The U.S. financial-services industry, a prodigious consumer of business technology, will spend about $60 billion on IT this year, split evenly among banks, securities firms, and insurance companies. In an industry whose only tangible product is information, IT is being called upon to supply more of it in support of new customer-service and revenue-producing opportunities.

More innovative companies, such as the Vanguard Group, use IT to stay one step ahead of the competition while keeping an eye on broader industry trends. Unscathed by the scandals that have rocked the mutual-fund industry during the past 12 months, the company experienced record business growth earlier this year.

Canny decisions made several years earlier to offload as many customer-service inquiries as possible from the call center to the Web enabled Vanguard to handily absorb this increase. In January 2003, when the company experienced cash inflows of $4 billion, its call centers handled an average of 48,000 calls per day, and the Web site received 170,000 logons per day. The next January, after the scandals broke, cash inflow more than doubled to $9.5 billion. Vanguard's Web site easily handled an increased load of 300,000 customer-service inquiries a day, 75% more than a year earlier; call volume held steady at 48,000 calls per day.

Today, more than 40% of new accounts are opened online, and 65% of fund exchanges are processed through Vanguard.com. Because of attrition, fewer client-service associates are on staff to handle phone calls. But the company has made investments in technology that will improve the ability of its live customer-service reps to help clients--and ultimately make those clients more comfortable using the Web site. Vanguard is in the third and final stage of implementing its Wave client-service desktop, an easy-to-use version of Vanguard.com retooled for use by customer-service associates. Because the desktop is a version of its external Web site, associates can easily teach clients how to find information or conduct a transaction on Vanguard.com, saving them a follow-up phone call the next time they need the same information.

But Vanguard is faced with the same vexing problem as its competitors, namely changing demographics. The mutual-fund industry's growth has followed that of the baby-boom generation, to the point where mutual funds manage $3 trillion in retirement assets, a quarter of the nation's total. As baby boomers retire, those assets, which began as a trickle and swelled into a river of cash, are about to be tapped.

Aware that people become more conservative with their 401(k) portfolios as they near retirement, Vanguard created a system called One Step that aims to keep individuals increasing their contributions--say, by 1% a year--to those accounts as long as possible.

	The premise of Vanguard's One Step system is to make it easy for people to increase their savings, CIO Buckley says. Photo by Bill Cramer

The premise is to make it easy for people to increase their savings without even thinking about it, Vanguard managing director of IT Tim Buckley says. Nearly 11,000 clients have enrolled in just six months. Changes to enable this feature were made to applications such as Vanguard's Web site, customer-relationship-management, desktop, and payroll software, and through the reuse of Web-based objects.

Another use of IT to boost assets has been to use business-process optimization to make it easier for retirees to convert 401(k) assets into a Vanguard IRA. The project, the result of a collaboration between IT and a team of Vanguard retirement advisers, has increased Vanguard's IRA rollover-conversion rate from less than half to more than 70%. The project involved aggregating a client's entire Vanguard portfolio on the company's CRM platform for analysis, providing a Web-based tool for custom advice, and then offering investors prefilled, downloadable forms.

Vanguard also is deploying simulation software from Financial Engines Inc., founded by 1990 Nobel laureate Bill Sharpe, to create managed accounts, a form of investment that lets participants in 401(k) and other employer-funded plans shift assets easily between funds, such as growth and return funds. The Financial Engines software guides investors on where to place their money based on their tolerance for risk, acting as a kind of virtual financial adviser.

Operating at the other end of the demographic spectrum, SLM Corp., better known as Sallie Mae, owns or manages a third of the $75 billion in federally funded student loans made annually, taking on administrative and collection tasks for educational institutions and the guarantee agencies that insure loans against default.

Behind the idyllic scenes of academic life is the scut work of obtaining a school's fair share of the lending pie. That's the province of financial-aid officers, and making their lives easier is SLM's raison d'etre. It does that by acting as intermediary with the semiprivate agencies that guarantee loans against default and by making it easier for colleges to submit loans electronically to SLM. In return, SLM gains an opportunity to build customer loyalty and lay the foundation for repeat business.