Realities of Building a Winning Advice Channel Distribution Strategy
Not all intermediaries in the advice channels are created equal. UMBFS’
Karen Fay Luedtke shares the changing realities of competing for shelf
space in the advice channels in order to develop the right distribution
strategy for your product.
1
Not all intermediaries in these advice
channels are created equal. Some may
be more worthy of your firm’s attention
than others. The large, intermediaries
may, or may not, be the right fit for your
particular firm to realize best asset and
revenue positive opportunities.
As a service provider to hundreds
of asset managers, UMBFS supports
clients in many sales and distribution
efforts into the advice channels. Our
collective intelligence has shown
that selling into these channels
and gathering meaningful assets is
more and more competitive, and an
increasingly important part of any
firm’s distribution strategy.
The real strategic question firms need
to be asking is which intermediaries
represent your organization’s best and
brightest opportunities. Firms need to
understand the changing realities of
competing for shelf space in the advice
channels in order to develop the right
distribution strategy for their product.
Success today depends on finding your
sweet spot.
REALITY # 1
The mutual fund industry has aged
and evolved to a mature product
marketing stage
The process has definitely changed
over time. It has become harder to
gain customers and assets. There are
some clear signs of contraction at the
firm, product and sales levels. Recent
statistics published by the ICI show
there is tremendous pressure on active
management styles, fees and long term
mutual fund asset growth generally.
Though the mutual fund industry can
still boast of being more than $18 trillion
at the end of 2015, it lost $100 billion
from 2014 totals. Long-term mutual
funds lost about $123 billion in 2015
and are being outpaced by ETFs that
saw $231 billion in net new issuances.
The creation of new fund products
has moderated from its 2007 high and
fund liquidations have risen. Add to all
of that, huge downward fee pressure
by customers and intermediaries in
the advice channel that are shifting
assets to no-load and lower cost ETFs
or passive and index funds. Average
expense ratios, according to the ICI,
have fallen 31% from 2000 to 2015.
The marketplace has matured and
asset managers have to understand
the realities of distributing any kind
of product in today’s advice channel
marketplace.
REALITY # 2
A well targeted advice market
strategy is increasingly imperative
Despite the evolution of digital
advice and robo advisors, at the
end of 2015, only 15% of households
purchased product directly from fund
companies, supermarkets or discount
brokers*. Accordingly, selling through
intermediaries and advice providers
remains important. But one size does
not fit all and, not every firm, or every
product, is going to make the preferred
list of the top 5 or 10 players. Know
who and what your organization is
and analyze who your firm’s most
likely and profitable targets really are.
Remember, successful asset gathering
is about finding your firm’s sweet spot
and delivering the right tools to the
right prospect.
REALITY
# 3
Executing the right distribution
strategy within the advice channel
can make or break firms
Never before in fund history has it
been more important to assess your
distribution strategy and understand
your particular firm’s best target
opportunities—and, though it may
be evident, by that we mean revenue
positive relationships. As noted
earlier, the fund industry is in a time
of consolidation and contraction, a
total of 594 funds (292 being ETFs)
opened in 2015, down from 664 in
2014*. Mergers and liquidations rose
from 365 in 2014 to 462 in 2015. Many
firms rolled out new products or have
entered channels and relationships
that have not produced the revenue
they expected. Though some of these
relationships may be deemed a cost of
doing business, realistically, they cannot
all be. The time is now to realistically
assess the cost adjusted revenues of
your advice channel relationships and
shore them up.
REALITY # 4
Getting on the preferred list of any
intermediary is a rigorous exercise
After considering the above, you
conclude that a real opportunity
exists for your firm in terms of placing
one or more products at a particular
intermediary. Our experience at UMBFS
has shown that you best brace your
firm for a disciplined, analytical and at
times labor intensive review process.
Realities of Building a Winning
Advice Channel Distribution Strategy
At the end of 2015, 78% of funds owned by households (long-term funds, ETFs, closed end funds
and Unit Investment Trusts “UIT”) were purchased through some type of investment professional*.
There are thousands of investment professionals that provide varying degrees of advice and they
come in all different sizes and forms; RIAs, full service broker/dealers, platforms, wire houses,
independent financial planners, banks or accountants.
Summer 2016
The real strategic question
firms need to be asking is
which intermediaries represent
your organization’s best and
brightest opportunities.
The due diligence analysis performed
by an investment committee is long,
may include multiple requests for
information and likely on-site visits
to your firm. These are relationships
that require patience, endurance and
nurturing over time. Though each
intermediary has its own multi-tiered
investment process, below are some
common threads that we have seen:
•
Know your investment strategy.
Know its place in an investment
portfolio. Be able to explain any
strategy shifts or style inconsistencies
and changes. Having well developed
communications about your firm’s
strategy vs. the market is important
to the analysis process.
•
Be able to articulate how your firm
and product fit into the intermediary’s
allocation models and what your
product or firm brings to the table
that others may not.
•
Be well defined in the public
domain including relevant asset
management industry publications
and your website. Organizational
transparency is a requirement to
even be considered.
•
Have readily available quantitative
information regarding performance
or fees and expenses relative to
peers, manager compensation or
your firm’s revenues and growth.
Also have available qualitative items
such as, manager experience and
tenure, level of employee ownership,
growth of your firm and its capacity
and operations.
•
Be a thought leader with the
intermediary prospect and build
a trusted partnership that helps
them manage their customers.
Your firm must have an ongoing
communication strategy to support
channel sales.
REALITY # 5
Getting product on the preferred list
is no guarantee of gathering assets
Getting on the list of any intermediary,
large or small, is really just step one
of a much larger commitment.
It does
not assure you sales or assets.
Advice
channel sales support strategies and
tactics have changed. A phone call, fact
sheets and series of lunches will not get
you on the list. The new playing field
requires firms to:
•
Know your own organization,
your strengths and weaknesses;
•
Know your product and define and
differentiate it to your audience;
•
Know your target and be able to
communicate how your product
uniquely helps them more than
other options; and
•
Support the investment professional
with ongoing marketing materials
and tools that help them to
understand your firm’s unique
strategy and product.
It is indeed a new kind of wholesaling
that shifts the selling paradigm. Firms
need to target their efforts, and before
walking in the door, know as much
as is available about that prospect,
their customers and their potential
challenges. Know why they would be
a good prospect for your firm and why
you are an ideal solution for them. What
we have surmised about winning in the
advice channel space is to be targeted.
Find your sweet spot, and be all you
can be to your best prospects.
■
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Realities of Building a Winning
Advice Channel Distribution Strategy
*Source: ICI 2016 Fact Book
Karen Fay Luedtke
Senior Vice President
Director of Distribution Services
UMB Fund Services
Karen.fayluedtke@umb.com
Karen serves as the Chief Compliance
Officer for UMB Distribution Services,
LLC. She is responsible for ensuring
broker-dealer compliance with all
FINRA and SEC rules and regulations,
including review, approval and FINRA
filing of marketing communications
with the public, as well as for registered
representative oversight. She also
oversees the work of the department’s
compliance analysts.
More from Karen Fay Luedtke
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