blog

Understanding Independent Financial Advisors Can Stem Redemptions

by Steven

Redemptions in mutual funds are expected to surpass $325 billion in 2008 and asset managers have started to focus their distribution strategies around the growing independent channel for salvation.

There are many reasons why it makes sense to focus on independents. One of them is lower redemptions. The average redemption rate in the independent channel has been between 10 and 15%, as compared to 20% in the wires.

But our recent focus group with independent financial advisors has shown that they are frustrated with the lack of understanding that wholesalers and marketing organizations have about their business. At the same time, interviews with some of the leading independent advisory firms have revealed that successful wholesalers understand the difference between independent and wirehouse advisors.

One of these differences is that independents typically do not have the support of an advisor network. Wholesalers that understand this have organized events where independents (often from the same firm) get together to share best practices. These events have been highly successful both for the advisors and for the wholesalers.

Two steps that firms can take to better understand the needs of independent advisors are:

• Conduct Regional Advisor Focus Groups
  These focus groups can help firms understand the varied sophistication levels and preferences of advisors.
• Capture Key Data Points
  Capture key demographic, behavioral, and attitudinal information (Service by Segmentation) such as:

1. Demographic Data
• Maturity of the practice
• Team or individual practice structure
• Number of clients
• Revenue structure
• Licenses and designations
2. Behavioral
• Accepted calls from an internal wholesaler in last four quarters
• Meetings with an external wholesaler in last four quarters
• Open and click-through rates for e-mails
• Literature requested through each communication channel (Web, e-mail, telephone)
3. Attitudinal Data
• Rating of value-added programs
• Willingness and frequency to receive calls from Internal sales
• Willingness and frequency to meet with a wholesaler
• Rating of conference and networking events
• Preference to have firm information pushed to them (via wholesaler, marketing, or Web)

Redemptions are going to continue to plague asset managers and insurance companies. Better understanding independent advisors will help your wholesalers and marketing departments have more relevant and meaningful interactions, which will ultimately help with redemptions.