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Will Advisors Let Distributors Control Investment Decisions?

by Eric

This week, kasina released Evolving Distribution Amid Bad Markets, Changing Distributors, and Lower Profits. Big title - big ideas! As firms are grappling with a radically altered financial services landscape (see net profit margin graph below), the distribution challenges are many. We worked with asset managers and their largest distributors to distill the key challenges, predict how the landscape will continue to change, and recommend key action steps to maximize distribution success in this new environment.

Among the interesting findings is the near-universal agreement that investment decision-making at distributors will become further centralized. This means greater utilization of model portfolios and recommended managers/products.

While it may seem that competent, professional advisors would bristle at having these sorts of decisions taken out of their hands, especially given the poor performance of so many products over the past year, our research makes the case that advisors will end up supporting, not opposing, this trend. Two reasons why:

• Advisors' Time is Limited: Investment management and selection is something the average advisor spends 17% of his time on. Given that distributors have full-time staffs dedicated solely to these disciplines, and numerous partners that provide these services, it makes little sense for the vast majority of advisors to focus on developing and executing investment expertise.
• Advisors' Focus Lies Elsewhere: Advisors have a complicated job in prospecting for new clients, servicing existing clients, and executing administrative responsibilities. For many, investment selection is currently in the back seat, with the focus on retaining and assuring existing clients. In difficult times, advisors will be willing to turnover investment, allocating, and rebalancing responsibilities.

These are just some of the important implications we discuss in Evolving Distribution. To discuss it, or other aspects of the report, e-mail us with questions or thoughts. Or better yet, use the kasina forum to post thoughts and questions.