Lipper Slips on Y2K Bug

Mutual fund info giant falls prey to software glitch
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The

Lipper

company isn't exactly one of the savviest firms in the world when it comes to information technology. Until late last summer, the primary product of Lipper, which describes itself as the leading provider of mutual fund data, was still based on a DOS computer platform. So it is not surprising that Lipper was caught off guard by a variant of the millennium bug at the start of the new year.

Lipper customers, who include mutual fund managers, brokerage firms and the media, were unable to receive updated and accurate mutual fund data until they received a software patch. What's worse, some customers weren't notified until three weeks later that several of Lipper's key numbers -- including the benchmark

S&P 500

index --were completely wrong. Without accurate numbers on the funds that Lipper tracks, fund managers couldn't gauge their performance against other funds, brokers were unable to make sound investment decisions and the media published incorrect information.

Lipper, a

Reuter's

(RTRSY)

subsidary, currently tracks the performance of 37,000 mutual funds. Lipper data is also carried by more than 100 newspapers, magazine and broadcast shows. To access Lipper data, analysts and fund managers use a proprietary research service that runs on a desktop PC. The service, which is called Lipper Analytical New Applications or

LANA 2.0

, runs on the older DOS operating system and is not Y2K compliant. Each day after the markets close, the PC automatically calls the vendor site, downloads the fund information and copies it over to the customer's network server. (Customers may also receive data on a weekly or monthly basis.) At the beginning of 1999, the glitch hit.

"One day a couple of weeks ago we had an issue," said Albert Arroyo, a senior analyst of market data with

AIM Management Group

, a Houston-based mutual fund company. "It did raise concern but it wasn't a major surprise," added Arroyo, who was aware that Lipper's older service was not Y2K compliant. AIM, the 11th largest mutual fund company in the U.S., has more than 5.5 million shareholders and manages about $91 billion in assets.

"The clients didn't see the problem, but the download actually failed," recalls Arroyo, who says that bug hit during the first work week of January. Fund managers encountered an array of "Not Available" messages -- or N/As -- sprinkled throughout the Lipper tables that list financial metrics such as cumulative return rates, 12-month yields and price-to-book ratios.

"We goofed," admited Steve Lipper, a senior vice president, responding to

TSC

in an email. "We have been focusing our attention on our newer products. We had expected to have discontinued the DOS product last year, but our Windows roll-out took longer than expected."

Lipper continued, "Having said that, the problem is addressed, and we have not had any significant response from our clients that they regard this '99' glitch as an issue at all."

Y2K experts have referred to this difficulty, which can cause computers to crash, as the "

9s Problem

" because programmers have used the number to indicate "end of file" or "cease operating."

In an email to clients, Lipper said, "We discovered two files which could not handle dates in 1999." The two files involved fund distributions and total net assets.

Perhaps the most surprising subtext of this story is that the snag struck a high-profile company in the financial services industry. In general, insurance, investment services and banking companies have made great efforts to anticipate and deal with the Y2K bug. In fact, an October 1998 special report by the

Gartner Group

ranked the financial services sector in the lowest risk category for Y2K problems.

"You've already lost some credibility that you'll be able to provide data in a timely and accurate fashion," says Kazim Isfahani, a Y2K analyst with the

Giga Information

group. "I think this will be forgiven but, if this is an indication of the quality of coding standards in the company, then customers better start looking for alternative sources."

In response to the breakdown, customers who noticed the problem and contacted Lipper were sent an email during the second and third weeks of January with a software patch that repaired the bug.

In the email, Lipper said: "We are continuing to evaluate open issues involving Y2K in LANA 2.0. There is a possibility that we will need to send additional patches to you in the future. With this in mind, we encourage you to begin planning for your organization's migration to

LANA 3.3

, which is fully Y2K compliant."

Steve Lipper estimates that more than 90% of Lipper's customers have downloaded the LANA 3.3 software, but says that "many of them are running the old and new system in parallel during their migration." LANA 3.3 was released last August and is based on the Windows NT operating system.

But there are other headaches to come for customers who move to LANA 3.3 that have nothing to do with Y2K. Much to Lipper's chagrin, LANA 3.3 users have encountered performance problems, complaining that the new system is much slower than the old version.

Rival

Morningstar

who, with Lipper, virtually owns the market on mutual fund information, claims that its Principia Pro software products, version 4.0 and higher, are Y2K compliant as of September 1998.

"All current and active users are on the 4.0 system," says Morningstar software development director John Tipton, who adds that customers must reinstall the product every month. "They have no choice."