WASHINGTON - A prominent technology analyst let banks have it with both barrels at a mutual fund conference last week, saying they risk losing out to other financial services firms because they have failed to use technology to build relationships.

"All banks stink," James Punishill, a senior analyst at Forrester Research, Cambridge, Mass., said at the Investment Company Institute's annual conference. "Banks managed to raise several generations of those who don't care if they exist."

Mr. Punishill noted that Amazon.com, for example, knows every purchase he has ever made and even what purchases he is likely to make. Banks should be doing the same with their customers, he said.

Technology is not merely a "transaction machine;" it needs to be used as a relationship builder, he said.

Automated teller machines should be programmed to know which customers would like directions in Spanish, which ones want receipts, and how much they are likely to withdraw, Mr. Punishill said.

If banks do not step forward in this area, they run an even greater risk of losing customers to financial service firms like Charles Schwab & Co., he said.


Also at the conference, Jeremiah H. Chafkin, president and chief operating officer of Charles Schwab Investment Management Inc., agreed that knowing and acting on what the customer wants is crucial.The future does not lie in "revolutionary products," said Mr. Chafkin, who joined the asset management arm of San Francisco-based Charles Schwab & Co. in September after serving as head of U.S. investment management at Deutsche Bank AG in New York.

"I have a list of new product development ideas as long as my arm," he said. But without evidence of customer demand, those ideas will remain undeveloped.

Mr. Chafkin said that as head of the SchwabFunds his job is to round out the offerings in Schwab's OneSource mutual fund supermarket.

For instance, four sector funds added to the SchwabFunds family earlier this month, were meant to complement funds already offered through OneSource as well as Schwab's existing index and asset allocation portfolios.

So Mr. Chafkin is looking for ways other than new products to add value. One route may be to provide more transparency, he said - that is, make it easier for investors to see what stocks the SchwabFunds and Schwab's funds of funds invest in.

But Mr. Chafkin cautioned against planning too far ahead.

"I think you can look too far out," he said. "You need to keep listening. As customers get what they want, you learn more about what they further want."


With mutual fund advertising coming under closer regulatory scrutiny, fund company executives at the conference denied deceptive practices are widespread.In fact, some executives said their companies go beyond warning potential investors that triple-digit returns may not last. Some companies tell them such returns cannot last.

T. Rowe Price Associates Inc. of Baltimore is one such company, said Edward C. Bernard, its managing director. The litmus test for fund companies, he said, should be: "If a friend or relative asks you about one of your funds, how would you answer?"

Mr. Bernard's comments followed remarks by Paul Roye, director of the Securities and Exchange Commission's investment management division, that the agency would not tolerate the misuse of performance information to promote fund sales.

This month the SEC settled claims against Dreyfus Corp. for advertising the returns of the Aggressive Growth Fund without disclosing that its first-year performance relied on preferential allocation of initial public offering shares and might not be sustainable as fund assets grew.

And last week the regulatory arm of the National Association of Securities Dealers Inc. said it had fined Kemper Distributors Inc. $100,000 for inaccurate mutual fund advertisements and for violating other NASD advertising-related rules.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.