The MacGregors Group decision to acquire Merrin Financial earlier this year was a tricky one. On the one hand, Merrin had a long list of prominent money managers as its clients, and was the company that had created the market for electronic trade order management. On the other hand, Merrin was faltering in the late 1990s because of mistakes it had made both before and after its acquisition by Automatic Data Processing (ADP), while new kids on the blockthe Longview Group, Décalog and INDATAthrived. The vendor was having trouble selling its systems and retaining clients.
Steven Levy, MacGregors CEO, was not unaware of these troubles when he made the decision to buy the firm. If the venture proved successful, he would inherit a good number of high-profile investment managers, and add two robust trade order management systems to his stable. If he failed, Levy would be left with a hodgepodge of discordant technology, and a shrinking client-base whose needs could not be met.
What Levy has had to deal with is the mass exodus of smaller money managers away from the MFTP platform, largely because of the pricing schema which ADP had put in place in 1998. At the time, Merrin had been selling the system for only $2,500 and offering the same high-level of service to all clients, eventually to the detriment of its bottom line. In response, ADP raised the prices, in many cases to around $10,000. Merrin was still offering the same level of service to everyone, which seems wonderfully egalitarian, but as with most social theories, the reality did not prove successful.
"Merrin had drastically underpriced the system," Levy points out. "At $2,500, it was a steal, by any standards, and especially for a mission-critical application. ADP raised the price to $10,000, and offered the same level of service to everyone, but this obviously targeted the high-end customer."
Add to the equation the mass customization that Merrin undertook with close to half its client base and you have a bit of a problem.
MacGregor has learned from these past mistakes. As company policy, the vendor will not customize the base MFTP platform for every client. The firm will help clients build custom layers that rest atop the applicationas opposed to within. In some cases, MacGregor will add some customization if it is a feature that will benefit the entire client base.
More importantly, in an effort to entice smaller money managers back to MFTP, MacGregor is planning to release a multi-tiered plan of service, with the cheapest package starting at about $4,000 and then rising through "silver" and "gold" level plans. MFTP clients, mostly smaller investment managers, have been dropping the platform in droves because of cost. Many of these firms are also still running on the old DOS version of MFTP and need to upgrade to the Y2k compliant Sybase version or the to-be-released Microsoft SQL Server version.
The Microsoft SQL version of the system does not have the technical requirements of the Sybase release and will be aimed at smaller money managers that either have a small IT shop or none at all.
It is too late to stem the flow of clients leaving, as Dalton Griner Hartman Maher recently joined a growing list of former MFTP clients, which includes Zweig Asset Management, Standard Pacific and Forrestman Leff Advisers, electing to use Eze Castles TC (Trader Console). Levy is not at all surprised that some of Merrins smaller clients have left, and he expects about another 10. He would love to retain these clients, but most of them made their decisions before the acquisition.
If anyone doubts the veracity of the MFTP platform, Levy points to Neuberger and Berman, currently testing the product, as well as long-time clients Massachusetts Financial Services and T. Rowe Price which have successfully completed the Sybase upgrade.