NEW YORK, NY – SEPTEMBER 26, 2017 - DST Research, Analytics, and Consulting, LLC, a provider of data-driven insights and distribution solutions to financial companies, today released new research outlining the impact of significant catalysts of change that are reshaping the asset management industry and the ways in which firms need to prepare.
The report series, "Prevailing in a Changing Distribution Landscape," includes three titles that examine the imbalance of asset managers' current business models and the industry trends challenging them, provides a framework to assess the firms' preparedness, and outlines steps to modernize sales team structures and compensation programs.
This report series includes scorecards for asset managers to assess their current business models, a framework to help firms determine the best way for them to balance their needs with those of their customers, and tactical recommendations to align teams and compensation to achieve desired results from their sales organization.
"Increased regulatory scrutiny and fee compression have forced the industry to consolidate to achieve better economics," said Steven Miyao, President, Distribution Solutions. "The largest distributors are overhauling their platforms to put potentially more than $3 trillion of assets in motion. At the same time, advisor practices for managing client assets are changing, with only 36% of AUM individually managed by advisors. As a result, asset managers must transition their distribution organizations to focus on the right advisor relationships centered on high-value, personalized engagement, and delivery of solutions."
DST's research focuses on four key business practices the company expects will be under increasing pressure if left unchanged:
Coverage and Alignment: Investment decisions for 64% of all AUM are outside the direct control of advisors (research analysts, models, etc.). Sales teams should:
Team and Territory Structures: As advisor business models evolve (45% of advisors planned to conduct more fee-based business in 2017), advisors are becoming more elusive (in-person meetings down 16% and call volume down 27% since 2011). Assign coverage based on the sophistication of the advisor and skills of the salesperson. Upskill the salesforce to match the sophistication level of advisors and approach advisors based on the advisor's preferences.
Compensation Models: Compensation models heavily relying on variable commissions based on gross sales are not motivating behaviors that drive profitability. For the average external salesperson in 2016, gross sales commissions represented 35-49% of total compensation, possibly motivating sales behaviors that are contrary to asset managers' strategic objectives. Compensation structures must leverage metrics, such as holding period, that better align to profitability to ensure sales behaviors are in-line with the firm's strategy.
Relationship Management: As much as $3.3 trillion in actively managed assets are in funds with Morningstar Ratings of 1, 2, or 3 stars – funds most at risk during product rationalization indicating a need to focus on retention activities. Many firms will require a dedicated relationship manager role to mitigate the risks posed by assets set in motion by rationalization, consolidation, and other forces at play in the industry.
"The implication of these industry trends for distribution organizations is clear: sales and marketing initiatives must be data-driven strategies focused on advisor acquisition and retention," says Matt Fronczke, Head of Distribution and Product Consulting for Research, Analytics, and Consulting. "To effectively execute, asset managers need to rethink product, talent optimization, roles, team structures, compensation methods, and sales and service models."
The "Prevailing in a Changing Distribution Landscape" report series builds on previous DST research and advisor surveys on wholesaler and financial advisor preferences and practices in association with Horsesmouth, as well as a two-curve study of the future of the industry.
For more information on DST's "Prevailing in a Changing Distribution Landscape" research, contact Myra Bartalos, Head of Marketing for Research, Analytics, and Consulting, at email@example.com.
DST Systems, Inc. (NYSE: DST) is a leading provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries. DST enables clients to transform complexity into strategic advantage by helping them continually stay ahead of and capitalize on ever-changing customer, business, and regulatory requirements in the world's most demanding industries.
Laura M. Parsons
DST Global Public Relations