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The Institutionalization of Distribution: Maneuvering Through the Proverbial Supermarket

by Steven Miyao

Supermarkets and large broker-dealers have more in common than you may think. Supermarkets sell products to shoppers; broker-dealers provide products to advisors. Supermarkets strategically guide shoppers into making certain purchases using physical shelf space and advertisements; broker-dealers encourage advisors to buy certain products using virtual shelf space and preferred product lists. Supermarkets rely on distribution agreements with retailers to guarantee optimal shelf space; broker-dealers do the same with advisors.

However, with competition for assets increasing and favorable shelf space becoming more limited, the ways in which products are being distributed to broker-dealers is beginning to shift from a relationship driven process to one that is increasingly more institutionalized. In order to remain competitive, asset management firms must learn the roles and responsibilities of the intermediary players.

Playing the New Game
The process of selecting which products will garner prime shelf space at broker-dealers has evolved from a relationship-driven judgment to an increasingly complex, quantitative decision, similar to how decisions are made within the institutional channel. Therefore, asset managers must...

improve their service structure and informational resources to ensure that the needs of the key new players are being met.

National Accounts teams play an increasingly important part in the institutionalization of the distribution process, as they are responsible for meeting the needs of broker-dealer product selection teams. When selecting team members, the first thing to consider is consistency. For instance, Partner Coordinators prefer to work with the same account manager over time, so it is important to maintain consistency within National Accounts teams in order to demonstrate a commitment to strong servicing and relationships.
Next, firms should ensure that their National Accounts team has dedicated people to deal with the broker/dealer research analysts. These individuals should be able to dive deeply into product issues, which often requires at least five years of experience. While CFAs are not required, team members should be able to answer questions about specific product features and discuss the similarities and differences in competitive offerings.

And finally, capitalizing on the team's experience and knowledge should further emphasize the need to develop "narrow and deep" relationships with a limited number of distribution partners. Each National Accounts Manager should also consequently cover a small number of relationships in order to ensure that they really understand each distributor's system.

Streamlining the Information Flow
Although important, building an effective National Accounts team is not enough to be successful under this new institutionalized distribution umbrella. With distribution channels becoming increasingly more crowded, asset managers need to learn the selection process and evaluation criteria for their distributors. Therefore, firms need to alter the ways that they share information with distribution partners by understanding and implementing the following key steps:

• Spend time learning the distributor's system: Asset managers must invest the time to understand a distributor's business plan, strategic objectives, and system for reviewing distribution support in order to forge a true partnership.
• Know what they want and how they want it: Beyond understanding a distributor's business, asset managers need to understand what information distributors need to meet their business needs and how they prefer to obtain this information. For example, broker-dealers prefer to hear important updates such as fund openings, closings, or portfolio manager changes via phone as blanket e-mails tend to get lost and often do not provide enough information for partner coordinators. However, well-structured, targeted e-mails can be effective to help a research analyst understand why a product might deserve a second look.
• Use distributors as a resource: Take advantage of the fact that coordinators are eager to support their asset management partners and to assist in evaluating ideas, such as new products or value-added programs.
• Understand the evaluation metrics: Work closely with coordinators to understand the criteria against which asset management firms will be judged. For those distributors that have not yet finalized their evaluation metrics, account managers can take part in developing these scorecards.

Maneuvering Through More Institutionalized Distribution
Prime shelf space dramatically increases the likelihood that a product will be purchased. This issue is affecting asset management product flows more than ever before.

Strategically aligning National Accounts groups with distributors, ensuring that experienced account managers are assigned to the most important relationships and focusing their attentions on a smaller amount of distributors is becoming critical to distribution success. Additionally, firms need to develop a better system of communicating the appropriate information to distribution partners. Understanding the roles, business objectives, and metrics of these individuals will assist asset managers in accomplishing this goal.

Just like the supermarket model, advisors are being strategically guided through the purchasing process whether they realize it or not. The ability to obtain optimum shelf space will define how successful your organization can be; that, in turn, demands putting in place a more institutional approach to distribution.