to a Bloomberg story in USA Today, "MP3.com has been sued by an Internet rival that sells music that computer users can download, bringing to five the number of copyright infringement suits against the online song provider. MP3.com agreed last month to pay $53.4 million to the world's largest recording company, Universal Music Group, for infringing Universal's works." The new claim is by eMusic.com