As investors continue to redeem

billions of dollars from their mutual funds, more fund companies are likely to join the ranks of

Janus

,

Putnam

and

T. Rowe Price

by laying off customer service and back-office workers, industry experts predict.

While these layoffs are unfortunate, investors should not view them with alarm, but rather as cost-control measures to avoid fee hikes and layoffs in other, more critical areas such as asset management, experts say.

But there is a potential downside, they add. With fewer people manning a fund company's call center, the quality of customer service could go down. If the stock market continues to decline, investors may begin to barrage fund companies with complicated questions about the economy and investing strategies, says Jim Kochanski, a principal with management consulting company

Nextera

, which has helped a number of financial service companies handle layoffs.

No-load firms that deal directly with the public could find themselves particularly short-handed, Kochanski says.

"Calls spike up in bad economic times, and this is especially true at no-load firms," agrees call center consultant Stephen Beard. "If the market's long and painful volatility continues, investors are more than likely to want to speak to their fund company and ask hard questions. I would suspect that Janus has experienced a spike in calls and that their call abandonment and call-wait time is up."

However, it is possible for a fund company to replace routine jobs with automation. If a company has an easily navigable automated phone system, a customer-friendly Web site and remaining shareholder-service personnel who are well-trained, "It is possible to cut people and still do a better job," Beard says. While announcing extensive layoffs in their customer service areas, for instance, both Janus and

Charles Schwab

have also continued to spend heavily on back-office and call center technology, Beard notes.

So far, the bulk of the cuts have been in shareholder services and call centers -- not in portfolio management or research. Janus, for example, recently announced that it's laying off nearly 1,000 of its 3,000 employees, primarily in its shareholder services group.

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On the other hand, if fund companies were cutting their asset management staff but not merging or closing funds, then investors would have cause for concern, says Avi Nachmany, director of research at

Strategic Insight

.

Without question, redemptions are clearly a growing concern at fund companies. Investors withdrew a record $15.4 billion out of stock mutual funds in March and $2.4 billion out of such funds in February, according to

Lipper

. If net outflows are any indication of further layoffs to come, then a number of other fund complexes suffering net redemptions might begin laying off people, too.

Janus suffered the largest net outflow of any fund company in the fourth quarter of 2000, $2 billion in net outflows, and once again the greatest outflow, $4.6 billion, in the first quarter, according to

Financial Research

. The company attributed its recent layoffs to a decline in call volumes and an increase in customers using the Web, but Janus did not return calls seeking specific comment on the layoffs.

Putnam

recently announced it was reducing its staff by 256 positions, or approximately 4% of the company's 6,000 staff, across all areas of the firm. A Putnam spokesperson explained that the layoffs are due to the market downturn. But unlike Janus, Putnam had net inflows of $1.48 billion in the fourth quarter of last year and another $310 million in inflows the first quarter of this year, according to Financial Research.

However, FRC data shows that Putnam's asset base has fallen by nearly $35 billion since the beginning of 2000 through the first quarter of 2001. Kelli Stebel, a

Morningstar

analyst, explains that Putnam is "certainly losing money due to depreciation; they have some of the worst-performing funds."

As to why Putnam is laying off people across all divisions, including a handful of portfolio managers, Stebel says, "Putnam is all about teamwork and team effort, which is why they made the cuts across all of their business divisions, so as not to demoralize any area."

T. Rowe Price announced this week that it will cut 55 positions from its phone center because earnings have fallen during the economic downturn. T. Rowe Price suffered net outflows of $1 billion in the first quarter of this year, after suffering $1.53 billion in net outflows in the fourth quarter of 2000, according to FRC.

Many believe that layoffs are simply inevitable, following so many years of expansion. "A lot of funds were hiring tremendous numbers of people during the phenomenal run-up in the market," says Christine Benz, another Morningstar analyst.

"From 1995 through the first half of 2000, you saw a tremendous build-up of staff, particularly in the telemarketing and distribution sides of the business," agrees mutual fund consultant Burton Greenwald.

As long as the bear market continues, Benz says, "We might be seeing more fund companies laying people off."