blog
How iPads May Help Wholesalers
by Lee Kowarski
Since Apple introduced the iPad, several articles have discussed how financial advisors will be among the audiences to benefit the most. While iPads can certainly be helpful for advisors, I think that the iPad will have a greater impact on how wholesalers use technology. Before the iPad was introduced, I'd already heard of several asset managers that were considering scrapping laptops for their wholesalers and replacing them with netbooks. I think that firms should now explore the opportunities presented by the iPad to enable wholesalers to access CRM information, access intranet content (e.g. brochures, fact sheets, etc.), present content to advisors (including dynamic charts, videos, and more), and more.
The iPad will boast many advantages over both PDAs (e.g. BlackBerrys and iPhones) and laptops or netbooks:
- Simplicity of use - perhaps the key advantage of an iPad is that it has an intuitive user experience that doesn't require technology expertise. Wholesalers, traditionally, are not the most tech savvy folks and will appreciate the simplicity of Apple's design
- Battery life - the iPad should be able to last a full day of meetings without needing a recharge - the same cannot be said for most laptops or netbooks.
- Weight - while heavier (and larger) than a BlackBerry or iPhone, the iPad is far lighter than any laptop or netbook.
- "Cool" factor - for at least the first several months, having an iPad will be a conversation piece with advisors.
Because asset managers are typically so slow to embrace new technology, I don't expect many firms to get iPads in the short-term, but I do think it is well worth exploring.
Social Media is Here to Stay
by Julia Binder
Asset management firms need to be where their customers are. That's not on their Web sites. It's on Facebook, Twitter, YouTube and LinkedIn.
When we surveyed executives at asset management firms last fall about compliance issues with respect to social media, 73% responded that compliance or legal concerns impeded their ability to participate in social media.
At that time, only a few firms including American Century, Putnam, TIAA-CREF, Vanguard and others had ventured into the lawless Wild West that is social media. They applied existing compliance processes and sought legal guidance to support their as yet limited participation. All waited for clarification from the SEC and FINRA.
Well, FINRA has spoken. And thus, compliance issues around third-party content and record-keeping have been addressed and effectively removed as an excuse to remain on the sidelines. That doesn't mean that firms should dive in without a plan. kasina's newest paper, The Asset Manager's Guide to Social Media, helps firms understand opportunities and challenges associated with social media. You'll find a rich set of examples from the asset management industry and others on:
- Developing a social media strategy,
- Who's doing what and why, and
- Implementing best practices in compliance and monitoring.
The lack of clear FINRA and SEC guidance coupled with the fear of legal repercussions has kept firms from plunging into social media. But consider, as communicators subject to regulation, you are used to building caution into the way you approach all communications.
Social media is here to stay. It's time to review how social media fits into your communications strategy.
-----------------------------------------------------------------------ETFs and Mutual Funds: What is the real relationship?
by Drew Maniglia
One does not need to have an ear to the ground to notice the ubiquity of Exchange-traded funds in today's asset management industry. The ETF makes frequent appearances in industry journals and articles and can even be found advertised atop New York City taxicabs. But, despite the to-do, I am not convinced that the lay investor, and perhaps even experienced financial advisor, truly understands the difference between ETFs and other types of investments, specifically Mutual Funds.
Recent articles in Ignites have discussed the ETF's entrance into new platforms like 401ks and annuities. Furthermore, throughout both 2008 and 2009, the ETF's market share continued to expand while Mutual Funds experienced negative net flows. Hordes of new ETF products continue to appear on the market, and more fund companies have stepped into the arena. Many advisors surveyed in the 4Q:2009 FA Vision Benchmarking survey mentioned their satisfaction with and preference for ETF products in the qualitative response sections.
But, do investors and advisors understand how to appropriately use all of the available investment tools? To many, the ETF looks like a Mutual Fund that can simply be day traded; in this respect, it appears to be the "better" Mutual Fund, or a Mutual Fund with added benefits. Perhaps ETFs and Mutual Funds are not meant to be used interchangeably, though. Asset management companies should be sure to carefully distinguish between these tools. A campaign to turn the public's attention towards the burgeoning ETF should be accompanied by an educational campaign to highlight its intended applications and distinguish it from the Mutual Fund. This presentation from iShares is a good example.
If investors and intermediaries are to yield maximum value out of the myriad available investment types, it is integral that they should understand the specific purposes of each.
-----------------------------------------------------------------------Retail + Institutional = 2010 Priority... for real this time!
by Mike Ma
Last week, I delivered a keynote address at the Institutional Investor Institute's Senior Delegate Forum, and I wanted to share the slides with our blog community. My message to this audience, consisting mostly of people from the institutional side of the business, was clear. Given that our blog's primary readers are retail, let me summarize my points and why they should matter to you.
1. The merging of retail and institutional is happening now and you need to care
2. Retail is responding to this but it isn't happening fast enough
3. Real financial and organizational changes are happening right now
4. Institutional organizations are well-positioned to move in on this opportunity
My desire is not to create internal competition. My point is that the walls between these organizations should come down if they want to get in on this opportunity before someone else does.
I would love any comments, or thoughts from the community. Please call or email me to discuss!
Show Clients What They Need: Assets Are Nice, But Income Pays the Bills
by Eric Daugherty
e-Business teams have a huge opportunity to drive improvements in content that clients see. Specifically, when it comes to thinking about retirement, firms do not yet make it easy for clients or advisors to make sense of how their holdings translate into retirement income.
I do not really care about my financial assets - I only care about what they can buy. Asset management firms thus far are not progressive enough in helping investors like me make the connection between assets and future income. In December, this article pointed to a logical starting point - a Senate bill called the Lifetime Income Disclosure Act, which would mandate (for 401(k)s) a calculation of annuity income, similar to what the Social Security Administration does with its annual statements. This would be great, but is only a start.
Most of us have up to three buckets of assets from which we will draw in retirement - and each of the three buckets will have different tax treatment:
1. Pre-tax income; 401(k)s, non-qualified plans, defined benefit plans, for example.
2. Post-tax assets; Roth IRAs and other vehicles on which we have already paid tax.
3. Combination assets; Traditional IRAs and taxable accounts, in which we have some tax basis.
For example, say a couple has $2 million in assets. Sounds great - but is this enough for them to retire and enjoy the standard of living they want? It depends, and requires converting the assets into prospective income streams.
Here's where asset management firms can help. Firms holding these assets have all the information necessary (except the taxpayers' tax rate, which could be asked or assumed) to convert assets into an income stream. Here is how it would work:
This end result (in the Brady's case, $63,420 of annual income) is what investors care about. This is the money they will need for vacations, health care costs, utilities, and food. But most investors will not understand the analysis above, nor will they get it right on their own. They need help - this language of pre- and post-tax assets and annuity streams is foreign to many, and firms should help investors translate this into what matters to them - income. e-Business teams should be thinking about presenting content like post-tax retirement income streams. Even more than slick videos and market commentary will, giving investors content they need will foster loyalty.
2010 Predictions
by Steven Miyao
These are interesting times in asset management. Aside from ups and downs in the markets, we have seen significant changes in the economy, industry product trends, distribution and e-business. So, I will lay out a few prognostications in each of these areas:
Industry trends:
1. Bond flows continue to dominate (>70% of flows) early in the year. Flows into equities dominate (>70% of total) the 2nd half of the year, after definitive data says that the economy is improving. Continuing a long-standing trend, investor flows follow performance. Strong equity flows replace bond flows after the stock market surges and after interest rates start to rise and bond prices fall.
2. Net flows continue to go predominantly to low fee shops, as the miniscule total returns of the past 10 years magnify the importance of fees. Those shops without low fees only draw net flows if their products are truly differentiated.
3. From a trough of 18% in the 1st quarter of 2009, gross profit margins for firms climb back above 30% again (2008 margins were at 30% for publicly traded asset managers). The ultimate winners will be those who maintain their focus and fiscal discipline even after assets recover, setting themselves up for sustained, intelligent growth.
Strategy and product:
4. M&A picks up, in number if not in dollar terms. Firms have shored up balance sheets. Those in the best financial shape look to acquire in order to expand international presence, shore up product gaps, bring on an attractive brand name, and gain scale. Small to mid-size firms with entrenched brand names or specialized product expertise are attractive targets. While we don't expect to see deals of the size of BlackRock/BGI, we do expect to see a handful of mid-size household names change hands.
5. Guaranteed income products become hot, both in and out of retirement plans (albeit hotter in retirement plans than outside). Limiting downside risk in portfolios continues as a focus for retail and institutional investors.
6. ETFs continue to proliferate and gain market share. Advisors continue to gravitate clients from open-end funds to ETFs as advisors understand how to optimize usage of ETFs and firms continue plug product lineup holes with all possible flavors of ETFs.
Distribution:
7. Wholesaler compensation continues to recover. Average total compensation for external wholesalers, which was $372,000 in 2007 and dropped to $295,000 in 2008, fully recovers to 2007 levels. While the ample supply of talent looking for work should suppress wages, firms' healthier financial positions, their desire to take care of their best performers, and renewed positive net flows puts upward pressure on total compensation.
8. Ten of the top 20 firms in assets have hybrid wholesalers by the end of 2010. The cost-effectiveness of hybrids is being proven by the early adopters. Additionally, advisors indicate more willingness to deal remotely and less time to meet face-to-face, both of which point towards internals and hybrids becoming more important.
9. Firms continue to leverage technology by experimenting with video, audio, and web conferencing capabilities to deliver 1-to-1 (wholesaler-to-advisor) and 1-to-many (interactive Q&A with in-house experts) interactions.
e-business:
10. Social media becomes mainstream in financial services, but the level of commitment is varied, some firms diving in with both feet, some much more cautiously. Progressive firms experiment with different media in both B-to-B and B-to-C arenas. By year-end, 18 of the top 20 firms in assets have dedicated pieces of their budgets to social media.
11. Firms begin to move away from considering their websites as the central repository of content and towards supporting broader distributed content (e.g. SlideShare, Scribd). As print costs skyrocket, advisor only content becomes outdated, and people are free to distribute content anyway, firms will decide to make this as easy as possible by making their content portable and omnipresent. One major firm takes the leap, and spends as much on managing and facilitating data and content in the "distributed arena" as they do on their own website.
The Best of the Best from the Q4 FA Vision Benchmarking Survey
by Lee Kowarski
While firms shouldn't mimic what they see competitors doing, it is always important to understand best practices and see what can be learned from those efforts that resonate in the minds of advisors. To that end, kasina's 4th quarter FA Vision benchmarking survey gathered responses from 3,003 financial intermediaries between October 19th and November 12th, 2009. As we do twice per year, we asked intermediaries about their investment behavior and asset allocation, as well as firm-specific topics, such as wholesaler effectiveness and brand perception.
Among myriad other findings, some of the firms that scored the highest in the Q4 survey were:
- Most Advocates for the Firm (highest % of intermediaries that would strongly recommend the firm to a colleague): Ivy Funds
- Most Advocates for the Firm's External Wholesalers (highest % of intermediaries that would strongly recommend the firm's externals to a colleague): MainStay Funds
- Most Advocates for the Firm's Internal Wholesalers (highest % of intermediaries that would strongly recommend the firm's internals to a colleague): BlackRock
- Best Value-Added Programs: JPMorgan Asset Management
- Best Sales Literature: American Funds
- Best Conference Calls with Investment Experts: Ivy Funds
If you haven't already done so, I encourage you to subscribe to the FA Vision "Nugget of the Week" newsletter where we share additional findings from FA Vision each week. Also, if you are interested in understanding how your firm ranked (or being included in future FA Vision surveys), send me an e-mail.
Internal Wholesalers - Sorely Needed by Firms and Advisors, but Trapped in Roles
by Eric Daugherty
This week, kasina released Excellence in Distribution: Internal Wholesaling. In this third of five reports in our Excellence in Distribution series, we found that firms face different challenges in their internal wholesaling force than they do with externals (outlined in my prior blog piece).
As an Eagles fan, I remember when Ricky Watters refused to give full effort in a game. When questioned about it, his reply was "For Who? For What?" Firms risk having their internals adopt the same attitude if their jobs continue to demand more, while offering less compensation or promotion upside in return.
Notably, firms have too few internals, relative to their external and hybrid peers. At half of firms, internals support more than one external, on average. And, with firms having let go some externals, internals are doing more selling and servicing than ever before, spending almost as big a portion of their time doing so as externals do.
While a majority of internals aspire to become external wholesalers, only a quarter actually do so. This disconnect between aspiration and reality will become problematic for firms who do not develop a plan to inspire, engage, and retain their best internals - particularly as the job market improves and the competition starts hiring again.
Not only are internals stretched to do more tasks than ever before, but their territories of advisors are unwieldy, which inhibits focus. Firms spread externals over territories that are too large, which inhibits focus. Our research indicates that internals average roughly double the number of advisors on which they can really focus.
On the compensation front, firms' packages are not optimally designed to reward and motivate the activities that are most vital for internals and their firms. Firms indicate that key quantitative metrics for internals include number of calls made and completed, and number of client relationship management entries made. Firms also value important qualitative factors such as product knowledge, teamwork, and call quality. Yet, only 7% of average total compensation is discretionary, not enough to separate the best from the rest of the pack and reward for excellence.
Our FA Vision study and our What Advisors Do Online research indicate that advisors' needs and desires are changing - they are more interested in the quality of wholesaler contact vs. quantity; they are more open to technology solutions to access information and services; and, their time is more at a premium than ever. This bodes well for tech-savvy, efficient internals. Their cost-effectiveness and productivity should position internals to be the stars of the show. Firms intent on keeping their best talent engaged and should revisit their practices regarding their internal sales forces, avoiding the "For Who? For What?" mindset.
External Wholesalers, Fewer In Number, Face Rising Expectations
by Eric Daugherty
In December, kasina released Excellence in Distribution: External Wholesaling. We found that diminished brand loyalty and reduced assets have changed advisors' expectations of wholesalers. At the same time, firms' financial imperatives caused them to reduce both the number of and compensation packages of external wholesalers. These tensions make the present an opportune time for firms to review how they staff and deploy their sales forces.
When it comes to optimizing wholesaling, firms really have four key levers they can pull:
- Sales Force Structure and Selling Process
- Territory Management
- Compensation
- Technology Deployment
In essence, these boil down to: getting the right number of the right people spending their time on the right things, deploying them intelligently against the client/prospect base, giving them the right incentives, and the right tools to work with. Of course, this is what firms should always be striving to do. Yet, we found quite a few sub-optimal practices.
Notably, firms still have too many externals, relative to more affordable hybrids and internals. Yet, despite the fact that externals are an expensive resource, firms get only 57% of their time facing the client, with the other 43% is spent on travel, meetings, and other administration (best practice firms manage to have 70% of time facing clients).
When it comes to territory management, firms spread externals over territories that are too large, which inhibits focus. Many firms still rely on channelization, which may no longer be cost-effective.
On the compensation front, externals are still driven by huge sales commissions. Firms would be better served by driving compensation via discretionary bonuses that are tied to firm profitability or activities that add value over the longer term.
Our FA Vision study and our What Advisors Do Online research indicate that advisors' needs and desires are changing - they are more interested in the quality of wholesaler contact vs. quantity; they are more open to technology solutions to access information and services; and, their time is more at a premium than ever.
Given all that is in flux, firms have an unprecedented opportunity to re-cast their sales efforts to serve advisors better. Yet most seem to have honed in on compensation and headcount as the primary concerns, and have not yet taken the opportunity to optimize the other levers that they control. However, to their credit, the most progressive firms are starting to move in this direction.
-----------------------------------------------------------------------Internal Wholesaling Then and Now
by Deb Wetherbee
After reading our new report, Excellence in Distribution: Internal Wholesaling, I have to comment on just how much internal wholesaling has changed since my days at the desk. The changes are a result of both new technology and the recent economic environment. I believe many of these changes are here to stay.
Internals have always had strong relationships with advisors, and this continues to be the case. In our latest FA Vision survey with Horsesmouth, internals generally out-score externals from the advisor's perspective. This critical relationship continues to get more sophisticated each year. For example, I used to spend much of my time scheduling meetings for wholesalers. Today, some firms have part-time folks that do only that. Imagine! This frees up valuable, expensive time for those with licenses to build stronger relationships and truly sell. Our new report found that internals now spend just as much time as externals selling and servicing clients and prospects.
I also spent a great deal of time scouring my atlas of the West Coast from Boston in an effort to get my "lost" wholesalers back on track (in more ways than one). Can you say, "GPS"? Valuable time has been given back to the internal to support the advisors and externals in a more substantive way. When I think back to the amount of collateral that I shipped around the country via FedEx, I shudder. This is a task easily done via email or from a web site. There are different degrees of sophistication in doing this (see our 2009 Top 10 Web Sites for Financial Intermediaries for more), but the fact that we don't ship nearly as much as we once did is a tremendous improvement (time, cost and trees).
The above changes result in more time selling, but the evolution does not stop there. The collateral and tools that internals have available are comprehensive, allowing for a real partnership between the internal and the advisor. This applies to both investment tools as well as practice management materials.
While the job has evolved in the right direction, there are still issues to address: compensation, morale, and career paths, to name a few. Firms need to take steps to address these issues through improved territory management, creative compensation structures, staffing and further deployment of technologies. Ideally, we want this generation of internals to feel nostalgic about their roles years from now.
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