Posted October 17, 2017 by Steven Miyao
The largest asset managers are taking the turmoil in the industry seriously, investing heavily in data, national accounts, changing the role of wholesaling and de-channelizing, while the rest of the industry is hoping for the glory days to return.
Strong markets continue to drive record AUM, lifting asset-generated fees. Operating margins recovered in the second quarter of 2017 and AUM grew by 12.1%. This may seem like great news for the industry and in the short term it is certainly a welcome reprieve. But when you consider the broader perspective, it actually masks the real problems facing the majority of active asset managers.
For the last two and half years, we have seen negative flows of $485.6 billion in active funds and active ETFs. At the same time, $1.3 trillion have poured into passive funds and ETFs. What will happen if the eight-year bull market stops and markets no longer drive AUM and fees higher?
The biggest asset managers are not waiting to find out, choosing to take action now. Here are five takeaways from our Distribution Summit:
The largest firms believe that data-driven insights drive distribution strategies. They are investing heavily in their data infrastructure and analytics. In fact, these firms have elevated or hired a senior distribution executive to oversee their business intelligence efforts, brought in data scientists, and are ingesting broker-dealer data packs for both mutual funds and ETFs. On the flip side, BI teams at many other firms are underfunded and underappreciated, mostly focused on reporting and tactical campaign support.
Resources are being shifted away from sales to National Accounts. Only 36% of advisors are 100% responsible for making individual investment decisions. This means that more and more decisions are being driven by the home office, third-party models and/or advisor teams. Most firms are planning on expanding their national accounts efforts by adding more people to cover their focus firms. It is not only important for asset managers to increase their FTEs, but also align their marketing efforts with that of the national accounts teams.
The role of the wholesaler is changing and firms are re-branding their salespeople. Advisor Consultants, Investment Consultants, Market Leaders, and other recently-retooled wholesalers are starting to provide a more holistic solution for advisors.
The industry is generally moving away from channelized sales. Firms are using business intelligence to model their territories and cover their best opportunities, regardless of which channel they are in. For some firms, this means having multiple people in a territory, including internals, hybrids, CPMs, and externals. Overall, sales is getting more targeted and sales teams need to operate more strategically. They should only the advisors who make individual investment decisions.
Are internals still working? Most firms have experienced a significant drop in call volume from their internals. They are shifting resources away from their internal teams to analytics and/or hybrid wholesalers. Some are bucking that trend and increasing their internals, but arming them with data that provides them with specific opportunities. These organizations believe that the right analytics can make their internals successful. Our research shows that internals can be successful, if they target the right advisors, know what they hold in their portfolio, and then are able to have portfolio-level discussions.
I have stated before that the industry will change more in the next 10 years than it has in the last 30, and that only half of existing asset managers and broker-dealers will survive the next five to 10 years. This was specifically evident during our discussions at our Distribution Summit, where the largest firms were questioning every aspect of their strategies. The rest of the industry meanwhile appears to be taking a far less ambitious approach — tweaking, rather than fundamentally rethinking, their distribution strategies.
categories: etf/etfs, industry trends, internals, national accounts, sales force, wholesaler
The views expressed in this publication are solely those of the author and do not necessarily reflect the position or policy of DST Systems, Inc. or its affiliates, subsidiaries, joint ventures, officers, directors, or management.