Much has changed since Elliot Spitzer's efforts exploded the well-entrenched “preferred list” model for mutual fund distribution. Centralized home-office due-diligence teams are now in the driver's seat, with advisors selecting products for their clients from their firms' approved sets of products. Generally these products are offered up on a platform with a pithy name or acronym, like TRAK or Consults. We've wondered for some time what all this means to advisors and the work they do with clients. In a recent survey of 537 advisors, we found out.
Under the old model, fund companies generally made financial arrangements that gave them access to a broker/dealer's advisors to secure distribution. Sometimes these arrangements were made despite mediocre (or worse) performance. In the new model for product distribution, mutual fund companies must first gain admission to a brokerage firm's due-diligence research groups and pass the analysts' screens. These groups are referred to as “gatekeepers,” and with good reason, as many product manufacturers spend terrific amounts of time and money trying to get the attention and support of these folks. Other business arrangements may also be made (home office to home office) to allow manufacturers' wholesaling teams access to firms' financial advisors. Polices about wholesaler coverage vary, and all arrangements must be disclosed.
The final step in the sales process is familiar territory, with wholesalers calling on advisors and pitching firm and product stories. The current model does sometimes create the opportunity for advisors to ask firms to provide research coverage for a product that is of interest to their clients.
With our survey we wanted to find out, specifically, if the new research-oriented product selection process was creating more opportunity for manufacturers to pitch products to advisors, or less. We wondered, too, if advisors were fully aware of the home-office changes.
To conduct this research, Penton Media (which publishes Registered Rep.) teamed up with my firm, Momentum Partners LLC, to survey 537 financial advisors who subscribe to Registered Rep. or Trust & Estates magazine.
Here are some of the highlights of the study: In general, advisors reported high levels of satisfaction with internal research groups, with nearly 80 percent giving the groups a 4 or 5 on a scale of 1 to 5. However, advisors also report that they are the final decision makers when it comes to what products are offered to clients. While advisors' role as a final decision maker did not surprise us, the extent to which advisors are taking an active role in product research specifically, did.
Nearly a third of respondents were unable to identify exactly how many people are in these research groups, though awareness varied by channel and size of firm. We are skeptical that advisors would fully delegate a key piece of the value they add to their clients to a group they only know superficially. This lack of familiarity supports the view that advisors are acting as their own gatekeepers, effectively creating a two-step sales process. Consistent with this research orientation, advisors report significant interest in in-depth investment analysis, access to portfolio managers and technical support tools.
We also found that product offerings across all channels turned out to be remarkably consistent. And that presents a challenge: If everyone is offering the same stuff to clients, differentiation is an even bigger challenge for financial advisors.
Given the challenges presented by this data, it is not surprising that advisors report less interest in wholesaler visits and calls than other forms of sales support. We found that advisors still in the process of transitioning from a primarily transaction-oriented model to a primarily asset-based model, and advisors who do business both ways, reported the most interest in traditional sales tools. Calls from internal sales desks were not high on most advisors' lists of preferred support mechanisms from asset managers.
The survey paints the picture of a rapidly evolving sales environment. Today's advisor is an information junkie (aren't we all?) with an insatiable appetite for useful tools. Product manufacturers do need to think critically about how best to position sales and analytical resources to manage the new “gatekeeper” processes.