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Selling Value vs. Selling Product

By Eric Daugherty

Firms should be focusing on client value-creation, not just merely selling what can be sold.

Some products are bought, some sold. What's the difference? Both can generate revenue and profits for asset managers. However, in my view, products that are "sold" instead of "bought" are supply-driven, not demand-driven. If such products do not create lasting value for investors, they will ultimately erode investor confidence, becoming the latest flavor of the day.

We just finished interviews with 16 senior Distribution executives. Among the questions we asked them was: "Did the 2008-09 downturn change how your firm is approaching your product lineup and product development?" More than half said their firms were changing something about their products. They were trying to accelerate product development and make the process more nimble AND/OR focus on currently hot products.

The product focuses most noted included: outcome-oriented funds, retirement income solutions, downside protection vehicles, alternative/hedge/go anywhere funds, ETFs, and global/emerging market products.

Some of the interviewees' firms clearly had a customer-centric view regarding the rationale for their firms' product choices. Others seemed to take the stand "sell whatever can be sold", which was a bit disconcerting. Consumers and advisors have a dizzying array of choices. In Rationalizing Products Rationally, I discussed how firms should be thinking about honing their existing product lineups. Firms should be applying the same thought process to new product development. In fact, here is my quick litmus test for whether products should be introduced:

• Does the product create enduring value for the consumer not available in an existing product?
• Is the product simple to understand?
• Is the value proposition easily communicable?
• Lastly, is there or will there be, consumer demand for it?

My quick analysis of whether the products mentioned in the interviews meet those criteria is captured below.

In short, I believe asset managers need to be taking a hard look at product development, particularly outcome-oriented and alternative funds. The enduring value proposition of these funds is unproven, and they are very complex and difficult to communicate. If asset managers want to retain the trust of investors, they should keep their eyes on what investors want to buy, not just what can be sold.