Taking another look at distribution strategies for fund managers
During the lower netflow environment post-2008, many fund managers restructured retail distribution teams to shift the focus away from servicing individual advisers and towards ‘head office’ relationships.
The idea was that the centre of power had shifted from advisers constructing portfolios themselves to head office researchers who build model portfolios. It was logical, then, that most of those individual advisers wouldn’t need direct servicing, and that BDM teams could be reduced in size, focussing squarely on research teams and the very highest-value advisers.
Fund managers entering the Australian retail market for the first time have almost unanimously adopted the ‘head office’ servicing model rather than hiring a team of ‘footsoldier’ BDMs to service advisers individually.
But our recent research indicates there is more than one pathway to success.
Model Portfolios are not the panacea
Our research into the IFA segment in Australia (2015 Tria Australian Wealth Insights Programme) shows advisers use model portfolios for only 26% of their flows. In contrast, 49% of flows were placed into discretionary portfolios built by the adviser (the remainder went into managed portfolios and multisector funds).
So, we have increasing numbers of managers targeting a relatively small part of the market (and ignoring the rest). As a result, we now have an under-serviced segment of advisers – those who build discretionary portfolios for most of their clients.
Aligning distribution strategy to your proposition
A separate piece of research provides pointers for fund managers considering whether to focus on gatekeepers or advisers. Phase I of our recently completed global asset management study (incorporating more than 1,000 interviews across all distribution channels in the US, UK and Germany) provides two interesting insights:
- Fund managers tend to enjoy success with either gatekeepers or client-facing advisers, but rarely both – in the study, the leading manager with client facing advisers has significantly weaker citations amongst gatekeepers. Delivering different propositions and messages to different parts of the same value chain (and often the same organisation) is clearly a challenge.
- Gatekeepers and advisers look for different things – when asked what were the leading factors considered when selecting a fund, 50% of client facing advisers said long-term performance is the most important, swamping the impact of all other factors. Whilst performance is still important for gatekeepers as well (32% quoted it as the lead factor), quality of the investment process, alignment to risk appetite and consistency of process are also all important considerations for gatekeepers.
Fund managers need to consider their distribution strategy in light of this new information – whether restructuring an existing sales team, or thinking about best way to set up a distribution team when entering a new country.
For those in the fortunate position of having a respectable performance track record, you should take caution in disregarding a grassroots adviser distribution strategy – given the withdrawal of so many of your competitors from this part of the market, you might just find some clear airspace here.
If the strength of your products is in a consistent, quality investment process and well-articulated investment philosophy (and even if performance is only just OK) – then hiring an army of foot soldiers is unlikely to yield the same results as a concentrated focus on gatekeeper relationships.
These insights show that there isn’t a single, one-size-fits-all approach to developing a distribution strategy; in fact the competitive strengths of your product proposition and clear competitive space are important considerations when determining the size, structure and focus of your distribution team.