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4th Quarter Margins Flatline, but Closer Look Shows Most Asset Managers Continue to Recover

by Eric Daugherty

A few months back, I portended an earnings rebound for asset managers, and the 3rd quarter seemed to bear that out. Now that 4th quarter earnings are in for all the publicly traded asset managers, what do they tell us about the state of the industry?

S&P 500 Level

With a backdrop of largely rising markets (see level of the S&P above), the universe of publicly-traded asset managers collectively managed margins that were only equal to the third quarter. And, full-year 2009 margins still fall well short of 2008 margins.

However, a closer firm-by-firm look shows that most companies' margins bottomed out in the first quarter and continue to recover. This chart show operating margins for all fourteen publicly-traded firms.

Aside from a few aberrations, firms continue to improve their margins as the market environment improves. The few exceptions are Alliance Bernstein (taking a step back this quarter), BlackRock (which incorporates massive BGI figures for the first time), and Legg Mason, Waddell & Reed, and Invesco, who continue to trail the pack. Legg Mason and Alliance Bernstein were the only firms to see assets under management decline in the quarter.

Looking forward, I amend my prior forecast. Previously, I thought that rising markets and aggressive cost-cutting would lead to margin bonanzas. However, recent market events and financial figures lead me to believe that markets will hold steady and the industry will not continue its rationalization of costs and structure. Even if there is a "new normal" per Bill Gross, of lower growth and suppressed asset returns, the pain is too recent and rationalization is too hard to continue unless crisis demands it. A few aggressive opportunists will continue the hard work; everyone else will take a deep breath.

Firms need to continue to focus on rationalizing their structures. The threat of another downturn remains. In addition, regulation, industry maturation, and increasing consumer focus on fees portend eventual margin compression. Firms that prepare now will be set to thrive in an increasingly competitive future - in particular, smarter distribution, use of the web to drive marketing and efficiency, and leveraging emerging channels like social media will increase asset managers' ability to preserve healthy margins as long as possible.

Asset Managers Go for the Gold; Seasoned National Accounts Managers Can Get Them There

by Deb Wetherbee

Listening to my two sons, 4 and 6, relive every moment of the 2010 Winter Olympics is fascinating. They don't differentiate among the various sports and perceive the US athletes as a single team. While this is true in one sense, as adults we tend to focus more on the individual effort necessary to win THE Gold in different sports. For years, financial service firms have treated the external wholesaler as the "elite athlete", the key to advisor relationships and assets, aka THE Gold. At the same time, we have been talking about the greater influence that home offices exert on advisor business. While wholesalers will remain key players, the National Accounts Manager is moving to the head of the team.

Our FA Vision survey results confirm the trend toward home office decision-making. Our most recent survey shows that advisors put 21.6% of their overall production in mutual fund wrap platforms and 33.5% of their mutual fund business in products on the recommended lists. Both of these figures are trending up from the May 2009 results. With our May 2010 survey just around the corner, we will continue to monitor this trend. Advisors also anticipate increasing use of both model portfolios and UMAs in the next year. This would lead one to believe that asset managers would invest in or reallocate resources to the National Accounts area.

While each member of the team -- externals, internals, hybrids -- is important, the role of the National Accounts Manager is critical. The home office relationship is at the center of a successful distributor/asset manager relationship. It is imperative that Sales and National Account teams work in tandem to support your focus firms. In our recent research reports on wholesaling, one on Internals and one on Externals, we found that 65% of asset managers intend to increase their Internal staff and 59% of firms do not intend to reduce their Externals. Asset Managers do understand this at some level. Our newest research, Excellence in Distribution: National Accounts, shows that 68% of firms plan to increase staff while 48% plan to increase budgets. With the communication and coordination involved in developing strong relationships at the home office, everyone at the asset manager needs to work together to support the focus firms. This effort must have the right person leading the team.

One tactical win/win reason to get your players on this same team is to develop a successful cross-selling strategy. Our FA Vision research shows that, on average, advisors use between 7 and 8 asset management firms (channel stats available, too). If yours is one of them, it is more profitable to cross-sell to these advisors than to find new advisors. This cross-selling strategy should start at the National Accounts level (I realize platform access comes first). At this point our research shows that most advisors usually use between 3 and 4 products from one firm. Of course, every product is not suitable for every advisor, but this presents a great opportunity to work closely with your distribution partner and identify the advisors to go after for your cross-selling efforts. In addition to enhancing your relationship with the distributor, a cross-selling strategy forces the National Accounts team and the Sales team on the same page with a targeted plan to increase assets. This, of course, the ultimate goal of all involved.

The industry is making strides in the right direction. There are still challenges that can be met with creative solutions recommended in our report on Excellence in Distribution: National Accounts.

As we get to the mid-point of the 2010 Winter Games it will be interesting to see if my boys begin to see the individual "elite athletes" or continue to view them all as part of the US team. Your distribution strategy needs to be implemented by a cohesive team to be effective and competitive. At the head of that team, it is time for the baton to pass from external wholesalers to National Account Managers.

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.

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.

And Then There Were Ten

by Eric Daugherty

Firms are putting advisors' needs front and center as they upgrade their Web sites.

2009 marks the release of kasina's 11th annual Top 10 Web Sites for Financial Intermediaries report. It's amazing how far firms have come, and how much more vital and vibrant the Web is versus 11 years ago. Back then, firms were still contemplating whether (not how) the Web would become an important client service and marketing channel for them. Today, the notion of NOT having top-notch Web content, tools, and servicing is laughable.

This year's Top 10 Web Sites For Financial Intermediaries had few of the drastic site overhauls that characterized 2008. However, we did see firms striving to meet advisors' needs. In particular:

• Firms are using sophisticated underlying technology to provide a simpler user experience - simplicity through complexity; most notably, this involves bringing content "up" to the users, instead of requiring them to drill "down"
• There is an increasing focus on customization, allowing the advisor to personalize his/her experience and way of interacting with the Web site
• There is a trend towards more interactivity and multimedia content

Specific firms of note this year include:

• BlackRock ascending to the top spot, with a Tool Center that gives advisors everything they need to use the tools effectively with clients, and Conversation Starters that arm advisors with strategies to answer common and challenging client questions



• John Hancock continuing its run in the Top 10, with Dynamic Literature Ordering and a keen focus on its brand
• JPMorgan jumping from #9 to #3 based largely on its simplified presentation of fund analysis via dynamic screening, as well as its Markets Insights program

At kasina, we're looking forward to discussing the insight gleaned from this year's report with all of our subscribers. To discuss these findings, 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.

Industry Margins Almost Back to 2008 Levels - With Assets Down

by Eric Daugherty

Last month I wrote about the industry earnings rebound. Now that earnings are in for all the publicly traded asset managers, what do they tell us about the state of the industry?

kasina Revised Forecast for Industry Operating Margins

Firms included: Alliance Bernstein, BlackRock, Calamos, Gabelli Asset Management, Pzena, Affiliated Managers Group, Legg Mason, Franklin Templeton, Invesco, TRowePrice, Eaton Vance, Janus, Waddell & Reed, Cohen & Steers.

Here are some observations gleaned from the latest earnings:

Retrenchment has worked - while we are not all the way back to 2008 operating margins on a full year basis, it's likely that 4th quarter number for 2009 will be even stronger than 2008 figures. Fairly rapid cost cutting and prioritization have combined with the market recovery to land firms in very strong shape financially. Psyches may not have healed yet, but balance sheets have.

It is too early for complacency - our prior forecast was for 3rd quarter operating margins of 31.6%. Actuals were 27.5%. What changed, primarily, was that 3rd quarter operating expenses for these firms were up 6% from the 2nd quarter. With a closer look, this $200M expense increase was mostly driven by three firms, and half of it derives from higher revenue-based costs (e.g. commissions). Another 20% of it appears driven by one-time severance and legal settlements. So, this increase is not cause for alarm, but it is worth watching, as a 6% increase per quarter is clearly unsustainable.

Size matters - we have been talking about the importance of scale for the last six months, and believe it will matter greatly in the future. One notable aspect of the industry financials is that the biggest firms have the same margins as other firms. We know that the biggest firms sell product for lower costs, so they must be leveraging size to effect lower unit cost structures as well, which makes sense. When I split the group into the largest four (Monsters), middle five (Mediums), and smallest five (Minis) by assets, there is little difference in operating margin. The largest firms are just making these healthy margins on a much larger base of assets, creating huge profits.

Not all are thriving equally - among all sizes, there are winners and losers. Of the fourteen public firms, three have operating margins less than 20%, and two have operating margins greater than 40%. These firms' performance persists from quarter to quarter.

Look for more M&A activity - everyone suffered in the downturn. Firms are now returning to thinking about the future. With the industry experiencing improved financials, those firms still underperforming will stand out, and may look for white knights. Given our maturing market and the challenges associated with organic growth, firms with strong balance sheets and a desire to grow will look to prey upon the laggards, particularly those with healthy brand names.

Advisors look alike, but do they have the same preferences?

by Steven Miyao

Most marketing messages don't resonate with advisors because they are not pertinent to their needs. Asset managers need to invest in asking questions that enable advisors to be segmented based on preferences.

Advisors have specific needs
Last week we invited four RIAs to our e-business roundtable. On the surface, the four advisors looked alike: all were from NYC, all were male, and all had about the same amount of AUM. When asked what asset manager content most resonated with them, each had completely different needs and preferences. One advisor got a lot of value out of the business building content that an asset manager sent him, another advisor preferred to get investment ideas and didn't need the business building information.

Marketing messages need to add value
The lesson learned from this advisor panel is that asset managers need to segment their advisors based on their needs and preferences, rather than using demographic information from a CRM system.

Think about your own behavior. What e-mails do you always read?

You only open e-mails that always contain at least one or two things that you are interested in (an example might be the daily Ignites emails). If someone sends you a number of e-mails that don't have value for you, you will stop opening them. Every time these messages pop up in your inbox, you immediately delete them.

In order to have advisors respond to your messaging, the content of an e-mail has to specifically address their needs. This can only be accomplished if asset managers understand what those needs are.

Use your e-mails and the Web site to gather advisor preferences
Profiling advisors is not an easy task and can't be accomplished in one quick survey. Luckily, both e-mail and the Web are perfect mediums to collect data from advisors.

A few techniques to collect data through e-mail and the Web:

• Track the specific messages that advisors open and click through
• Ask advisors to rate both e-mails and Web content with a simple thumbs up or down
• Occasionally ask a single preference question after the login
• Conduct polls and show the advisor how the community has responded to these polls

All of this data needs to be associated with a specific advisor and continuously tracked in order for you to send more targeted messages to that advisor.

It will take time, so get started
It will take time to segment your advisors, but the sooner you start, the sooner you will be able to send targeted messages that will yield more effective responses from those advisors.

Advisors Ramp Up Online Usage, Go Mobile, Get Social

by Eric Daugherty

This week, kasina released "What Advisors Do Online 2009". We found that advisors are spending even more time on online, are increasingly using mobile devices to communicate and access content, and are warming to social media.

This study builds on our 2008 study. The last 18 months of turmoil have:

• Driven advisors online more; over half of advisors have increased online usage by 1-3 hours per week, a quarter by more than 3 hours per week;
• Caused them to see business building and sales ideas;
• Incited them to check client information more and ramp up communications with clients.

Notably, this increased online usage is happening more via mobile devices than ever before, with nearly 80% of advisors using some form of device to access content remotely.

Regarding social media, while usage among advisors is not universal, there are signs that it is increasing, and that a wave of adoption is on the horizon. About 48% and 43% of advisors visit LinkedIn and Facebook, respectively.

While we are all searching for cheap ways to be more effective, one easy way for asset managers to do this is to start building links to intranets, portals, and search engines - and make content accessible from multiple devices. This can usually fit into any strategic plan size.

What Sales Can Learn from Golf Company

by Mike Ma

There is a recent 60 Minutes episode in which Scott Pelley travels with a Marine regiment in Afghanistan. I found it enlightening at first as just a general citizen, and then from a business perspective. Sales managers and consultants have made a cottage industry of sales-to-military comparisons, and we can learn a lot from this episode and apply those lessons to our business.

NB: Before I dive in, I'd like to say that in *no way* do I think that sales work is near the same level of import as the work of those in harm's way. This is merely an observation of strategy and tactics.

Consider the following quotes from Lieutenant Colonel Christian Cabaniss, the leader of this particular regiment. Two lessons stood out for me:

1. Success is not defined body count -- Asked how many enemies have been killed so far, Cabaniss said, "I have no idea and it's really irrelevant. [Body count] doesn't tell me that I'm being successful. It doesn't tell me that at all. The number of tips that I receive from the local population about IED's in the area, Taliban in the area, that is a measure of effectiveness."

2. Marines are expected to evaluate the endgame before pulling the trigger -- "It's about a three second decision [if a Marine ought to fire] his personal weapon. The first second is 'Can I?' The next two are 'Should I?' 'What is going to be the effect of my action? Is it going to move the Afghan closer to the government or further away?'"

Can we learn something here? After all, aren't we in a version of a similar situation? Advisors are elusive. Profits have become mountainously difficult. We are looking for the influencers in a corner office who can tip us off to more sales or exposure for our products and firm. Perhaps we should change our game as well?

As we at kasina are in the throes of a number of strategic planning processes, let me take stab at coming up with two comparative industry lessons:

1. Success should no longer be defined as a pure gross sales number
2. Salespeople should be expected to consider profitability when planning their activity

Toward the first point, compensation plans need to be designed to help transform the discussion from the "old game" to the "new game." There needs to be a shift from gross commissions to bonus metrics that we think help our business in good times and bad. I think that Ivy Asset Management paying 20-30% of compensation in activity-based bonuses is a step in the right direction.

To the second point, sales management (and consultants for that matter) needs to work on creating an easy, understandable process that can help wholesalers evaluate the endgame. Some examples may include setting targets to increase the number of new producers in a region regardless of size, converting business from one product to another, or one asset class to another, or conducting more meetings with a pre-established advisor segment of value.

Just like Lt. Col Cabaniss' "three second" idea, we have to think of activity-based metrics that strike the balance between simplicity, effectiveness, and speed. That's our job as managers (and consultants).

Is it Easier to Service the RIA Market Today?

by Deb Wetherbee

Historically the RIA market has been a challenging channel for asset managers to cover for many reasons. Generally speaking, RIAs do not like wholesalers, do not feel asset managers contribute to their value proposition, have fickle, "entrepreneurial" personalities, and are located in disperse geographic locations. This makes coverage models frustrating and expensive. However, there are clear signs that RIA receptivity to asset managers is changing.

The current market environment has led many advisors to change firms and to shift channels altogether. In addition, RIAs core investment philosophies were tested over the last year. These facts, combined with asset growth in the channel, make the RIA channel very appealing. More than 70% of RIA's new assets are coming from full service firms, according to a TD Ameritrade survey.

By some accounts, it appears that RIAs may even be eager for your advice. We saw this in the wirehouse and independent channel as early as last December. Our partner, Horsesmouth had a record number of financial advisors seeking out content, asking for advice on how to talk to their clients, and simply looking for a place to share the horrors of the day. These sentiments were echoed at kasina's recent Distribution Summit by Ron Fiske, EVP at Fidelity, as he discussed the Registered Investment Advisors that his division services. After selling to RIAs in the late 1990's myself, it was refreshing to hear that the time may have come for RIAs to willingly accept information from asset managers. RIAs are looking to understand and to provide clients with explanations. Whether economic, portfolio related, or tax-centric, it appears that your thought leadership will now be well received.

This paradigm shift, in conjunction with the fact that RIAs appreciate web-based communication, makes servicing them a profitable proposition. Our FA Vision research shows that 61% of RIAs prefer web / e-mail based communication over the more expensive phone and in-person service. There are many successful hybrid teams servicing this channel, which is a much more efficient distribution model.

As you develop your 2010 plan and focus on profitability, think about the RIA channel. Keep in mind that you may finally be able to leverage your existing content. Review your economic and portfolio manager content and communication strategies, and think about webinars and hybrids. It is even likely that an existing business-building program is perfect for this audience. The strategy to grow your RIA business could be a profitable one for a change.

kasina Study Recognizes Top Variable Annuity Web Sites

by Eric Daugherty

In September, kasina released "2009 Top 5 Web Sites for Financial Advisors: Variable Annuities". In the study, we sought to identify the top firms that most effectively leverage the Web to promote and establish their variable annuity presences.

During this Variable Annuity study we learned a lot about which firms are differentiating their products and their websites. The top five firms are: AXA Distributors, SunAmerica, Lincoln Financial, John Hancock, and Pacific Life.

Top site features are diverse and include microsites, product filtering systems, automated forms, calculators, marketing materials and support, advisor sales support, application wizards, and comprehensive market commentaries. The image below shows AXA's product performance graphing function, which gives advisors the opportunity to analyze trends and compare subaccounts.

The last eighteen months have been tough on the variable annuity (VA) business. Consider:

• There are nearly 1500 unique products competing for assets
• Total VA assets declined 24% from 2007 to 2008
• Sales of variable annuities dropped 15% from 2007 to 2008, with Q1 2009 exhibiting another 27% decline year-over-year

With those challenges behind them, we anticipate that annuity providers will continue to innovate, using both their products and their websites. Investors' appetites for products that provide some downside protection or assurance of retirement income are on the rise. Consequently, annuities, and the websites that support them, will be vitally important going forward.

It Is Like 1996 All Over Again

by Lee Kowarski

On Tuesday, I spoke on a panel for the ICI's Public Communications Committee about social media. I wanted to share a few key take-aways from our discussion:

• The question isn't "Should We?" but "How?" - Back in the mid-90s, many clients asked me whether or not they should have a Web site. While that question seems laughable today, I used to tell people that every firm needed to be on the Web and that their focus should be on developing a well thought-through strategy to use the Web effectively. The same thing is true today for social media: firms shouldn't just run out and join Facebook and Twitter, but rather sit down and formulate a clear social media strategy. Every firm will not end up joining every social media site, but every firm will have a social media presence of some kind.
• Regulators are open to social media - A representative from FINRA that was on the panel shared that the organization is actively working on establishing clearer rules regarding social media through a Task Force and as part of the new Regulatory Notice 0955. Perhaps more importantly, it became clear through the discussion that most firms are under the belief that the regulators are far more restrictive when it comes to social media than they actually are, and that it is typically firms' internal departments that are holding them back.
• Have clear policies - Whether your firm jumps into the social media space head first or not, every firm should have a clear, well-communicated policy around what employees can and cannot do on various social media sites. IBM made its policy available online and may serve as a guide for firms looking to articulate their own.

Today, the focus of the buzz is on Twitter and Facebook. A few years ago it was Friendster and MySpace. Tomorrow, it may be UStream and a community that doesn't even exist yet. Regardless of the specific site(s), social media (like the Web) is here to stay. You shouldn't be asking if you need to join the fray, but rather thinking about how you can most effectively embrace social media.

Aligning Business Units During 2010 Planning

by Anu Heda

In the August Industry Analysis Brief, Mike McLaughlin wrote an article about "Staying the Strategic Course". One important message from that article - align goals across business units to improve ROIC.

As part of the Industry Analysis service, I lead discussions each month with subscribers. Each subscribing e-Business organization admitted to having little familiarity with Sales esand goals. If that's the case, building a Web site to support sales is going to be pretty difficult. Here are four simple, no-hard-dollar-cost actions that e-Business teams can take to rectify the issue:

1. Learn the "Sales Goals" - Are they to grow net new advisors? Is 2010 the year to focus on Raymond James? Whatever they are, learn that organization's goals.

2. Ask for an introduction to the "Sales Process" - Most firms use a multi-step, consultative approach that takes a prospective advisor from "unfamiliar with the firm" to "dropping a ticket" (or beyond). Learn the basics of that process.

3. Emphasize Online Tools that Can Aid the Sales Process - In the sales process, there will be periods during which interactivity is more advantageous than person-to-person contact. For instance, if the sales process includes "introducing thought leadership", then many advisors will prefer video, Webinars, online articles, or searchable market commentary over large binders that are sent to their offices.

4. Align some part of the e-Business goals with Sales - Suggest that the e-Business goals overlap with Sales to ensure both organizations move together. If the Sales goal is to grow and net new advisors, then drive resources towards the goal of e-Marketing and netting new Web site registrants.

This can clearly lead to increased operational efficiencies and to improved goal planning.

How Asset Managers Should Use LinkedIn

by Steven Miyao

In the August addition of our Industry Analysis, a monthly service that helps asset managers evolve their online offerings, I wrote about how asset management companies have a real opportunity to take advantage of the LinkedIn Networks that their wholesalers have built.

There are approximately 700 mutual fund wholesalers and 46,000 financial advisors on LinkedIn. Most asset managers have been ignoring this platform, despite the fact that it offers an easy opportunity to connect with these clients.

LinkedIn is different from most other social media sites (such as Facebook and Twitter) because it is exclusively a user-driven, professional networking site. The site was originally a career building site on which users could post their resumes and interact with other professionals in order to gain access to job opportunities. Over the last few years, the site has evolved to provide wholesalers and marketers with the ability to interact directly with targeted advisors.

Your wholesalers hold the key to your firm's LinkedIn success. They are the individuals within your organization who have established a network with the advisors. Therefore, advisors will want to connect with them online in the same way that they connect with them in person.

Many wholesalers and advisors employed by firms that restrict LinkedIn connect to the network on their home computers. Merrill Lynch seems to be one of the firms that restricts access at work, but 6,855 Merrill Lynch financial advisors are on LinkedIn. Asset managers can choose to ignore the trend towards active usage and restrict access, or they can embrace usage and find ways to incorporate LinkedIn into their general business practices. Some firms may not find a way to take advantage of this medium, but their competitors most certainly will.

Help your wholesalers to improve their LinkedIn profiles. When your wholesalers connect with advisors, they should represent themselves and the firm in the best light. We recommend the following six steps when updating your wholesalers' profile pages:

1. Make sure they complete 100% of their LinkedIn profiles to include:
- A current position
- Two past positions
- Educational background
- A profile summary
- A profile photo
- Their specialties
- At least three recommendations

2. Encourage them to get key recommendations from their advisors

3. Provide them with a profile picture that they can upload

4. Include your advisor Web site URL

5. Ensure that they do not block incoming e-mails

6. Show them how to create polls

LinkedIn is going to continue to gain popularity among financial advisors and wholesalers. Start the process now, keeping compliance challenges in mind. Your firm will get a leg up on the competition by helping your wholesalers take advantage of this medium.

Creating Emotional Connections With Technology

by Mike Ma

Watch this TED talk from Tom Wujec at Autodesk. It's a good use of 6 minutes of your day. He talks about the ways in which humans create emotional connections and relates them to Web and technology development.

In particular, wait for the ending at 5:35. Imagine if we had applications like his sustainability building demo. What if you could use a portfolio builder that used your image as the main character in order to show a different life that you could be leading?

We've done a lot of research that outlines the ways in which better Web sites produce better sales. However, I think we have just scratched the surface of what "better" means. Right now, we just look at the Web as a cost-effective way to distribute information and data (primarily numbers and text). Which firms focus on using the Web (or any technology) to help explain their individual stories, big ideas, and provide a context for their products? Who is employing an emotional connection in their strategic plan?

Accelerating Rate of Change

by Deb Wetherbee

I've been an industry observer for many years, and right now I'm excited to watch the rapid change our industry is going through. Historically, change has been slow for financial service firms. In the past I've seen several copy-cat strategies and witnessed a fear of first-mover disadvantage. This has been the case for products in development, marketing strategy, and the compensation structures in distribution companies.

Here are a few examples of the accelerated rate of change in the current environment:

Blending distribution channels: Wirehouses sub-advise for the fund supermarket and everyone has focused on the increase in the number of RIA's (and independent reps). UBS, for example, sub-advised a fund for Schwab. The RIA access this affords UBS is fantastic, and Schwab simultaneously acquires a great product with a 10 year track record.

Adapting to fewer wholesalers: We have seen the industry go back and forth between the generalist and specialist models, increasing and then decreasing the size of wholesaling teams, and experimenting with hybrid models. We never saw the seeds of real change until the environment forced it on us. Just as advisors have adapted to working in teams, wholesaling seems to be moving toward increased colaboration by adding a hybrid, a CFA-type analyst, or even a national accounts-type to the internal/external team.

Getting your message out there: This seems to be easier than ever, but the increased use of social networking is actually making it more complicated. In the past, fund companies had press releases, ads, marketing materials and wholesalers to spread the word. It was not easy to control a consistent message within these limited mediums. Today you have your customers (both advocates and detractors) spreading the word via web sites like Facebook or Twitter. Your press release can be a video on Youtube, text on Scribd, or a specific message on your own micro site that uses general educational materials to add value. The rapidity of message delivery has increased, whether we are ready or not.

The year has been difficult, but the opportunity to create and adapt to new business models, distribution strategies, product development processes, and advisor/consumer communication mediums is exciting. Internally, we've been considering many of these models and strategies for quite a while. Now we have the freedom to be creative. We can move away from the fear of first-mover disadvantages and start trying new things.

Customized Domains - Will Asset Managers Snap Up Online Vanity Plates?

by Mike McLaughlin

Since the beginning, Web sites have been built around ubiquitous extensions such as .com, .net, .org, .gov, and .edu. These suffixes have both simplified and limited the Internet. Later this year, everything will change in the realm of domain suffixes. But what will the resulting changes be for asset managers and their Web sites?

Farhad Manjoo at Slate.com (one of the five best Web sites in existence) superbly summarizes the pending changes to domain-naming conventions. The gist is that ICANN, the international non-profit that regulates online addresses, is green-lighting a domain-name free-for-all starting in late 2009. With limited legal and (ahem) moral restrictions, individuals and firms will be able to create customized domain suffixes.

Forget kasina.com. Now we can potentially snap up kasina.consulting. Asset managers can go the same route: fidelity.com becomes fidelity.investments. Suddenly the sometimes pesky period in T. Rowe Price becomes an asset, and anyone who uses a first initial and their middle name should be fired up.

However, as Manjoo points out, this flexibility in crafting domains is not really necessary. The reality is that modern browsers and search engines have greatly diminished the need for such complexity. It is no longer vital to have the perfectly crafted domain name and suffix. Internet Explorer and Google are smart enough to find kasina's site without anyone knowing whether we're kasina.consulting or kasina.com.

Although I agree with Manjoo, I think he is overlooking the phenomenon of vanity license plates. Car owners don't need these, but many drivers choose to spend money on this mode of expression. For example, a friend of mine has dreams of getting approval for a vanity plate that contains a disguised expletive.

I think the changes from ICANN will yield similar results. People and firms will not need fancy, specific domain suffixes, but some are going to snap them up anyway. Asset managers are included in this, as I see two potential applications:

1. Branding and Differentiation: Many asset managers end their names with terms like "investments" or "funds", but under ICANN's plan only one firm can own those suffixes. Is there some cachet to have a firm's Web address as firmname.funds while everyone else is firmnamefunds.com? I suspect a few firms will answer "yes".

2. Campaign Support: Pioneer recently launched a microsite to support its View the Values campaign at viewthevalues.com. With relaxed naming conventions Pioneer could instead utilize addresses such as viewthevalues.pioneer, or even view.the.values. In pure-play Web marketing initiatives, funky domain suffixes could have increased appeal.

So, back to the original question: will customized domain suffixes change much for asset managers? Probably not. But the changes that do occur will certainly be interesting.

Top Mutual Fund Brands - American, iShares, and Ivy

by Lee Kowarski

Today, we announced that our recent FA Vision survey found that the mutual fund companies with whom advisors associate the most positive brand attributes are American Funds, iShares, and Ivy Funds. The results are based on the industry's largest-ever (to our knowledge) survey of financial intermediaries: 3,129 responses gathered from April 2nd and April 20th.

The firms with the highest Brand Association Score in the FA Vision survey are:

1. American Funds
2. iShares/Barclays
3. Ivy Funds
4. PIMCO/Allianz Funds
5. Vanguard Group
6. Franklin Templeton Investments
7. BlackRock
8. Fidelity/Fidelity Advisors
9. JPMorgan Asset Management
10. Natixis Funds

While many of the traditional intermediary-distributed fund companies are viewed positively by advisors, we are glad to see that the hard work of some newer players is being recognized as well. American Funds has certainly established itself as a leader in several areas, including consistency, dedication to advisors, ease of doing business, and trustworthiness. Other firms were also well received, particularly in certain niches. iShares and Ivy Funds, for example, were viewed as exceptionally innovative, PIMCO as especially sophisticated, and Vanguard as the least expensive.

The FA Vision Brand Association Score is an average of evaluations of a firm's brand by advisors who do business with that firm regarding each of the following attributes:

- Consistent
- Dedicated to Advisors
- Easy to do Business With
- Ethical
- Global
- Inexpensive
- Innovative
- Socially Conscious
- Sophisticated
- Trustworthy

If you haven't already done so, sign up for the FA Vision "Nugget of the Week" newsletter to continue to receive insights from FA Vision.

Source: Horsesmouth and kasina: FA Vision

Inflation and Tax Management Will Become Paramount for Investors

by Eric

There is a large first-mover branding opportunity to be had, but we are not hearing much about it yet. A quick word association test:

ETFs = Barclays.
Index funds = Vanguard
Bonds = PIMCO
Tax management = Ummm
Inflation protection = Well...

No one seems to own the inside track on inflation protected or tax managed products, yet they are bound to become critically important to investors over the next twenty years. Here is why this opportunity is ripe for the picking.

Fast forward twenty years (2029) and tell me if this stretches the imagination:

• Rampant deficits from the 2007 - 2011 recession have left national debt at astronomical levels


• While President Obama spoke of fiscal restraint after the deluge of spending during the 2007 - 2009 financial crisis, his successors never scaled deficits back to pre-crisis levels


• Medicare is defunct


• Social Security is bankrupt, returning twenty cents on the promised dollar


• Given all of that, tax rates have gone up across the board. The top marginal rate is 50%, capital gains are now taxed the same as ordinary income, the preferred rate on qualified dividends has been abolished


• Partially as a result of printing money for a half-decade to prevent a depression, inflation has spiked from a relatively sanguine 2%, to a consistent 5%

To simplify, there are only three ways the U.S. can get the money to pay off debts:
1. Grow the economy rapidly enough that foreigners pay us for products we make or services we offer
2. Collect more in taxes (more profitable if we do this in addition to #1)
3. Print money to pay off the debts

If we cannot grow fast enough to pay off debts and we cannot let debt grow forever, then we are left to raise taxes or print money, which ultimately drives inflation.

Should any or all of the bullets above come to pass, investors will need to worry far more about inflation protection, tax costs, and after-tax returns than they do today. Because we can anticipate more modest asset returns going forward, investors and advisors need to start paying attention to this now for two reasons: (1) costs of any sort silently but steadily erode the growth of nest eggs over time; (2) rebalancing into tax-sensitive, inflation-protected, lower-cost funds can be difficult and costly to do in taxable accounts.

All of this means that asset managers and advisors have an opportunity to be at the forefront of these topics. Asset managers should tailor more of their products to address these needs (recent inflation-protected fund launches from Wisdom Tree and PIMCO show that they anticipated this) and start (or continue) talking to advisors and investors about them.

While the above theoretical scenario is twenty years in the future, the company that will be the industry leader in this space has already started addressing the issues. Which company will it be?

Death of the 401(k) - Misplaced Blame?

by Eric

It seems that many are wondering whether the 25-year run of the tax-deferred retirement savings vehicle known as the 401(k) is over. I believe that 401(k)s are here to stay, but need to be viewed and used in the proper light.

In a recent "60 Minutes" appearance, Rep. George Miller lambasted 401(k) plans as being opaque and rife for excessive fees. They can be. To the financial novice, these plans are complex and confusing. Certainly, more scrutiny is needed to insure that investors understand what they hold and are paying a fair price. This scrutiny will benefit investors, as more transparency will demystify retirement investing and lower fees will enhance returns. Of course, fee cuts will come out of the pockets of asset managers, but those asset managers with reasonable fees and transparent communication will survive this added attention just fine.

Separately, others are saying that losses in 401(k) accounts since the market meltdown proves that 401(k)s have failed as an instrument. This line of thinking strikes me as absurd, akin to my blaming the hammer when I slam my thumb. The tool has not failed. If anything has failed, we as users have. As Alicia Munnell points out in a fantastic piece here, 401(k)s were designed as a supplementary retirement savings vehicle. In addition, they were primarily designed (arising in the early '80s, when Baby Boomers were in their twenties and thirties) to be a tax-deferred accumulation vehicle.

That many sit today with insufficient savings to generate retirement income is more a testament to low savings rates, inappropriate expectations, and user error than to faults of the tool itself. With the additional transparency and fee pressure suggested by Rep. Miller, the 401(k) will still be here to stay as a perfectly good accumulation vehicle. However, they are not the sole solution to investors' needs. Higher personal responsibility and savings rates, and products geared towards retirement income generation, the transition from accumulation to decumulation, and risk reduction are needed to supplement 401(k) savings for many Americans.

Improving Your Distribution Strategy Based on Advisor Data = Advisor Vision

by Lee

As you may have read in Ignites this morning, kasina and Horsesmouth have partnered to launch Advisor Vision, a new service that provides executives with the information that they need to evolve their intermediary distribution strategy into one that is more profitable and sustainable.

Given the amazing amount of changes in the financial intermediary space due to the markets, broker/dealer mergers, etc., asset management firms have an increased need to understand what financial intermediaries are thinking and doing. At the same time, distribution executives are looking for guidance on how to improve the allocation of their resources in an effort to maintain profit margins, which are shrinking from an average of about 35% to 15% or less.

Recognizing these challenges, Advisor Vision taps into the Horsesmouth community of over 70,000 financial intermediaries from 300+ firms on a daily basis and provides asset management firms with detailed, actionable recommendations that are dictated by their business strategy. The frequency of the surveys and the transparency of the data are unparalleled in the market today. Along with the uncensored survey data, Advisor Vision provides clients with a level of customized analysis and recommendations that makes Advisor Vision a necessary tool for all forward-looking distribution executives.

More details are available online or e-mail me to set up some time to discuss our new offering.

Regaining Investor Confidence

by Eric

Investors' primary concerns these days are twofold: (1) is my money safe? and (2) does investing still even make sense? Asset managers and advisors used to have to prove the superiority of their products and services. Since the market meltdown and abuses of investor trust, though, the importance of stacking up versus the competition fades to a distant third after the two questions above. If asset managers are to grow and thrive post-recession, they need to face these two questions head-on.

The first of these questions is fairly straight-forward. Investors have heard enough about Madoff and Stanford to be very wary of turning over their money to just anyone. Discerning the real good guys requires some diligence. Ultimately, reputation, track record, social media, feedback loops and ratings, client loyalty scores, and redemption rates will all signal to investors who is trustworthy and who is not.

The second question for the industry is far tougher. Many investors regret having invested their savings over the last ten years (the "lost decade"). Investing in the markets, once taken for granted as a smart thing to do, has yielded poor returns for many investors. However, there are two ways for investors to react to the results, and the difference between these two viewpoints is vital for asset managers.

Some investors infer that they made a bad decision to invest at all. Others see the results as bad outcomes of good decisions, which happen from time to time. This is not just an academic distinction, because it has implications for future decision making. To hammer home the point, offer me an even-money bet based on the roll of a fair die: I win if it comes up 1, 2, 3, 4, 5; you win if it comes up 6. We roll the die, it comes up 6, and you win. Did I make a bad bet? No! I took a risk and made a rational decision that did not work out, one that I would take again as many times as you offered it.

One cannot always infer the quality of the decision merely from the nature of the outcome. Investing in the markets the last ten years did not work out too well, but that does not mean the decision to do so was poor. Inferring that they made a mistake may cause investors not to invest going forward, and this would be a mistake. Over the long haul, substantial evidence indicates that broadly diversified and regular investing in productive enterprises increases wealth. However, how one does so may change.

Some investors have learned that their risk-tolerance is not as high as they thought. For those clients, new products or services may be in order. Structured products with downside protection (e.g. principal protected notes), annuities, or portfolios including diversification beyond the standard long-only style box coverage may give some investors peace of mind and the courage to continue investing.

Asset managers and advisors recognize that investors are emotional. It is human nature to blame decision making for poor results; this minimizes the role that risk plays and leaves us feeling more in control of our destiny. But our rational mind knows that randomness plays a role in determining outcomes.

Therefore, if asset managers and advisors want to continue to thrive, they need to convince people with assets that investing still makes sense, and that investing the last ten years was a good decision with a bad outcome, not a bad decision. Only after making a strong case for their own trustworthiness and the sensibility of investing at all will asset managers and advisors be able to move on to discussing their particular products and services.

Getting Away With Insane VA Guarantees Does Not Make Them Right

by Lee

The big news today was that The Treasury Department has decided to extend TARP funds to a number of insurance companies. Whether you feel that government intervention is necessary or not, my primary concern is that companies won't be forced to learn from their mistakes. One of the main reasons that many of the insurance companies have gotten into trouble is by providing overly-aggressive guarantees in their variable annuity businesses.

Back in March of 2008, insurers were already struggling to maintain profitability when volatility hit a five-year high and the 10-Year Treasury Rate was around 4%. With volatility at significantly higher levels, and 10-Year T-Bills at less than 3%, radical change is necessary. While some insurers have suspended or scaled back their VA guarantees over the past few months, I am worried that many firms will take today's news as a signal to reintroduce outlandish guarantees as a means of attracting assets. I caution firms against this and encourage them to rethink their product development efforts.

While guarantees are attractive to the ordinary investor (particularly in this market), advisors are rightfully concerned. A recent survey found that more than 70% of Merrill Lynch advisers were worried about the risks that insurers have taken on with guaranteed-minimum VAs - and nearly a third said they doubted the insurers themselves understood those risks.

Industry wide, LIMRA reports that VA sales dropped 15% in 2008 and 30% in the last three months of the year. The key to turning this trend around is not higher guarantees, but rather a rethinking of the product - from product development to sales to marketing.

Defined Contribution - Connecting the Dots

by Anu

I've been thinking a lot about how selling in the DCIO Market has turned into a "me-too" technology struggle for firms. I think reinvigorating human networking is the answer to break the cycle and set-up for abnormal flows.

Mike Ma had a great podcast about the changes in National Accounts strategy which got me thinking about changes in strategies for other lines of business. Then, luckily, one of my favorite clients came into town, and over dinner we went through changes in the Defined Contribution Investment Only business line.

His firm investigated numerous different quantitative-first service models. For instance, the firm provided third-party administrators with fund evaluation tools and techniques unique in the marketplace. Only problem - the TPAs quickly turned around to other investment managers with a "well, FundCo gives us this great tool that ..." Competition with larger IT budgets and more advanced Web sites built greater, faster, and fancier tools.

That first-hand learning with other less-personal attempts clarified the use of an age-old, industry-agnostic strategy - Connect the dots. If your sales organization has access to in-demand branch offices that the TPA can't access, providing a brief and helpful introduction connects the dots for the TPA wholesaler to sell (potentially) 401k plans within that branch.

It's simple, but also not so simple. Does the savvy DCIO colleague open your firm's rolodex to every TPA? Of course not; yet, in the right scenario - that's a powerful and effective technique. The hard part is deciding who to connect with whom...

But in the end - just connect the dots.

Beware Focusing Heavily on the High End Advisor in a Downturn

By Mike Ma

In the downturn, I have talked with a number of distribution executives who are turning their attention to the high-net worth advisor, many of them RIAs. I urge some caution before getting too enamored with this strategy and I'd like to present an alternative.

Although this path is often argued to be attractive, we have to be realistic about the historical difficulty asset managers have had selling to this market in good times. Few firms have the products that these advisors want, and if they do, chances are they are already working with them. Advisors will call the manufacturers, not the other way around.

Clearly, creating a viable market entry strategy for high-end advisors is likely to be a mess if you are starting from square one in 2009.

I'd like to present a better alternative in times of near nuclear-level restructuring of the advisor market - to figure out mid-market sub-segments of advisors who will be around after the nuclear fallout, and get there first. An outstanding article in this month's Harvard Business Review that echoes this point, Value-for-Money Strategies for Recessionary Times (free).

The article highlights some best practices, and a good deal involve intelligent segmentation strategies that may hit the low end.

• Haier, a low-end player in the appliance market, cornered a significant, profitable portion of the refrigerator market too by catering to the needs of wine enthusiasts.
• Zhongxing Medical crippled GE and Phillips with low-end product and pricing strategies on mid-market radiology imaging machines.
• Acer Computers focused their laptop marketing toward airport business travelers while Dell is still taking out ads in newspapers.

While the examples outside of our industry go on and on, we might consider similar strategies we are hearing in our industry. Comments made during Steven's panel at NICSA by Bill Dwyer, President, Independent Advisor Services at LPL, indicated that they are focusing on a lot of advisors in non-urban areas were these advisors are very important to that community and they can be profitable in their model, even with production less than $300,000. Theory is that these could be forgotten targets that could withstand the storm ahead.

Finding these advisor segments are more likely to produce long-term value for money to the shareholder, and frankly as an asset manager, at least thinking for a bit outside the high-end advisor box might bode good things and long-term success.

Irrationality and Investor Decision Making

by Corianna

Check out Dan Ariely's presentation (see this link; you have to select Ariely's name from the "video" dropdown). And no, this isn't just because he's on faculty at my alma mater.

Here's why Ariely's presentation is worth 20 minutes of your life: Ariely's work is about human decision making - the driving force behind our economy, and the current economic crisis.

In his presentation Ariely describes how people's decisions are affected by the structure that their options are presented in. For instance, in one study researchers found that, when confronted with a simple decision - delay a scheduled surgery to see if ibuprofen would solve the problem, vs. perform the scheduled surgery - doctors are likely to act "rationally," and chose to delay the surgery. However, when the decision circumstances become more complex - delay the surgery to test for the effectiveness of ibuprofen and an additional medication, versus going ahead with the scheduled surgery - doctors chose not to delay the surgery.

So, why does this matter to asset managers? The key to surviving this crisis will to understand and anticipate investor decisions, which are not always rational. It's a well accepted fact that the structures of 401k plans (for instance, automatic enrollment), have a dramatic effect on levels of participation and the quality of investment decisions made by participants. Now is the time to take these lessons further.

Americans Want to Talk About the Financial Crisis

by Corianna

People want to talk about the financial crisis. Communication is key. We've been talking about it and blogging about it for months now.

Last week, some new numbers from Pew affirmed the importance of everything we've been saying. According to Pew, Americans:

• Are beginning to hear good news: Compared to December, the number of people saying they are hearing mostly bad news has dropped from 80% to 60%; meanwhile, the number saying they are hearing a mix of good and bad almost doubled from 19% to 37%.
• Want to know what's going on, good or bad: 91% of Americans following economic news very closely report feeling better because they know what's going on; whether or not it's good news. 79% of Americans who follow less closely feel the same way.
• Feel under-informed: 40% of those following the news closely feel they don't have enough background knowledge; 54% of those following less closely share their sentiment.
• Care more when they make more: 83% of Americans with household incomes above $75,000 and 64% of those with household incomes of less than $30,000 say they need to stay abreast of economic news for financial reasons.

In today's scandal-stricken world, asset managers must not take their positions as trusted investment consultants for granted. People want information, and more of it; no huge surprise there. However, with the ever-expanding blogosphere and a plethora of news publications, the competition for investor attention is intense. Today, more than ever before, transparency, easy access, and timely publication will be paramount. Asset managers would do well to go to their audiences through syndication (e.g. disseminating content through other sources; having portfolio managers featured on news shows, etc.) and new media communications, rather than waiting for investors and advisors to come to them.

Outcome Oriented Funds

by Steven

My last couple of days at the NICSA annual conference got me thinking about the viability of 40 ACT absolute return products.

Many baby boomers who thought that they were well diversified have seen their retirement goals slashed or erased by the current financial crisis. This has triggered distrust among investors towards traditional investment approaches causing assets to move into low-return cash-equivalent investments. Some asset managers are responding by providing investors with outcome-oriented products that mitigate risk, generate income, protect principal, and/or guarantee at least modest returns.

This year's NICSA conference was filled with heated debates on how to tackle the current financial crisis. In his keynote address, Philipp Hensler, CEO of DWS Scudder Distributors, pointed out that the nine Morningstar boxes are too highly correlated to provide sufficient diversification for investors to sustain the current drop in the financial markets. A theme emerged around the importance of using product innovation to better accommodate the changing landscape. The financial environment has changed and investors are now realizing that they were not sufficiently diversified.

Some firms have responded to the lack of protection via the Morningstar box diversification by creating 40 ACT products that move away from relative to absolute performance. Unlike relative return funds, which measure themselves against market indexes, absolute-return funds are designed to always produce a positive return regardless of the directions of the market.

Two examples of funds that fall under this category are:

• Putnam's Absolute Return Funds


• DWS's LifeCompass Protected Fund

Putnam's Absolute Return Funds is a family of target absolute-return funds that seek annualized total returns of 1%, 3%, 5%, or 7% above those of Treasury bills over a period of three years or more. The funds include two global bond funds and two multi-asset funds.

DWS's LifeCompass Protect Fund is an asset allocation fund with a10-year maturity that is designed to protect principal, limit down-side risk, and lock in gains on a daily basis. At maturity, shareholders will be able to redeem shares at the highest NAV of the fund. Different from Putnam's product, DWS has an actual guarantee that they are able to fulfill through a third party financial warranty. The warranty assures that shareholders will receive an amount that is at least equal to the highest NAV on the maturity date. The fund utilizes an enhanced constant proportion portfolio insurance ("CPPI") investment strategy in managing the fund.

These products have clear advantages:

• The investor can plan their retirement around these products because of their certain outcome


• Fees tend to be much lower than hedge funds and lower than variable annuities


• They fall under the same strict compliance rules as traditional mutual funds

Actively managed mutual funds will not be able to survive in this market environment if all they are able to do is outperform their competitors in a style box, but still manage to lose their investors money. The mutual fund industry needs to go the direction of absolute returns in order to combat low cost ETFs, as well as annuities.

$1 Trillion Dollar Decline in 401(k) and IRA Equities

by Anu

Can our industry simultaneously answer concerns about the recession and discuss long-term investing once the carnage ends? Is there a natural place to consider that overlap? Yes.

Retirement-linked investments! Whether it's a pension, 401(k), 457, or a 403(b) -- Americans have lost ONE TRILLION dollars in wealth, and investment managers need to communicate:

• What's happening now?


• What can the investor do after the recession?

Throughout history (well, at least since marketing communications have been measured), bad times beget communication opportunities. Two great political examples would be Barack Obama's amazing acceptance speech and Ronald Regan's lead communication for re-election.

This speech and advertisement share three attributes of successful marketing communications:

• Examples for people to relate with


• Numerous mentions of unity


• Empathy

Exhibiting these three attributes was not luck. The Obama team and Hal Riney started with the first step: understand your audience. As Asset Managers plan their communication strategy, I'll suggest their first consideration should be fear, or risk aversion.

With regards to an individual's retirement, our industry must recognize the impact of the most dominant, undeniable human emotion -- fear. Humans have greater unhappiness with small losses than happiness from small gains. In economics, this is a study within behavioral finance, and topic called "risk aversion."

Risk aversion should be an important component in the marketing of retirement-linked investment options. It not only possesses the attributes of a successful marketing campaign, but it is relevant to the four constituents' asset managers involve -- plan sponsor, plan administrator, trustee, and plan participant.

I read a great quote from BGI Chief Executive, Blake Grossman, "This is a business opportunity, but it goes beyond that, to almost a moral calling." Some firms are already taking the lead in describing the situation and using the Web to scale that message; AllianceBernstein has a micro-site that describes risk aversion well. Yet too many firms may not be spending the time to understand their audience and communicate effectively.

And when the topic is our nation's retirement, we have to communicate better -- much better.

The Science Behind Optimizing Financial Advisor Interactions

by Anu

On a frigid day in January of 2009, a conversation returned me to the spring of 1994. Math 54, or Linear Algebra, or specifically linear equations, enables us to solve multiple linear equations simultaneously.

So, on this day, I was discussing the optimal advisor outreach strategy with a client. In the past, when this firm 'learned' of a new advisor, the sales analytics team tried to add four wholesaler visits in the first year. Based on one-year potential flows from this new advisor, the answer was binary: yes or no. Either the wholesaler responsible for the associated territory visited the new advisor, or not.

Now the firm is looking to consider multiple avenues for providing coverage to new advisors:

1. External wholesaler visits


2. Hybrid wholesaler coverage


3. Outbound sales desk coverage


4. E-mail campaigns


5. Web coverage

Through myriad data sources (Coates Analytics, National Accounts relationships, etc.) the firm collected investable assets and advisor AUM grow to model opportunity for a shift of new sales to their firm. Based on the potential flows and receptivity to communication channel, the firm will design a communication plan with any combination of the above. This enables the firm to scale distribution, reach more advisors, improve advisor feedback, and save money.

Optimizing those channels is a series of linear equations. As we wrote in Service by Segmentation and in previous posts, growing distribution does not necessitate growing wholesalers.

So all this brings me back to spring time in Berkeley: Math 54, Natalie Merchant at MLK Auditorium, eucalyptus in bloom, March Madness, ok, ok, sorry -- I digress.

Highly Productive Organizations

by Anu

Happy New Year! It's a natural time to reflect on 2008 and begin considering the impacts we would like to see on 2009. I took the time to go through last year's travel plans. I spent time on-site at 9 asset managers throughout the US. What are the keys to success over stagnation? How can firms break through and win market share? These and similar questions gnawed at me over break.

And somewhere between New Year's Eve's roast duck (remember low and slow with whole birds) and the Rose Bowl crudites, I realized there's no answer, not even a complicated one, that can match each firm's unique objectives.

I have two important insights.

First, it's a thin line between success and stagnation. Often the line isn't crossed due to a lack of organizational inertia. Time and again I heard things like, "Our compliance won't allow us to do that," or "Our FINRA analyst is especially rigorous." When I probe and ask if other options were explored, most often they were not.

There is only one universal success-killer: Ego. That's a matter better suited for the philosophers at kasina (Mike, Corianna, care to chime in?) than me. Countless times, I saw actions and plans designed to grow a career not AUM. Maybe it's natural. It's probably human nature. But some rare and unique organizations have developed a team of low-ego, highly-motivated leaders (can you see the two-by-two), and are winning in the marketplace because of it.

For example, I spent considerable time in 2008 with a firm that is the industry-leader in a specific investment discipline. We collaborated over six months to create an all-channel, global Web strategy. Near the end, a new Marketing leader arrived, created a culture of fear internally, and decided to go a different direction than the kasina/team one. None of his new direct reports felt empowered to rise above his ego to support the half-year of work. Further, the functional team has spent the last six months stagnating as they await the "different direction." It's an example I'll keep for my personal leadership as well as steering clients.

What We Sell: Investment and Distribution Professionals

by Mike

I was on the Royce Funds site last week. Tooling around, one tidbit generated a strong reaction from me.

Chuck Royce manages or co-manages fifteen open and closed-end funds. Fifteen!

A few questions immediately popped into my head:

• How can he effectively manage fifteen portfolios? I know his firm has a small cap focus and employs 29 investment professionals, but I wonder how Mr. Royce's expertise can be fully applied across fifteen distinct products.
• Do financial advisors realize this and/or care? Financial advisors might only know if Mr. Royce manages the products they utilize, not the full scope of his responsibilities. Or maybe they know, but primarily value having the man that is the brand attached to their clients' assets.

Let's table the issue of portfolio manager scale (though it will be revisited). After my initial questions, I spent more time thinking that this situation presents an important a marketing question.

As an industry we speak in the language of products: new ones, ones that close or merge, and, of course, ones that are performing particularly well or particularly poorly.

What I like about Royce's site and brand is that it is first and foremost about people. The assets under management included in the firm profile hasn't been updated in more than a year. But the profile for Charlie Dreifus has already been updated this month to reference his recent 2008 Morningstar Manager of the Year award.

This prioritization is something most firms miss. Collateral and Web sites focus on products. Performance figures (not a guarantee of future results, of course!), Morningstar/Lipper rankings, and stock photos of retirees and middle-aged professionals walking the beach are the stock of our marketing trade. PM profiles are typically non-existent or minimalist and dry, including nothing about what makes them interesting as people.

Aren't people what advisors and investors are buying? The asset management vehicle is one that packages the ideas, expertise, and personalities of people who oversee and distribute them. I mean, is there a Head of Distribution out there who wouldn't argue that a vital reason for a firm's success lies in the wholesalers, who last I checked make zero investment decisions?

It's cliche, but people are firms' greatest, and in many cases only, asset. And while balance is needed to minimize the damage of turnover and other personnel issues, this asset needs to be more of a focal point when it comes to marketing. And not just the investment management talent, but everyone.

A switch to selling people, not products, suddenly makes attaching Chuck Royce's name to fifteen portfolios seem pretty savvy.

Staged Mourning and the Asset Manager Marketing Challenge of 2009

by Corianna

In her 1969 book On Death and Dying, Elizabeth Kubler-Ross identified five stages of mourning:

• Denial
• Anger
• Bargaining
• Depression
• Acceptance

A notable study, done at Yale in 2007, challenged Kubler-Ross and found the cycle to be denial, yearning, anger, and depression. It notes that acceptance--the final end state--increased throughout the mourning process.

Either way, I've recently noticed a growing number of angry, let's-take-revenge-on-Wall Street headlines. It seems like the initial shock and panic are slowly morphing into anger. As this continues, calming panicked clients will no longer be as pressing as it was four months ago. According to mourning stage theory, anger, frustration, and depression will trump shock. Advisors and asset managers should prepare to deal with consternated, blue clients. And, for asset managers, the marketing challenge in 2009 will be developing campaigns that appeal to clients at all stages of "mourning."

Getting the Most From Your Wholesalers in 2009

by Lee

In our latest report, "Maximizing Advisor Interactions: Dos and Don'ts for Wholesalers," we lay out a series of recommendations for wholesalers based on insights from an extensive survey of 343 advisors and a series of in-depth follow-up interviews. The key steps, which most wholesalers fail to take today, are:

• DO Focus on Segmentation: A one-size-fits-all wholesaling model does not work. 80% of interviewed advisors believe that most wholesalers do not segment their advisor bases or attempt to customize their messages based on what is relevant or of interest to the advisor. At firms where advisor segmentation is being used, wholesalers should be given extensive training on how to use information on the segments to tailor their approaches going into advisor meetings. Whether or not firms have holistic segmentation strategies in place, however, wholesalers should be using all resources at their disposal to learn about each advisor's business before going into a meeting, in order to make the meeting as relevant and useful to the advisor as possible.
• DO Be a Product Consultant, Not a Salesman: While 91% of surveyed advisors said that it is helpful when wholesalers recommend specific products, 100% of interviewed advisors cited product "pushing" as their biggest wholesaler pet peeve, so wholesalers need to know the difference and be capable of doing the former without doing the latter. An advisor should feel that he is receiving customized advice on what products will meet his particular needs, rather than the same generic product pitch that the advisor before and after him is receiving. Wholesalers should assess an advisor's current needs, concerns, and knowledge gaps, and then be honest in their recommendations, saying if their firm has a product that can fill a specific niche, but admitting if their firm does not, or if a competitive product is a better fit. Winning an advisor's trust is more important, in the long run, than any single sale.
• DO Provide True Business Building Support: 74% of surveyed advisors said that whether or not a wholesaler "understands and helps me with my business-building needs" is either "very important" or "somewhat important" in determining whether they continue to meet with that wholesaler. However, many wholesalers today continue to simply drop printed copies of value-added programs on advisors' desks without helping the advisor to apply the program's tenets to her business or providing tailored support based on the advisor's specific business needs. Wholesalers should help advisors with their prospecting, client communication, and client retention efforts. Additionally, the movement of many advisors toward the independent channels presents an opportunity for wholesalers to provide advice on managing an advisory practice without the infrastructure and support that they previously received from their employers.
• DO Continue the Dialogue Between Meetings: After meeting with an advisor, wholesalers should make sure to follow up. Interviews with advisors revealed that many are dissatisfied with the lack of follow-up from wholesalers after their quarterly or semi-annual meetings. As one advisor put it, "If the only time I spoke to my clients was during meetings, they wouldn't be my clients for very long." 91% of advisors do want wholesalers to follow up via their internals, and 55% expressed a preference for e-mail follow up from internals. In keeping with the universally expressed desire for a more consultative wholesaling model, maintaining an ongoing dialogue between the firm and the advisor is essential to building a productive and enduring relationship.

If you can institutionalize these steps and ensure that your wholesalers follow them, you will stand a far greater chance of hitting your targets in 2009.

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.

Presentations on Why e-Business is Sales, and Sales is e-Business

by Mike Ma

I've made this point many times, but I wanted to share some recent client presentations that demonstrate clearly why now is the time for e-Business initiatives, not retraction.

Let me know if you'd like me or someone from kasina to talk you through these points.

We Are Not As Divided As Our Politics Suggest

by Mike Ma

Last week in Ignites, Steven submitted a piece that explained why he supported Obama, and Jon Fossel wrote about why he supported McCain. Both pieces made good arguments as to policy/tactical pros and cons for our industry ranging from product development to taxation.

However, as I head to the polls in about a half an hour, I am writing today to submit to you that we, as an industry, are not as divided as our politics suggest - at least philosophically speaking. As Lee Gremillion correctly points out in A Purely American Invention, the open-end mutual fund is the way that most Americans procure financial advice.

I'd challenge all of us to use today to look at where we stand today with regard to that principle. I'd submit that if we think about this hard, that we will all be better off in the end regardless of our politics.

I was reminded of this as I recently returned from NICSA's Technology Summit, where last year I had the pleasure of moderating a panel on the Shareholder of the Future. My own personal takeaways from the panel were the following, and I think that these perhaps hold true more today than before:

1. We can look to increase the household penetration of mutual funds. Brian Reid, Chief Economist at the ICI, shared the following three slides (whole presentation available here). As you can see from the chart below, the data suggest that we may be approaching saturation toward the right hand of the wealth curve.

2. We need to get younger investors to contribute to save for retirement. The people who could, but don't participate tend to be the younger ones.

Furthermore, at this year's Tech Summit, Ilkay Can, Director of Acquisition at Schwab, noted that Gen X and Y investors are twice (that's 2x!) as profitable as typical investors since they are "stickier."

3. We need to prepare our businesses to succeed overseas. Vijay Advani of Franklin Templeton shared this slide with the audience showing where sales were coming for Franklin, and the international business has since eclipsed the domestic.

These are large, pressing issues that require a longer reach than an extended finger point at an opposing political candidate.

These are real issues that need our attention regardless of our politics.

If we can look inward at our own organizations to better serve the shareholder (that is, all of them) I think we may be able to really restore the luster to that purely American invention, regardless seeing it through a blue or red lens.

I Am Mad At Me

by Anu

For some ridiculous reason, I've started watching the talking heads on cable television. Why? I can't really say. Somehow, I want the news of the day distorted and contorted. Anyhow, why do any of us make these choices?

Simple, we're emotional and spontaneous. Yet, firm after firm seems to desire rote, tabular methods to market and sell financial advisors on the merits of their products. Firms will always get this wrong if they don't appeal to the emotions of the financial advisor in some way. Does the advisor worry about large-scale losses in client accounts? Does the advisor want to be seen as a hero to her clients? Do you know? Do you assess? Last week, Steven mentioned our proprietary research showing advisors are not panicking to move assets away from mutual funds. But are they shifting to funds with an emotional appeal to safety in times of duress? What decisions are advisors making?

Think about yourself and the decisions you make. Advisors have emotions and act on them. Look for kasina to bring more cutting-edge research in 2009 that connects emotions and decision-making.

What Makes a Good ETF Site?

by Johanna

During the research for the 2008 Top Web Sites for Financial Intermediaries report, I had the opportunity to review a number of prominent ETF provider Web sites, which got me thinking: What are the important differences between ETF and mutual fund (or other product)-focused Web sites? How does the criteria for an excellent ETF site differ from other types? A few key distinctions came to mind:

Importance of the Index: In addition to including information about the past performance and the goal of the ETF, it is also important to provide in-depth information about the underlying index. For example, Van Eck has a section within each product profile dedicated to index information. Especially with more products and varied product themes, understanding the inner workings of the underlying index becomes important for transparency and product differentiation.

Retail and Intermediary focus: Few mutual fund advisor sites have a section dedicated to "What is a Mutual Fund" or "Mutual Fund 101," even though this type of basic education is important for investors (who are an important Web audience). Furthermore, for newer products within the ETN space, the basic product education becomes paramount because many advisors really don't know what ETNs are or how to use them effectively.

Data Availability: Some mutual fund-focused firms pride themselves on the historical breadth and depth of pricing and performance information. On some sites, advisors can choose the historical time period to call up whichever combination of information data a decade or more back into the past. What about ETF sites? Given that the surge of product development didn't really get into full swing until after 2000, historical information really won't help. Instead, ETF sites do (and should) focus on presenting the data they have in interestingly visual ways. For example, ishares.com has charting tools for index error tracking.

Of course ETF Web sites cannot simply focus on the differences in products and audiences. Universal characteristics such as comprehensive site search and intuitive navigation, in addition to detailed and comprehensive content, are mandates for all product provider Web sites.

Are Retail Fund-of-Funds the Next Product Development Wave?

by Lindsay

When kasina wrote about the Future of Distribution at the end of 2007, product development emerged as a key issue at or near the top of most distribution executives' minds. While the vast majority of funds available to retail investors currently reside within one of the nine Morningstar style boxes, 73% of interviewed executives indicated that 2008 product development efforts would be focused on products not available in the market today (November 2007).

It's now September 2008, and the wave of new, differentiated products has yet to hit the market. Exchange-Traded Products (ETPs) have continued to proliferate, structured notes and 130/30 funds trickle out, but truly differentiated product offerings are few and far between.

One bright light in the product development landscape, however, is Janus' recently launched Janus Adviser Modular Portfolio Construction Fund (JSMPX). This Fund of Funds couples many product types popular with institutional investors, such as ETPs, alternatives, and derivatives, with more traditional mutual funds to provide exposure to investment vehicles usually unavailable to retail investors, while maintaining adequate diversification for a retail investor.

As fund companies try to lure risk-averse but performance-hungry investors back to the market, well-diversified funds with exotic components may turn out to be the products that strike the right balance. I suspect some copy cats will show up on the scene.

Net Promoter Score for Wholesalers

By Steven

Wholesaler performance is easily measured by looking at incoming sales. The difficulty lies in determining a course of action when both performance and sales are low. How can we judge whether the problem rests in the wholesalers and their processes, or if the products themselves are impeding positive sales?

As the result of recent discussions with our clients, I have started to judge wholesaler performance using more than the obvious metric of sales performance. I have also begun asking advisors this question: How likely is it that you would recommend the wholesaler to a friend or colleague?

The responses to this single question generate a Net Promoter Score, a concept that was first introduced in a 2003 article in the Harvard Business Review. Based on their responses to this question, customers are categorized into one of three groups: Promoters, Passives, and Detractors.

Promoters are valuable assets. They drive profitable growth through repeated or increased purchases, loyalty, and referrals. Detractors, however, are liabilities. They destroy profitable growth with their complaints, reduced purchases, defection and through negative word-of-mouth.

The Net Promoter Score is calculated as follows:

% of Promoters - % of Detractors = Net Promoter Score (NPS)

In this volatile market environment, the Net Promoter Score can effectively measure and motive wholesaler performance.

Segmentation: Build for Future Growth Before Someone Else Does

by Anu

There's a solid stack of data that says the single most important endogenous variable in determining a firm's profit is that firm's investment in marketing and sales. So it was a surprise to me that more than three-quarters of the marketing executives we interviewed for "Service by Segmentation: Matching Service to Advisors" said that while they recognized the value of segmentation, they didn't actually do it.

When asked why, they usually cited lack of data -- either they can't get it, they can't get data they can use; or when they can get it, they can't execute on it. We know, anecdotally, that there's some basic segmentation going on in the intermediary channel, because occasionally, we talk to each other about it, but we also know that segmentation, which is an absolute given in every other branch of financial services (to say nothing of other, even more advanced segmented industries like consumer packaged goods), is still an optional and not a mandatory first step.

Like a lot of other aspects of asset management, we suspect that this is nothing less than inertia from an old way of doing business, in this case, specifically, treating advisors as a monolithic group. Everybody knows that advisors vary wildly in their business needs, attitudes, preferences, and behaviors, but for decades now, the US asset management industry has been able to make money without differentiating much from the 54-year-old advisor in Sheboygan with the mostly suburban, white collar household clientele, versus the 34 year old in mid-town Manhattan with a portfolio full of single career professionals on the brink of 7- and 8-figure salaries. We think the fluid competitive landscape is going to push a change here: very complex firms deeply acculturated in data-driven segmentation are going to change the playing field for the incumbents, and we want to get in front of those conversations.

"Service by Segmentation" is kasina's point of departure for these discussions: How does the modern asset management firm organize a segmentation scheme to optimize its research, marketing, and sales dollars? How long does it take, how much does it cost, how do I procure the budget and the mandate? What's the return for us? How much data do I really need to protect or grow my margins? If your organization hasn't asked these questions lately, the time is now. The winners in the next decade will lay the groundwork in the next few years.

What the Jets Can Teach You About Staffing

by Lee

I became a fan of the New York Jets when I moved to NYC in 1996 (the year the Jets went 1-15) and after 12 years, they've taught me an important lesson about hiring/staffing. Being a Jets fan, I've learned a lot over the years: how to temper my expectations (their only Super Bowl was following the 1968 season), what it feels like to have someone you trust stab you in the back (see Belichick, Bill), and what it feels like to have the competition cheat to get ahead (again, see Belichick, Bill).

But there is hope in Jet-land and a lesson that can apply to every organization. During this past off-season, the Jets spent $140 million to sign Alan Faneca, Calvin Pace, Damien Woody, Tony Richardson, and others. Then, the Jets made the boldest personnel move in franchise history, acquiring the legendary Brett Favre from the Green Bay Packers to replace signal caller Chad Pennington. Whether these moves will ultimately pay off with the team's first Super Bowl in 40 years is still to be seen (Sunday was a good start against Miami), but the Jets management made smart moves that few other organizations have proven willing to make: replacing a number of solid, run-of-the-mill performers with All-Star caliber talent.

Many teams within asset management firms are filled with well-intentioned, but unspectacular people (think Chad Pennington) that are capable of leading the organization to middle-of-the-pack performance.

Is that good enough for your firm? If you are looking to grow faster than the competition, win the biggest institutional mandates, or get the best shelf space, you need to find the All-Star players. Whether you develop these All-Stars in house, or bring them in from another team, it is no longer enough to have nice people that try their hardest. For most firms, the time is now to upgrade your roster if you want to be around in the "postseason." While history has typically proven otherwise, I expect the Jets to be there with you -- go J-E-T-S, Jets, Jets, Jets!

It Takes a Village

by Lee

Last week, Barron's wrote about Trader Mark -- a.k.a. Mark Smith -- whose blog, Fund My Mutual Fund, has helped him raise $3 million towards a $7 million goal and the potential launch of a mutual fund. The article has all the juicy details about Mark's Rising Tide Growth portfolio, but what I found most interesting was one of the social networking sites mentioned: Marketocracy.

Using community input to guide investment decisions and providing higher levels of transparency are nothing new -- Metamarkets comes to mind from the late '90s -- but Marketocracy takes this to another level. The firm boasts over 55,000 people managing over 65,000 model portfolios. Based on the 100 best investors each month, Marketocracy creates the m100 Index, which is in turn used as input for Marketocracy Capital Management's investment decisions in their mutual fund. They have even signed research contracts with about 500 members of their community.

Listening to individual investors' ideas about individual securities is not going to be the right research approach for every portfolio manager, but I do think that every firm can learn from Marketocracy and from Mark Smith: in the never-ending quest for alpha, firms must get creative in their investment approaches. Online communities are only one piece, but they can be a valuable tool in identifying product or investment trends and in identifying and recruiting investment talent.

Funds Cannot Get Sued Over Sudan

by Steven

The investment situation in Darfur illustrates why it's good business for mutual funds to be more socially conscious.

When I go to the grocery store, I look for three things: quality of produce (taste and health benefits), cost, and the environmental impact of the produce.

Should fund firms let social awareness determine which companies they work with, or should they just focus on getting the maximum return for their investors?

A recent SEC ruling provides a "Safe Harbor" for mutual funds that divest from Sudan. This ruling provides certain legal protections to funds that divest from companies (PetroChina, Sinopec, India's Oil and Natural Gas Corporation Ltd., Petronas, Schlumberger, and Tatneft) doing business with the Sudanese government. Under these legal protections, the fund firms cannot be sued for making investment decisions based on divestment criteria.

Divesting in companies that do business with the Sudanese government is a choice--there are other, alternative, socially responsible funds companies can select instead.

Additionally, it's simply good business to avoid companies that engage in "bad" corporate citizenship. Engaging with the Sudanese government, for example, puts companies at risk. Not only are they risking exposure to negative public opinion, but they are also linking themselves to a highly unstable government.

Consumers are very powerful, and their demand has made organic products a huge category within stores. Similarly, investors, specifically institutional investors, are becoming more socially aware. No doubt, we will see more fund managers adopt some of the social screens that the SRI sector has utilized for years.

Mirror, Mirror on the Wall: Self-Reflect Before Going Global

by Corianna

Are you an asset manager looking to break into a foreign market? If so, I suggest that rather than simply going after hot markets, or basing operations in regions where you already have pre-existing investments you take a good long look in the mirror. Ask yourself, does your brand or areas of expertise make you particularly well suited to serve a particular region?

In follow-up conversations after the Future of Distribution study we have begun to see some patterns emerging amongst our clients who are pursuing international expansion.

One common approach is:

• Step 1: Push to the EU through the institutional channel.
• Step 2: Layer on retail in Europe and push institutional eastward through Middle East.
• Step 3: Arriving in Japan.

Granted, to the extent that questions of market entry are about market size, international compliance rules and savings, all firms will come up with similar answers--access to data, government regulatory information, an excel document, and some simple equations are all that's needed to figure out which regions will be most friendly to asset managers in general.

However this does not mean that all asset managers should pursue the same markets. Rather than following the herd, why not pay attention to what makes your firm unique? Perhaps you are a company whose brand hinges on reliability and low-cost. Maybe your best bet is to start in Japan, where investors are particularly risk-averse, and go to Europe later. By focusing on what makes you different you may be able to throw the conventional expansion model on its head, and carve out your own unique empire.

Morningstar Takeaways

by Tricia

Back from the Morningstar conference in Chicago: The consensus from veterans of the Asian market is that Asian markets have re-priced themselves correctly following five years of unsustainable growth. Japan is interesting for the first time in a long time. Experienced managers continue to buy firms with long-term production capability, not short-term value, and advise others to hedge against Asian currency inflation. The main threat to global growth? Unredressed inflation. In other words, too much money chasing too few goods.

An interesting tactical note: In a room of about 150 financial advisors, about 2/3 held ETFs. Of those, one half said ETFs were a key part of their strategy. My question is, how can ETFs be so cutting-edge and innovative if so many people are already using them?

Overall, what I got out of the conference was this: The biggest challenge to globalizing your strategy is rarely operational; instead, the challenge usually lies in persuading people to see themselves as competitors in an increasingly complex global economy, and not to rest on their laurels -- a profound, and profoundly humbling, paradigm shift.

The U.S. as a "Dying Proposition"

by Johanna

At a presentation on global trends in the mutual fund market I recently attended, I heard an interesting statement made about the U.S. asset management industry:

"The U.S. is a dying proposition."

Indeed, the U.S. financial markets are suffering a crisis, but the U.S. still has far and away the largest share of the global mutual fund pie. For example, in Q407 the Americas had 51% of worldwide mutual fund assets, whereas Europe had 34% and Africa/Asia Pacific had 14%. However, one of the factors mentioned got me thinking that such a morbid statement might have some truth to it. The idea centered on product innovation, and how it has moved overseas.

It's no surprise that the amount of regulatory hurdles in the US, which makes it difficult to bring innovative products to the market, puts this country at a disadvantage, so it's also no surprise that today many new product types are introduced abroad and then appear in a 40 Act version in the states a few years later. One recent trend that began overseas and is making its way to the U.S. marketplace is thematic investing -- such as funds centered on agriculture, climate change and anti-global warming, and financial global infrastructure.

Missing out on product innovation is one sign that the U.S. is falling behind other countries in the asset management market. Despite regulatory constraints and hassles, U.S. product providers must break from style boxes to remain competitive. The first step is to rethink product development processes and move further towards a "market needs" approach. As kasina posited in the report "Rethinking Product Development," instead of getting most product concepts from wholesalers or creating line extensions of current products, firms should do due diligence with advisors and investors to understand true market needs. The firms that succeed in translating those needs into new products (that likely won't fall in the style boxes) will have a chance of staying in the global fund game.

The Global Outlook: What to Watch For

by Tricia

Here in Chicago at the Morningstar Conference, the watchword is complexity. If I had to pick the most important thing to talk over with our clients, it would be the convulsive global environment.

The operating environment is almost completely reversed from what anybody would have dared to say even a year ago. The emerging markets are net creditors, and the US is a net debtor. The $350 billion dollars of market recapitalization came from the Asian central banks, not from the G-7. So did 60% of all global growth. Brazil's sovereign debt rating is higher than that of Citi's. The expectation is that the next massive recapitalization need will be that of the American consumer, whose resilience carried the global economy through the 1997-98 contagion.

That's nerve-racking. Consumer spending is about 70% of the American economy, and the American economy is about 1/3 the global output. In the last twenty years, Americans have had most of their equity stored in the value of their homes. We are right on top of the point where it will make sense for some people to drop off their keys and walk away from their mortgages. Certainly, for the first time in American history, homeowners are falling behind on their mortgage payments before they fall behind on other payments.

As we said in "Future of Distribution," the ongoing erosion to investible assets as well as to margins, makes a more compelling argument for global diversification (as if you needed another one) -- not just geographically, into the BRICs or "developing" (we're going to have to come up with a different nomenclature soon) Asia, but across commodities and industries as well.

Recapturing Margins through Measurement

by Lindsay

The asset management industry has reached a critical point in its evolution. The fat margins once enjoyed by not only the industry titans, but also the smaller, niche players, are slowly diminishing due to heightened competition, while top-line revenues at many firms are also being hit by asset outflows. So what's an asset manager to do?

The usual drivers of investors' and advisors' decision making, fund performance and product line-up, are difficult to change in the short term, and are largely out of distribution executives' control.

Distribution strategies and tactical implementations, however, are flexible, adaptable, and, most importantly, within the control of distribution executives. The asset management industry currently spends about 40% of incoming fees on distribution efforts, but most firms do not disaggregate the impact of individual initiatives and processes, preferring instead to look at aggregate sales figures.

One of things that really struck us while we were writing our latest report, Quantifying Distribution Strategies, was how much and how fast the asset management industry is changing. Not only do firms have to think of new products, new services, and new ways of doing business, but they must also re-evaluate, top to bottom, the metrics used to figure out how they're doing. Half of the executives we talked to said Sales is overvalued; the other half said Marketing is overvalued. The surprising part was that very few firms have mechanisms in place to find out, in any empirical way, who is driving what - so we outlined a few things the industry could be thinking about as it allocates valuable resources to different distribution functions.

It isn't accurate or useful anymore to treat distribution strategy as a monolithic entity; firms have to break it up into its component parts, and look at them individually. More than just the how-to of this is the 'have-to' of this: renovating business metrics is more important than it used to be. The money spent on distribution, and the lack of transparency around the results, exposes a compelling opportunity.

Investing in $ocial Networks

by Corianna

Cake Financial and SmartyPig are two social networking sites that have recently caught the attention of the press. The former is something along the lines of a huge online investment club allowing investors to track their portfolios, and the real time performance information of acquaintances and strangers alike. The latter lets individuals set savings goals and distribution plans and share them with friends, family, and loved ones.

On June 19th Cake Financial boasted the listing of over 5,000 new portfolios, and within two months of launching, SmartyPig had users in all 50 states. The success of these two sites suggests the turning of a new page in the story of online interaction. In particular, these sites:

• Excite competition between participants
• Allow people to learn from the experience of others
• Depend on people openly sharing financial information

The first two bullet points suggest that incorporating social networking capabilities into advisor sites might increase sales.

The third bullet point indicates that users are feeling more and more secure interacting and sharing personal information online. As users' comfort levels continue to increase, so will the demand for extensive online capabilities -- ranging from self-servicing tools, to ways to interact with others.

Making the Business Case for the Web

by Andy

One of the common frustrations of e-business leaders is that they are asked to demonstrate return on investment (ROI) on all web expenditures. For many years, e-business practitioners have been forced to rely on a steady stable of axioms to make the case for Web expenditures, such as that it supports brand, or that it is a must in this day and age. And while those of us who are close to the Web appreciated the truth to these assertions, what e-business needed was a focus on the business and elimination of the implicit pejorative the 'e-' implied.

Over the past several years a strong business case for the web has emerged:

• Advisors are demanding to interact and be serviced via the web.
• The competition at the top of this industry is forcing our firm to constantly raise the bar in how we evaluate the industry.
• Web use is positively correlated to gross sales.

The business case cannot be ignored. Customers want to interact with firms online, the competition is raising the bar, and sales can be positively correlated with Web use. The Web is no longer a perfunctory obligation, but a significant means of doing business, and, accordingly, a necessity of business itself.

The Growing Exchange Traded Product Buffet

by Johanna

Advisors are excited about ETFs. In a recent survey of over 800 advisors conducted by State Street Global Advisors and The Wharton School of Business, 67% of polled advisors said that the ETF is the "most innovative investment product in the past two decades."

Product providers are equally excited, and recognize the opportunity exchange traded products offer, demonstrated by the 300-400 ETF products awaiting approval with the SEC, and the prediction that 560 ETFs are going to be launched in 2008. Twenty-three products were launched last month alone.

With the mad dash to get a piece of the exchange traded product market, providers are in danger of overdoing it. In the survey, 21% of advisors listed "overwhelming choices" as the greatest disadvantage of ETFs. What does this mean for product providers?

Educational Support

Firms must support the growing market with value added content around the advantages of products like ETFs and ETNs, but also around the underlying indices and the various ways these products fit into an investor's portfolio. Clearly the Web comes to mind as a key lynchpin to supporting advisors and helping them choose between the myriad products on the market today and those soon to come. For example, advanced product selection tools and educational tutorials around less understood products (such as ETNs) will be increasingly critical in the upcoming months.

Differentiate

Furthermore, few firms do a great job of differentiating their exchange traded product offerings. ETF providers have differing philosophies on how to structure their ETF offerings. For example, WisdomTree uses core earnings or cash dividends to choose and weight companies in their ETF products, and Vanguard's ETFs are an additional share class of its existing mutual funds. Do advisors understand what this means when it comes to choosing products? Firms that are able to educate advisors around product fundamentals, but then also differentiate in this rapidly expanding space, are more likely to come out on top.

All Around the World With One Research Team

by Steven

Asset Management firms are struggling to devise their international sales strategy. Most executives that we talk to are very aware of the opportunities, but are concerned about how to allocate their sales resources globally. The easiest way to address this is to create a dedicated global Key Accounts team.

The big challenge is that "international" is not one region: Europe isn't one region, neither is Asia. There are very distinct regions within each of those continents, all having very different regulatory issues and distribution models. The good news is that certain large financial conglomerates such as Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase, Merrill Lynch, Nomura, and UBS are all prevalent around the world.

What has happened over the last few years is that these global conglomerates are tightening their research around one team, for most of the US players that are in New York, to address global shelf space issues. These teams serve a dual purpose:

• Global Research -- Identify strategies that can be used across the globe


• Global Coordination -- Ensuring coordination with local research teams

These global analyst teams ensure consistency and economies of scale for the distribution of these conglomerates.

Some of our most successful clients have started to mimic this approach and have built a global Key Accounts team that is focused on positioning their products to these firms around the globe. The key success factors for these teams have been:

• Global understanding of these firms' platforms -- What products are on the shelves in each category


• Global understanding of their competitors -- How are their competitors performing in each of the regions


• Global product offerings -- Local strategies that can be leveraged across the globe

Most regions are dominated by a banking distribution model, where these central analyst teams are starting to have greater influence on the individual products that the investor sees. Sales outside of the US are mostly not sold through wholesalers, and asset managers should appropriately allocate their resources.

Starting Over with Wholesaler Compensation

by Mike Mc

What seems bulletproof under favorable circumstances can be disastrous when unfavorable ones take over. Previously unexposed, systemic flaws suddenly emerge from the woodwork. (Subprime fallout, anyone?)

As many firms slog through a difficult 2008, wholesaler compensation models are being turned upside down. In particular, suffering shops with a net sales component face serious questions as outflows increase, commission checks nosedive, and talent starts to look for the exits.

In discussing the issue with several clients recently, it hit me that it's time for the industry to face the music when it comes to wholesaler pay. To put it bluntly, the two primary approaches in place today have fatal flaws:

• Territory-based Gross Sales Doesn't Work: Recent kasina research finds that wholesalers sometimes touch only 10-15% of advisors actively doing business with the firm in a given territory and roughly 30% of incoming assets.
  
  This does not suggest that wholesalers are not valuable. In fact, the same research concludes the exact opposite. But comp models driven by territory gross sales, as most firms have, make little sense based on what wholesalers actually contribute to those aggregate results.
• Net Sales Doesn't Work, Either: Though net sales, when used, is often only a part of comp models -- 20-40% of variable pay -- it is a paycheck killer when outflows increase. Struggling firms, facing the reality of underpaying and/or losing people, are beginning to gerrymander comp structures to ensure wholesalers get paid. If an approach holds only when times are good, it's not a viable solution.

We have thought, written, and consulted a lot about wholesaler compensation. It's work I'm proud of. But it seems very clear to me that wholesaler comp models are an industry legacy whose time has passed.

Where do we go? Of myraid options, two possibilities are: tying wholesaler comp to those advisors they actually see, and enhancing the behavioral elements on pay. But the first step lies in admitting the fundamental flaws. For an industry with a substantial track record of success, I don't think it'll be easy.

eBusiness, Baby-boomers, and the Fountain of Youth

by Corianna

A few months ago I came across Thrasher Capital Management's "Demographic Convergence Theory," or DCT. The Thrasher team is pioneering the DCT as an investment strategy for their fund, GendeX. The DCT is based on three principles:

1. Gen X- and Y-ers are enjoying increasing spending power.
2. Gen X- and Y-ers are trend setters, in the eyes of baby boomers.
3. Baby boomers want to stay young forever, and will use their spending power to emulate Gen-X and Y-ers.

Issues of spending power aside, one of the DCT's main points is this: baby boomers are open to new things. In fact, the DCT suggests that boomers are more than just receptive; while they may not be first adopters, baby boomers will eagerly use the technologies and gadgets they see younger generations embracing.

While the jury is still out on the merits of the DCT as an investment philosophy, the theory has some interesting general implications, corroborated by recent kasina research for the forthcoming report, What Advisors Do Online. In What Advisors Do Online, we found that while younger generations use the Web for more purposes than their elders, older generations are more active than many--including e-Business teams at asset management firms--might expect. For instance, there is almost a 20% gap between the percentage of 20- 40-year-old and 41- 60-year-old advisors using YouTube (younger advisors are on YouTube more). However, when it comes to using asset manager Web sites for product information, the gap narrows to 2%, with the older demographic reporting a slightly higher usage.

The DCT offers an explanation for these findings, and suggests that the number of baby boomers frequenting YouTube, reading blogs, and using Web 2.0 technologies will only increase as time goes on. e-Business teams and asset managers can take heart as they push forward with new online strategies: their work will touch both the young, and those who want to stay young.

Sales to Web sites: "Are you threatening me?"

by Mike Ma

Web sites don't sell paper, gift baskets do!" -- Michael Scott, The Office, Episode 55: "Dunder Mifflin Infinity"

We've been working with a client on building out a virtual coverage model to boost their wholelsaler-driven advisor sales. A perceived roadblock in the process has been the "threatening role" a Web site can play in helping Sales.

In essence, Sales is worried that we are going to be building a Web site that will render the Sales team obsolete -- a fear reminiscent of the fictitious Dunder Mifflin Infinity Web site.

In our recent study, "Your Site Can Sell, Too," we correlate 3 large, intermediary-distributed firms' Web traffic with their sales data. The below graphic from the report shows our findings, which support the fact that Web-users consistently sell more than those who don't use the Web.

In short, our client's Sales team was worried that the Web-boost to both wholesaler channels would make it extinct like a dinosaur. However, this prompted us to develop a different cut of the data that showed the following:

While Web sites will not outsell advisors, per se, why not have everyone get on board? Is there really a need to be threatened? I think not.

Anyone have suggestions?

by Lindsay

Last week I played golf on a typical Florida course, wherein copious artfully placed, often hidden water hazards seemed to maliciously steal my perfectly executed (well, not quite) shots at every opportunity. As I was complaining bitterly about the clearly sadistic designer who had engineered this unforgiving course (forgetting, for a moment, that I was spending a long weekend in sunny Florida, while my colleagues were stuck in New York, staring at their computers), we drove across a long wooden bridge, traversing a large swamp between the 9th and 10th holes. In the midst of the reeds and about 15 feet from the bridge, was a box marked “Suggestions” perched on a tall wooden pole. It was clearly mocking us.

Golf analogies aside, the inaccessible "suggestions" box made me think about idea generation in the asset management industry, and how it differs from other industries. When executives at famously innovative companies, such as Apple's Steve Jobs, are interviewed, they often discuss the processes their companies have in place to encourage idea generation by employees at all levels. Tapping into the intellectual resources of all employees, rather than simply those employed in product development or creative capacities, they say, helps them continue to be thought leaders.

The asset management industry, on the other hand, often seems to employ a model more like the aforementioned golf course. Suggestions and ideas are nominally welcomed, but the effort that it would require to actually submit them (figuratively, swimming through the swamp and climbing the pole) doesn't seem worth it, so firms largely remain siloed, in this respect. I recently met with one firm that is taking small steps toward combating this issue. The firm has created a program through which its Product Marketing and e-Business teams actively solicit ideas from employees in call centers, and encourage participation by offering prizes for the best ideas. Anecdotal evidence suggests that the program has been successful, and that many ideas have been implemented since the program's inception.

Asset managers are often given a hard time for, with a few exceptions, playing follow-the-leader. For those who are not among the few industry leaders, tapping into the collective brain power of all employees could be a first step toward creating a creative, innovative culture and, ultimately, towared breaking from the pack.

Now's the Time to Go Global

by Steven

For firms that have yet to go global, the question is no longer a matter of if, but how. Successfully penetrating foreign markets, however, requires careful strategy and long-term commitment.

Depending on the size of the firm, global strategies may vary widely. Smaller firms ($100 billion to $200 billion in assets under management) may go the subadvisory route, for example, while larger firms (over $250 billion) might opt to establish a local presence through partnerships or acquisitions. Before sinking time and resources into foreign markets, firms must develop a strategic entry plan.

To start, U.S. players must build local expertise if they truly want to compete globally. Although many foreign markets are just starting to open up, the message is clear: Foreign investors have minimal demand for U.S. products. No matter the distribution strategy, firms must start from this premise.

By now, many global markets have already become crowded with local and U.S. players. The Western Europe market is now almost as competitive as the market in the U.S. In several emerging markets, especially in China and the Middle East, some local banks are looking to import U.S.-based asset management talent via subadvisory relationships. These opportunities are limited, however, as local banks in these regions tend to have fewer relationships than their U.S. counterparts.

For asset managers, the scarcity of platform openings is a double-edged sword. On one side, an increasing number of competitors are vying for a very limited universe of opportunities. On the other, barriers to entry make access to these markets all the more lucrative.

As asset management firms enter foreign markets through subadvisory relationships, they must move quickly to pounce on fleeting opportunities as they arise. For example, BlackRock, OppenheimerFunds, T. Rowe Price and Thornburg Investments are now looking to strike subadvisory deals in the Middle East/North African region.

A few openings still exist to establish local presences in certain parts of Eastern Europe, the Middle East and East Asia through joint ventures. In China, regulators have relaxed restrictions on foreign ventures, including opening up the insurance market for foreign asset managers. Last year, Franklin Templeton took advantage of this and partnered with China Life, China's biggest life insurer.

Without a commitment to global growth opportunities, it will be nearly impossible to compete with industry firms that have already gone global. Though the time to commit is now, firms must also be ready to stay overseas for the long run.

It Will Never Be Morning Again In America

by Will

We lost a giant last month. Hal Riney, ad man extraordinaire, died on March 24. In the age of DVRs allowing us to fast forward over commercial breaks, it's hard to remember the impact a television ad can have on a culture. Riney made ads good enough to stop fast forwarding.

Most great advertisers get one, maybe two, legendary spots in their career. Hal Riney had three legendary campaigns. That may not sound like much, but imagine a baseball player hitting three times more homeruns in his career than anybody else. He was that good.

Riney made campaigns that stood out and presented brands with a compelling message, no matter what he was pitching. He played to your brain, making memorable statements, while playing to your emotions without turning saccharine. The Bartles and Jaymes commercials gave the world two deadpan wine cooler salesman who were so engaging they actually made you want to go have a wine cooler. The ads were memorable, funny, and begging to be imitated. In the late 80's, you could deliver the line "thank you for your support" and get a response of riotous laughter.

His branding initiative for Saturn gave us an American car that established a personal connection. Thanks to Riney, Saturn was the only car company that made you feel like you were part of one big happy family -- that's one heck of a differentiator in a marketplace with pretty homogeneous products.

Arguably his most influential campaign gave us the sentence that reelected Ronald Reagan: It's morning again in America. Say what you want about Ronald Reagan, the man knew how to advertise: deliver an intelligent, well-spoken message that lifts you up and makes you feel good about the decision he wants you to make. That's no small feat -- and it's a far cry from what we see in campaign messaging lately.

Thanks, Hal, for appealing to our better selves in your campaigns. You will be missed.

Social Networks: A Real Opportunity

by Anu

Conventional wisdom suggests that social networking through the Internet is a young person's game -- a new frontier for the millennial generation and something too complicated for Baby Boomers.

If that's true, are the Boomers using facebook, MySpace, and Twitter? Maybe. Instead, they may be accessing Web sites catering to their needs by creating topic-centric "groups" ready for the joining. Two sites come to mind -- eons.com and gather.com. Are these sites simplified renditions of the aforementioned? Not at all. Eons and Gather provide video sharing, blogging, reviews and many of the other features that typify social networking.

Asset management firms know that Boomers have complex financial pictures and a relatively large share of investable dollars, yet they have not created obvious partnerships with either site to broaden their appeal. In fact, Schwab seems to be providing the bulk of assistance through numerous articles and embedded links on Gather. As Boomers continue to use social networking, what place are asset management firms creating for an easy, intuitive liaison between social networks and their value proposition?

Mind of the Market

by Anu

On Friday, we had a lively debate on topics spurred from Michael Shermer's, "The Mind of the Market." Shermer makes a one simple point. Marketplaces are made of up of numerous people and those people are impulsive and emotional, driven by feeling as much as rational thinking.

He points out countless (literally, thousands) studies that show groups of well-educated, thoughtful people making 'poor decisions' because they were driven by emotion. An interesting study focuses on regret aversion. Usually, people will reduce a potential payout if others are equally (or more dramatically) affected. For instance, imagine you purchased a beautifully made latte at your favorite coffee shop. The barista says, "Hey, you ordered the one thousandth latte! Congratulations, you win a free pound of premium coffee. Everyone else in the shop wins the coffee too." Imagine a different outcome. The barista now says, "Hey, you ordered the one thousandth latte! Congratulations, you are the sole winner a free cup of coffee." More than fifty percent prefer the second outcome, even though it's of less value than the first!

Theories like regret aversion and others are helpful in understanding group dynamics. As strategy consultants, so much of our role is to facilitate discussion that leads to innovative change. Before we can influence change, we need to unlock the door to how a group perceives the risk/reward opportunity from innovative changes. Too many times, organizations disable innovation because they view the 'risk' too great. Hopefully, we can bring forward the opportunity for reward as even greater. I believe people that turn Shermer's theories into practice will enable others to view the reward opportunity.

Debate or Participate: A Hybrid Wholesaling Update

by Steven

It is interesting that some firms are still debating whether or not they should invest in hybrid wholesaling, while others are reaping the benefits of a lower cost sales coverage model. Some firms want to see how other firms have succeeded, while other firms are already expanding their wholesaling reach. A number of firms with a hybrid model have had territories where hybrids even outsold their external counter parts.

Most firms know now what hybrids are -- a "hybrid" between an internal and an external wholesaler. Hybrids usually travel 20-30% of the time and have their own advisors. Firms have taken two primary approaches to hybrid wholesaling:

1. Geography -- Covering remote territories, such as South Dakota, where it doesn't pay to have an external due to the lack of opportunities or where it is not cost effective to periodically leave their territory, Minnesota, to cover the remote area.
2. Opportunity -- Covering additional advisors in a money center, such as Manhattan, that the external wholesaler can't cover.

The best recipe for success is to implement a territory team. Usually, the external will manage that team and will direct the hybrid and the internal. The team gets solidified by adding a substantial team based compensation component to the equation.

A few firms have been so successful with hybrids that they have started to further invest into the model. These firms are moving to a one-external-to-two-hybrids ratio within a territory structure.

The hybrids model has a proven track record. Decide now if you want to debate or if you want to participate.

Tangerines and the Art of Messaging

by Anu

This weekend, I took my four-year-old grocery shopping. We were looking at the fruit when I let out an exclamation: "Pixie Mandarins!" The Pixie is a relatively new tangerine -- it tastes like a jar of honey met freshly squeezed orange juice. My daughter was enthused, because I was enthused. The interesting thing about the Pixie is that it's exclusively grown in Ojai, a lovely farming community northwest of Los Angeles.

So I wanted to share my joy with fellow shoppers. To five people, I said, "Hey, these are delicious citrus fruits." And how many decided to purchase them? ZERO.

To another set of five people, I said, "Hey, have you had these? This is a Pixie Tangerine and I doubt you'll find it anywhere else in Brooklyn. It comes from this little, magical farming community called Ojai, just inland from Santa Barbara." And how many decided to purchase the citrus? FOUR.

What are we doing in our industry? Are we just telling advisors that there's "large-cap growth funds in aisle four" or are we describing the unknown value of a TIPS fund in volatile markets?

If you do nothing else, please look for those Pixies; they won't be around much longer.

Ideas by People

by Will

(New Web site, part 1)

So, you might have noticed that we updated our Web site. If you haven't noticed, go click on some of the other pages. Go ahead and do it now-- I'll be here when you get back.

Isn't this a cool site? Interesting pictures, readable text that builds a sense of community and energy, engaged people everywhere you look. We took every single picture on the site, wrote every word, polished every pixel and agonized over the placement of, well, everything.

The page I like the best is About Us\Team, and that page represents an important concept that is central to kasina's brand: people come to kasina to buy ideas of value. They buy them in our reports, our Industry Analysis, our Roundtables, and our consulting engagements. Those ideas are the result of the whole of all of our experiences, not just the business part of our brains. And that ties into kasina's hiring process: hire interesting people to come up with interesting new ways to approach a problem. Everything each one of us does feeds the ideas we have, and so to understand where our ideas come from, we wanted to be sure you met us as we are. That's no surprise to anyone, but it is an important part of what kasina is. For example, I'll always talk about something in terms of taking apart a watch (which I love to do), music (which I collect and create) or my baby boy (who I dote on). So in my picture, you see me and my baby boy (my watch got cropped out and you can't hear the music that was playing in the background). That's me. That's who drives the marketing at kasina.

The same is true for everyone at picture on that page -- since the sum of all our experiences generates the ideas we have, you should know what those experiences are and who we, as people, really are. The Team page shows you how we each see ourselves -- the runner, the foodie, the beer fanatic (those are hops), the optimist... Twenty different people, twenty different interests, one company with interesting ideas.

"Ideas by people" isn't our tagline, but the concept that drove our new look sure tells you we're not your father's consultancy. So take a good long look at the team page and find out who's behind the ideas and solutions what experiences led them to have those ideas in the first place.

Investing: Profession or Business?

by Sean

Are asset management firms more focused on disciplined investing practices or generating profits? The answer given by senior executives at most firms is "both," which raises a follow-up question: Are these objectives in direct conflict with each other? In one expert's view, the answer is "yes."

In "More than You Know: Finding Financial Wisdom in Unconventional Places," Michael J. Maboussin, Chief Investment Strategist at Legg Mason Capital Management, argues that "the performance challenges in the business stem from an unhealthy balance between the profession and the business." In his view, the traits of the investment profession (long-term horizon, low fees, and maintaining a contrarian view) are diametrically opposed to the traits of the investment business (short-term horizon, high fees, and selling what is in demand).

The solution, according to Maboussin, is to separate product manufacturing from distribution. By separating the two, firms can insulate investments (product development and portfolio managers) from the short-term demands of the market, while focusing the attention of the business (distribution) on the needs of customers (advisors and home offices). In this model, the interests of both investors (in firms' products) and shareholders (in publicly-held firms' equity) are protected. However, such walls rarely exist. Very often, distribution and manufacturing work together.

In kasina's view, firms should not build walls between product manufacturing and distribution, but should maintain a healthy separation between the two. For instance, product manufacturing should not necessarily report to distribution, but should maintain open lines of communication to gather feedback and input from the field through National Account and Sales. By the same token, ensuring that National Accounts and Sales understand the intricacies of the firm's more sophisticated offering warrants some level of access to product development.

Finding Candor in the Blogosphere in an Unlikely Place

by Andy

A recent New York Times article cuts straight to the chase about what makes blogs valuable and popular -- the access to frank and unvarnished insight and perspective. The article focuses on a new blog that Wal-Mart buyers are now posting to that provides unfiltered and candid assessment of the products the retail behemoth peddles.

What is of particular note is that Wal-Mart is world-famous in the retail world for a tight-lipped highly regulated corporate culture. But Wal-Mart is also known for is using technology in effective and cutting-edge ways. As such they have realized no one wants to read a blog propagated by a PR engine. It is not the ability to post information quickly that is the heart and soul of blogging technology; it is who posts the information and the nature of the content that truly adds value. Customers, whether they are in the market for the latest video game or emerging market ETF, want no-nonsense information from those closest to the products, not orchestrated PR campaigns.

The article discusses how Wal-Mart's previous endeavors into the blogosphere were quickly seen as a PR gambit. The realization and adoption of this more authentic online discourse is an illustration that this medium, while registering only about 1,000 hits a day, is one that cannot be ignored. Furthermore, if blogs are to be used successfully, by definition their content must meet these expectations.

This of course presents a challenge for the financial services industry given its highly regulated nature and commoditized product set. Yet, if the retail commodities that Wal-Mart sells in the context of a highly regimented corporate culture have not prevented them from making a legitimate contribution to the blogosphere, it is a clear sign that the financial services industry can also rise to the challenge.

Customized Search: Why Not?

by Johanna

In 2005, Google rolled out a customized search product. Basically, it's an engine that sits on top of the Google platform and allows the search provider (whoever is maintaining the Web site where the search is located) to restrict the domain. In short, the customized search engine cuts down the Web universe based on the search provider's specifications. Two examples include Green Maven's search of sustainable and environmentally friendly Web sites, and The Economic Search Engine, which searches over 10,000 economic-related sites.

Why don't asset management firms use this function? Firms could locate a customized search engine within news or commentary sections, and set that search engine to query both within the site as well as within selected financial services and news Web sites. The search could be product- or sector-specific, and labeled as the "Asset Management News" search, or the "Mutual Fund News and Research" search.

With the Google customized search tool, the search return pages would open in a separate window, but would display the firm's logo. While this option does commit the sin of sending advisors away from the firm's site, it provides a valuable service, and at least gives the firm a branding boost in the process.

Politics, Rock and Roll, and Value Added Programs

by Mike Ma

I am a regular reader of SPIN* magazine. You can make fun of me now.

Now that you stopped laughing, I wanted to draw your attention to "Power Ballots"* in this month's issue. This piece investigates the impact that celebrity artist endorsements and acts really have on a presidential election. Regardless of your politics, I'd like to share with you a few quotes that I think can be directly translated to questions I regularly field about our research in value added programs and how/if they help the business of selling funds or insurance products.

1. What's the point of pursuing these (celebrities / value added programs)?

"I don't think I have ever met a voter who said, 'I'm voting for a candidate because Madonna told me to.' But they may have learned more about the candidate than they would have otherwise. Ultimately, the candidate has to change their minds." -- Lara Berhthold, former national political director for Wes Clark in 2004

Takeaway: Once, an indifferent Vegas blackjack dealer caught me counting cards. I was losing money hand over fist for an hour with horrible shoe after shoe. So the dealer deadpans, "You can't polish a turd." Same rings true here -- the core part of your business needs to be in order before you can expect benefit from value added programs. No amount of practice management or boomer education program will help bad performance, bad wholesaling, or a bad Web site. (This piece is being written on a plane returning from a $100B+ asset manager who is struggling with this question of where to invest first -- core capabilities or value add?)

2. Damn, these (programs/concerts) are expensive. Where is the benefit?

"There's no one measurement you can apply to every event. Attendance may be a core goal, monies raised, press hits. We measure what we call an 'engagement sequence,' where you get someone in the front door, then gauge the drop-off over the next few actions you ask them to do." --Erin Potts, Executive Director of Air Traffic Control, a nonprofit organization that provides resources to bolster their political activism

Takeaway: Exclusively looking at gross sales post-campaign is the wrong metric. Similarly, asking if concert attendees are going to vote for a particular candidate after the show would not be instructive. Each program could have a different, behavior-based metric or objective depending on what you are trying to do.

3. What kind of people will respond to these (concerts / value added programs)?

"One kid sent all our CDs back to us, smashed, cracked, and scratched with a note that said, 'How could you do this?' He felt really betrayed, like it wasn't our place to take any political stance." -- Nick Harmer, bassist for Death Cab for Cutie

Takeaway: One saying we have at kasina is, "If the program is for everyone, chances are, it's not that value-added." While you don't have to illicit such visceral reactions from your clients, there should be a clear idea of which market segment you are targeting. Or try this, look at your programs and ask, *what segment would we never send this to?*

*Note: link unavailable, as SPIN has a 1 month online content embargo

Turning Services into Products

by Lee

A friend sent me a link to this video about Denmark's Jyske Bank. They have taken some impressive steps to turn their banking services into physical "products" that customers can explore in their branches. Customers can grab a box labeled, for example, "My First Car Loan," and pull out the brochures inside (as shown below). They can also take these product boxes to a "TestBar" counter and scan the barcode on the box, bringing up a video on a computer monitor showing a fun to watch presentation.

Jyske's results have been equally impressive -- they doubled their customer base within a year. It is a shame that more companies don't make it easier (and more fun) for customers to get to know their offerings.

If You Want to Attract Advisors to Your Web Site, Be More Experimental

by Lindsay

In a recent survey for an upcoming report, What Advisors Do Online, kasina asked over 500 advisors to name Web sites they currently use, that they weren't using a year ago. We were surprised by both the quantity and breadth of responses, both expected and unexpected, including:

• Seeking Alpha: A financial news and opinion site.
• Minyanville: A self-described "financial infotainment" site.
• YouTube: A site that allows users to post and view embedded video online.
• Zillow: A real estate market mashup.
• Facebook: An online social network.

What distinguishes the above sites, and others that advisors listed, was that they all incorporate innovative design and interactive functionality with ever-changing content. According to the same survey, advisors expect that the amount of time they spend online will either increase or remain the same both at home (96%) and at work (93%) over the next two years. Advisors clearly like to explore new sites, and in all likelihood, they are going to be spending more time doing it, rather than less.

So how can asset management Web sites, whose content is largely static, capture the attention of these advisors? The answer is simple: by being more experimental. While asset managers may never have the dynamic content that the above listed sites do, they do have the option to make content more interesting by trying out new formats and functionalities and seeing what sticks. Why not try out comment functionality, like Seeking Alpha, introduce a little humor to otherwise boring content, like Minyanville, or present data in a visually interesting format? What's the worst that could happen?

An Airplane by Any Other Name

by Will

This isn't a commercial, but if you aren't getting PR advice from Peter Shankman and the Geek Factory, you're probably not doing as well as you could be.

Why would I say that? I read Peter's book, Can We Do That? for my recent Friday afternoon book report. I'm rarely impressed by PR books -- they're usually full of the same tired information that you could come up with if you just thought about PR for 5 minutes. What makes me so certain of Peter's skills is the fact that, at the end of the book, I was incredibly disappointed that I didn't get invited to his birthday party. Anyone who can make an antisocial, suburbanite curmudgeon like me regret not going to a Manhattan birthday party for someone I don't even know has got to be fantastic.

What I liked about Peter's book was that it reminded me of William Henry Danforth's I Dare You, which, in turn, reminds me of one of my favorite books, Sinclair Lewis' Babbitt. All of these books challenge you to think big, go against the grain of your routine and dare to be exceptional. What Can We Do That? adds to the mix is that it gives you a schematic for gaining the acceptance of your peers and your boss so you can make that splash.

When I finally put the book down, I took a line from the book and started asking everyone, "What's our airplane?" You see, Peter and the Geek Factory said they were so passionate about the results they got for their clients that they'd jump out of an airplane to make that clear to everyone -- and they'd take all their clients with them. So I had to ask what it is we do (or can do) that reflects that passion?

We're working on our answer. Do you know what yours would be?

Trimming the Excess in Product

by Anu

In December, we released "Rethinking Product Development." The research showed that firms typically use a 'copy cat' approach in developing new products that further crowd the marketplace. In our research, we highlighted two breakthrough approaches to free the Head of Product Development from the standard methodologies. One approach utilizes a 'venture capital' method, in which asset managers make numerous 'investments' in new products, continually evaluating the new products for further investment (typically in marketing and sales initiatives) or divestment. Simply put: since nobody can predict market demand, ratings, or investor appetite, why not consider numerous products? As the best product emerges, marketing and sales can support that product's ascent.

Claymore Securities seems to have come to a similar conclusion. In January, the firm announced the liquidation of 11 (out of 36) ETFs. "There is a natural selection process when it comes to investment options and we will continue to offer products where there's the potential for marketplace appeal," said Christian Magoon, senior managing director and head of the ETF Group. In a marketplace where so little is known about investor appeal and it's nearly impossible to forecast 3-year performance, this approach has its merits.

In a January product development discussion with a top ten (by AUM) firm, the head of product development questioned the 'brand risk' from a venture capital approach. Would launching a dozen new products yearly, followed by divestment in eight, lead investors to question the firm's investment quality?

It's Crazy... but I Like It

by Mike Mc

"My name is Todd Davis. My social security number is 457-55-5462."

When I first heard that sentence on the radio a few weeks ago, I was stunned... and a little mesmerized. I know victims of identity theft, and it's been nightmare for them. $3,000 tabs at Best Buy can be just the tip of the iceberg. So, to me, Mr. Davis simply sounded nuts.

Of course, there was more to the story. Mr. Davis is the CEO of LifeLock, a company whose mission is to protect people from identity thieves. Divulging his social security number, it turns out, is a marketing ploy. I certainly noticed.

Relative to the asset management industry, I suspect I've telegraphed my point. It bothers me that I can't point to LifeLock-like examples in our industry where I have been wowed by a marketing message and forced to take notice. (The lounge music at ThrasherFunds.com, though, is nice.) At our Marketing Roundtable last year, the same sentiment pervaded the executives in attendance.

I won't pretend to be able to constructively solve this problem in a few paragraphs. But I am desperately seeking a pushed envelope in the world of asset management marketing. If anybody sees it before I do, or simply wants to talk it over, give me a call.

My name is Mike McLaughlin. My cell phone number is 917-674-1285.

(Side note: for those interested in a darker side of LifeLock and one of its founders, check out this article. Get comfortable, it's long.)

BETA for cheap?

By Steven Miyao

In conducting research for our recent "The Future of Distribution" report, I found it interesting that none of the actively managed fund companies that we interviewed--23 of the top 50 firms by AUM--had any plans for getting in on the passively managed game.

New data from FRC shows that Vanguard surpassed American Funds in last year's fund flows. What is even more fascinating is that other beta players, such as Barclay's Global Investors and State Street Global Advisors, also did very well.

This has severe pricing implications. The distinction between alpha and beta performance is now more transparent than ever, and advisors are not willing to pay for actively managed products that are really just expensive closet beta funds. Instead, advisors are seeking cheap beta products such as ETFs. On the other hand, only true alpha players are able to command premium fees.

Surprisingly, our study shows how the firms in the industry are at the same time complacent and yet strangely confident in taking on competitors whose strategies, strengths, and weaknesses resemble their own. Their obsession with familiar rivals and products, however, has blinded them to threats from low-cost competitors such as Vanguard, BGI, and State Street.

Overcoming the "No" Mentality

by Will

I'm a newcomer to this industry, but I'm not a marketing neophyte, so I know that no one got into this field without having the desire to be creative. To be a marketer is to enjoy the creative process -- that wonderfully non-quantifiable x-factor that can make a day in a cubicle fun. But to work in this industry, I have quickly learned, is to be bound by rules, and nothing thwarts creativity more than rules. Or so most people think.

As the son of an attorney, I can't bear a grudge against compliance officers and their desire to keep us all out of jail. Jail is probably a worse place to try and be creative than a cubicle, so staying out of it is definitely a handy thing. But how can you be creative when you feel you're boxed in on three sides with a precipice on the fourth?

I've heard several interesting compliance stories since coming on board at kasina, and there's one that pops up in my mind pretty frequently: a marketing director had proposed an idea for his group and it got rejected by compliance. A few months later, this director was talking with another marketing director from another group and found out that they had just had the same idea approved.

Now, I'm going to ignore the fact that there are two marketing groups so out of touch with each other that they're coming up with the same idea separately, months apart, and focus on the success of the second group. Why was the second group successful with the same idea in the same company? It's unlikely that the compliance office had simply rethought the matter. What's more likely is that the second group put together a list of questions around compliance issues and set out to answer them before they sent it off to their compliance office. With a list of concerns addressed, the compliance office may have had the ground softened to be a bit more open-minded. After all, the easiest answer for compliance is "no." "No" means we all stay out of jail. It's the mentality of "if I just sit here quietly, I won't get into trouble."

So what you're up against when you've got the next great creative marketing leap, is overcoming the "no" mentality. You need to soften the ground so the person reviewing your idea is a little less inclined to say "no" immediately. I'm not suggesting you try to become mini-compliance officers or fight the compliance office with your thoughts about compliance. What I am suggesting, though, is that by showing that you thought about the issues carefully, perhaps showing some internal or external examples of similar ideas being successful, and allaying the concerns in your proposal, you can take away the knee-jerk rejection of a good idea and get a good dialogue going with an important business partner -- and perhaps even get a great idea off the ground and closer to your audience.

Distribution: the Competitive Advantage

by Steven

In the last month, I spoke to more than 20 asset management executives about the "Future of Distribution." I found that most firms considered product, or the ability to get capacity in products, as their key competitive advantage.

As of October 2007, there are 8,015 mutual funds in the United States, with combined assets of $12.356 trillion. It is impossible for an asset management firm that has products in all nine Morningstar boxes to have equally strong performance at all times and make products the firm's key differentiator.

Firms who distribute sub-advised funds face a different challenge. They want to tap into great performing products so that they can sell best-of-breed products. In order to get access to these products, they have to show that they can distribute the products better then the next firm can.

For both types of firms, gaining access to the large distributors should be the main competitive advantage. Firms should invest more heavily in their ability to get the products on the shelf, and use wholesaling to get more than their products' performance fair share. Hence, distribution has to be their competitive advantage.

Does Your Front Line Have Star Power?

by Anu

On Friday, my wife and I went to the live taping of "A Prairie Home Companion." This is our sixth year going to the show, and, while it's a staple on Saturday nights in our home, I'm in awe of Garrison Keillor after each live performance.

During the entire two-hour show, I think he looked into the crowd twice -- he made eye contact with his customers twice. People sat on the edge of their seats waiting for his next story, but he never looked at us.

Wholesalers and Key Account Managers are taught to do all the right things, including significant eye contact with clients. They attend Dale Carnegie classes and read Salesopedia.

Is it time to consider different, complementary approaches? Asset managers should consider the following training techniques for the Sales -- the front line of the firm:

• Improvisation


• Acting Classes


• Facilitation training

In the front line battle for advisors' mindshare, firms need to prepare wholesalers to be creative, engaging, and spontaneous. Who knows? The sales team may even enjoy training.

Who will be the Starbucks of the Asset Management Industry?

by Lindsay

I recently finished reading renowned pollster and political strategist Mark Penn's new book, Microtrends: The Small Forces Behind Tomorrow's Big Changes. In the book, Penn identifies 75 "Microtrends" which he defines as, "[a]n intense identity group that is growing, which has needs and wants unmet by the current crop of companies, marketers, policymakers and others who would influence society's behavior." He argues that these groups of people, comprised of as little as one percent of the population, will have the biggest influence on public policy and corporate marketing in the future, as the population becomes increasingly heterogeneous, in terms of interests and preferences.

One analogy that Penn carries throughout the book is the idea of the "Starbucks economy" of today, versus the "Ford economy" that prevailed for much of the twentieth century. He argues that consumer attitudes have moved from the ideal of mass production to that off mass customization. When the Model T Ford came out in the early 1900s, millions of the exact same black cars were sold to satisfied consumers. Today, a customer walks into Starbucks and can choose from literally hundreds of variations on the standard cup of coffee. This level of customization is also available when shopping for cars, clothing, or cellular phones today.

The idea of the Starbucks economy got me thinking about the asset management industry. A paradox that we often discuss at kasina is that, in order to be competitive, asset managers tend to "follow the leader" and continuously grow their product lineups to try to be everything to everyone. By doing this, they actually become less differentiated and the industry becomes more commoditized. The logic behind this runs counter to Penn's assertions in Microtrends and similar ideas presented by Chris Anderson in his book The Long Tail. According to these authors, society is actually becoming more fractionalized, and people's needs are more diverse than ever.

A few questions come to mind:

• Given this societal shift, when are asset managers, who often pay lip service to the idea of selling "solutions" as opposed to "products," going to begin catering to the needs of individuals and small groups, rather than just offering everyone the black Model T Ford?
• While a degree of customization is available for certain investors through products like separately managed accounts and variable annuities, why are mutual funds one-size-fits-all?
• Because they have been spoiled by the level of customization available to them in their consumer lives, will younger generations reject mutual funds as an asset class?

These questions are important considerations for asset managers to ask as they devise future growth strategies and develop new products. The opportunity to be the Starbucks of the asset management industry is open to any firm willing to take the plunge.

The Two Challenges of Targeted Messaging

by Mike Trapanese

I started getting solicitations for credit cards when I was in middle school. "Look Ma, I'm pre-approved!" These mailings were my earliest exposure to the impersonal face of marketing. Today, not a day goes by that my spam filter doesn't pick up an offer for Viagra, diet pills, or male enhancement products.

Marketers have always faced a trade-off between delivering their messages to the broadest possible audience and making that message personal. Consider marketing's historical tangent away from personal interaction:

• 1744: Ben Franklin sells scientific books through the first mail order catalogue
• 1941: Bulova Watch Co. airs the first TV commercial before a Brooklyn Dodgers game
• 1994: AT&T posts the first internet banner ad on HotWired

Even today, Billboards, telemarketers, and email blasts struggle to make their messages effective. Delivering a targeted message really poses two challenges:

1. Ensuring that a message reaches the appropriate audience (read: no credit card offers to 12-year-olds)
2. Making that message personal

More sophisticated segmentation tools continue to help marketers hit the most appropriate targets, with Nielson Media Research leading the charge on the air waves and Google Advertising taking care of business online. In this way, firms are starting to meet the first challenge of targeted messaging. Making this message personal, however, continues to be an elusive challenge across all industries.

With television, companies have found that testimonials can be successful at putting a human face to an otherwise generic message. On the internet, ideas like this are still gaining traction. Asset.tv is helping asset managers by working with them to shoot, produce, and post videos to PSN (Plan Sponsor Network) profiles. Although not without limitations, video is one way to address the second challenge of targeted messaging.

Today's technology allows firms to reach the broadest applicable audiences-- vendors like Asset.tv can take them one step closer to making that message personal. Maybe one day the Mexican diet pills industry will take a hint from investment companies.

Innovative Marketing: What Can Asset Managers Learn from Retail Banks?

by Lindsay

I've spent a lot of time lately thinking about the opportunities for using Web 2.0 concepts in the financial services industry, and I recently came across an interesting example. While it is not geared toward the asset management space, specifically, I think there are lessons to be learned from the recently launched Bank of America Small Business Online Community.

In developing this social network, Bank of America identified a subset of its client base, small business owners, whose members each face many of the same issues and challenges in their day-to-day lives, but are widely dispersed and lack a common forum for knowledge exchange. Capitalizing on this opportunity, Bank of America developed a social network that leverages the Web 2.0 concepts of blogs, message boards, and tagging to allow small business owners to communicate around various topics, share tips and success stories, ask each other questions, and comment on relevant articles written by experts. Bank of America's online community has gained popularity since its inception less than two months ago, and most posts on the site have a number of comments, "compliments," and tags.

While Bank of America does not explicitly solicit business anywhere on its site, the firm's logo is featured prominently on every page, suggesting that Bank of America offers services for small business owners, without compromising the site's objectivity. Clicking on the Bank of America logo brings a user directly to the Bank of America Small Business Services homepage, where the services offered are aligned with many of the topics being discussed by small business owners on the Online Community site.

I think this is a brilliant marketing move on Bank of America's part. The firm has created a free service that is truly useful and valuable for members of its target market. In addition, the firm gains insight into the way its clients and prospective clients are thinking about their businesses. Who will be the first asset manager to capitalize on the opportunity to set up a similar service for advisors, a group of geographically dispersed small business owners with similar interests? I'm interested to see...

Why is asset management marketing so ineffective?

By Steven Miyao

I was on my way to Tokyo when I stopped at one of the newsstands in the airport. I was getting ready for a 14-hour flight so I bought a bunch of magazines, one of them I had never seen before -- "Good."

On the plane I got completely sucked into the content. I barely skipped any of the articles, which is very uncommon for me. I couldn't put down the magazine and read article after article including "Metal is making a comeback in Egypt after a crackdown on "Satanic music", "The Ashland Media Exchange and the Espresso Book Machine seek to put books back in people's hands," and an interview with Bruce Bueno who is putting the "science" back in political science.

While I was reading, I came across what looked like an article that focused the dangers of pesticides.

• "6: Times greater the incidence of children born with autism to mothers living within 500 meters of California fields sprayed with pesticides than the rate of autism births nationwide"
• "10,400: Number of people who die in the U.S. each year from cancer related to pesticide exposure."
• "250: Number of people in the U.S. killed each year by assault rifles"
• "245,000: Number of fish killed in 1995 when a heavy rainstorm caused runoff from Alabama cotton fields into a nearby creek"
• "90: Percentage of municipal water treatment facilities lacking equipment to remove these chemicals from the drinking water"
• "5: Number of the 9 most common pesticides used on cotton that are classified as "known carcinogens" by the EPA"

The article was sponsored by what I thought was a not-for-profit organization called Loomstate. I was intrigued and went right to my mac to enter www.loomstate.com. Lo and behold, Loomstate is actually a organic jeans company, not an environmental not-for-profit.

What a great marketing campaign! If they would have created a typical jeans ad featuring a sexy model showing off a nice butt, I probably would have flipped right to the next page. Well, maybe I would have looked for a little bit, but I would have quickly forgotten the brand and I definitely wouldn't have gone to their Web site. Rather than using sex to sell their jeans, Loomstate chooses to educate their consumers about the environment and in turn piques some interest in their product that goes beyond the surface.

Asset managers tend to show the equivalent of what are sexy models in their ads, by touting 1, 3, 5-year results. Why doesn't the industry educate advisers who are interested in investments and provide insights to portfolio mangers? Asset Mangers could present statistics or analysis, which reveals something new to advisers, and ultimately drives traffic to their site.

I hope the financial industry catches on and the next time I open Financial Planning Magazine I will be inspired by the information presented to me. And who knows perhaps I will gain a new perspective that will compel me to hop on the computer and find out more.

The Challenges of Branding in a TiVo World

by Andy

A recent New York Times article summarizes the efforts of Proctor & Gamble, American Eagle, and other leading consumer companies to promote their brands via the development of entertainment programming targeted at consumers that incorporates their brand. They are accomplishing this by producing their own entertainment content that is being distributed through the internet, as well as other, less conventional media. The article brings up the very retro idea that commercial television was not always about the 30-second spot.

"The initiative follows that of other marketers and retailers who have found that, especially among their younger customers, sometimes the best way to advertise is to, well, not advertise."

While product placement is just one aspect of this new wave of advertising, the content being created is much more about linking product and lifestyle. The arrangement hammered out between MTV and American Eagle not only compensates MTV for the commercial time used to distribute its content during its regular programming, but also includes the re-broadcast of MTV programming in American Eagle stores. This sort of relationship reinforces both brands.

The lesson to be taken from these consumer companies' efforts: as the attention spans of consumers shift, asset managers will need to seek new channels and innovative media to successfully convey their brands to advisors and consumers alike. While serialized online content might not be the vehicle for our industry, it is important to understand the innovative ways in which brand is being communicated. As the dichotomy between entertainment content and commercial advertising blurs, brand communication should remain a topic to be revisited.

Giving Advisors the Cookbook - Keys to Value Added Programs

by Conrad

Many advisors fancy that they manage client portfolios, and quite a few would like to be fund managers in their next, more glorious lives. Even if not everybody is a wannabe fund manager, 40% of intermediary assets are controlled by advisors who are primarily interested in running money (The Six Segments: A Comprehensive New Look at Intermediary Behavior, kasina, 2004).

However, the institutionalization of the business is removing many advisors from the money management aspect of their job. Often, they now have to follow the home office's lead and stick to preferred lists. But if firms know one thing, it is how to manage money. They should use this expertise to make advisors feel closer to the money management aspect of their relationships.

Firms should, for example, create more value added programs that are about investing. The programs should showcase how firms' particular investment philosophy and process actually works, how the selection process works, and how decisions are made. It should not be about pitching the product, but instead focus on practical tips and tricks; "teaching people how to fish instead of giving them a fish" should be the motto.

So I say, "Give them the cookbook!" The minor risk that advisors might exploit this knowledge for themselves is offset by the huge upside of building trust into the firm's philosophy and process.

Some examples of things that firms could do to foster this include:

• Shadowing portfolio managers (a day in the life of...), for top producers
• More discussion boards on timely investing topics, e.g., 130/30, alpha investing, and non Morningstar styles... Why is a firm offering it? Or why not?
• Portfolio commentaries or blogs in which portfolio managers openly discuss why they had the top performers and why they had the bottom performers

Since firms' true strength lies in managing money, they need to play to it by developing value added programs centered on this very topic.

Just as Good, Just as Smart... but Cheaper!

by Mike Mc

The term "commoditization" gets thrown around liberally when it comes to asset management these days. And with 8,000+ domestic, open-ended funds out there, it's easy to see why. The concept gains further steam when up to 80% of actively-managed funds under-perform their benchmarks in a given year.

Of course, commoditization typically brings with it price implications. (Many products) + (similar attributes) + (low barriers to entry) = Competitive Pricing.

And yet the question nags at me... why don't active managers compete on price?

According to a study by Peter Wallison and Robert Litan, pricing differentials of up to 300% persist within the mutual fund industry in the U.S. Contrast that figure with the 50% differential seen in the UK, and you have the ingredients for a very interesting discussion.

Wallison and Litan present an analysis that is worth reading. However, I found it wanting on one point. They argue in part that fund managers have little incentive to cut costs because of the way in which fees are determined. Seems to me that, even with the surrounding regulation, managers would want to pursue lower fees for two fantastic reasons:

• It is in the best interests of the shareholder. (Isn't that what every mutual fund is supposed to be about?)
• It is, as of now, an unexploited avenue to potentially gain an advantage on the competition.

Obviously the decision to compete on price is a complex one. However, with so many firms looking for something - a message, a product, anything - to stand out from the pack, I'm hard-pressed to believe that competing on price isn't a viable alternative for certain firms.

Therefore, despite the best efforts of Wallison and Litan, my initial question stands. And I'll be restraining myself from attaching the word "commoditization" to our industry.

True Alignment between Marketing and Sales: A Distant Dream, or an Impending Reality?

by Lindsay

On September 20th, kasina hosted 21 marketing executives from 15 asset managers at its 2nd annual Marketing Executive Roundtable in New York. The day's conversations covered a wide array of issues, including the optimal structure for a marketing team, the creation and promotion of value-added programs, and the difficulty of measuring the success of marketing initiatives. The one topic that seemed to be at the forefront of everyone's mind, however, was driving alignment with Sales.

At the beginning of our Roundtables, we always ask each attendee to share with the group one topic he or she is most interested in exploring. At least half of the attendees mentioned that they consistently struggle to work effectively with Sales, and were looking for advice on successful techniques from other firms. While kasina frequently cites fostering collaboration between the different distribution functions as an important goal for asset management firms, it was still surprising to me to see such a high level of interest in one topic.

A few Marketing teams are taking proactive steps to improve their working relationships with Sales, including:

• Increasing interaction: Many firms cited the effectiveness of co-location (having Marketing and Sales in the same building, on the same floor), and participation in weekly/bi-weekly calls or meetings.


• Establishing points of contact: Some firms have a dedicated resource that serves as liaison between Sales and Marketing.


• Deepening understanding of strategic issues: Ensuring that Sales sees Marketing as a strategic partner, rather than just an executor, was a key theme. Many marketing teams are now requiring that managers travel with wholesalers on a regular basis, to gain greater insight into what is happening in the field and what collateral would actually be useful to and used by Sales.

While it is encouraging to see this issue become more of a priority for asset managers, most firms are still not doing enough. For example, among the fifteen firms at the Roundtable, only two currently have dedicated Sales liaisons, and less than half have instituted policies requiring Marketing team members to travel with wholesalers.

These and other relatively simple tactics for improving the level of collaboration between Marketing and Sales have made a big difference at certain firms. It's our hope that the lively conversations at this year's Marketing Executive Roundtable serve as a call to action for those firms that have not been as proactive on this front, and we're looking forward to hearing about progress firms have made by the time of next year's event.

Authenticity is everything

By Anu

Last month, I attended a mutual fund conference in New York City. Overall, the event was interesting and spurred considerable debate around each topic covered.

Yet, a month later, one specific moment stands out. A speaker came to the podium and began his soliloquy with an anecdote relating the mutual fund industry to Lake Wobegon; something about all funds being above average. That's all fine, except the speaker horribly mispronounced Wobegon and Keillor. He even tried to say Keillor (pronounced key'-lur) twice.

I took his entire speech with a grain of salt. His example was so painfully inauthentic that it cast a shadow over his viability.

Authenticity is everything. When marketing a new fund or developing a communication strategy, asset managers should always remember that. Advisors and investors will easily see through phony messages every time, and will be that much more cynical about the firm's products.

Channelize or Dechannelize?

By Sean

Organizational shifts are taking place within several marketing functions across the industry. In an attempt to realize operational efficiencies in the development of marketing collateral, a number of firms have undertaken initiatives to consolidate resources across their retail, intermediary, and institutional channels. In fact, recent conversations with senior marketing executives at five different firms have revealed that at least four of them intend to move towards a dechannelized structure within the next twelve to eighteen months.

Firms' decisions to shift from channelized to dechannelized marketing functions have also been fueled by the blurring of the lines between intermediary and institutional businesses. As it becomes clear to firms that intermediary marketing messages must also resonate with influential gatekeepers, a number of opportunities to leverage institutional content development resources have emerged. For example, institutionally-focused materials describing firms' investment philosophies and processes can be leveraged with distributors' research analysts.

Over the course of the next four to six weeks, kasina will be investigating this trend further as part of its research for "Trends in Marketing Compensation." The report should provide firms with greater insight into the evolving structure of marketing functions across the industry as well as how the various roles within these organizations are compensated. If you would like to participate or have further questions, please don't hesitate to contact us directly.

A Rolling Thunder

by Mike Mc

That drumbeat you hear far off in the distance? It's the ominous thunder from the coming storm around the fees asset managers collect on their products.

The signs are obvious and numerous:

• SEC Chairman Christopher Cox's ongoing mantra of data transparency and XBRL in the fund space.
• The ever-growing percentage of load-waived business being done in the intermediary channel.
• Proactive, blunt conversations between fund firms and their shareholders about fees, such as those seen on the Web sites for MFS and American Funds.

It's a bit of a running joke inside of kasina how fired up I get about fees. However, I get fired up because of the headstrong position of many firms within the industry. Comments like "we don't really want to have the conversation about fees with our clients" or "that is only going to make us look bad" are commonplace.

In fact, if I had a dollar for every time I heard something along those lines, I might be able to afford the loads on A shares. Of course I exaggerate for effect, but you get the idea.

The point is that our industry simply cannot afford to take a "don't ask, don't tell" approach to fees. As investors and advisors alike lend greater scrutiny to the value they are getting for their money, the only choice is greater candor and transparency.

Instead of hoping the topic goes away, firms need to tackle this head-on, especially as margin pressure continues to increase industry-wide. Wholesalers, Web sites, and marketing materials can all be used in this effort. There should be pride and justification in the fees firms are charging for their expertise, not a secret hope that nobody will notice. Firms leading the pack on this issue, such as Vanguard and American Funds, who have both publicly supported XBRL, will be able to position themselves as a champion of the shareholder and advisor and differentiate themselves from the competition.

Ultimately, this is a topic that isn't going away. Firms might as well embrace the discussion and attempt to make it a net positive. There is a 100% chance of rain; firms should start shopping for umbrellas now.

Value Added Programs - A Service Not a Product

By Conrad

Some firms' value added programs bring in millions of dollars. Understandably, these firms make such programs a major part of their distribution strategy. But what is the difference between a successful program and a mediocre one? In her April 6th post, Johanna hit on a very important issue: firms need to make sure that their programs address issues that are high up on key distribution partners' lists. Once a program is created, however, success hinges on sound execution. There are a number of things that firms can do to better execute on their value added programs, including two simple but often overlooked items:

• More training - A 30-minute training session at a quarterly sales meeting is not enough to teach wholesalers the best way to deliver the program. Even the most well-designed program won't reach its full potential if the wholesaler presenting it can't do so in the right way.

  The training needs to ensure that wholesalers are equipped not only to easily identify advisors who would benefit from a given program, but also to effectively deliver the program in different settings. They need to know how to deliver it to branch managers, groups of advisors, or individuals, given 30 seconds or 30 minutes. To enhance the training effectiveness, firms could incorporate advisors and branch managers to lend their perspective to how the VAP should be framed. Regardless, one training session is not enough - training must be reinforced by both Marketing and sales managers. Additionally, firms could offer online training (such as Brainshark presentations) as a follow-up.




• Implementation help - The program will only be effective if advisors are actually using it, so firms need to support the implementation. While the program itself needs to have clear action steps, wholesalers should go beyond just delivering the content to help advisors to implement it. This support starts with some additional tips and tricks, but could also include more intense handholding, such as sending out calendar reminders for the advisor. Even if firms do not want to go that far, they should at least have an internal wholesaler follow up to gather feedback and to help with the implementation.

By following these two guidelines, firms will increase the likelihood that all the money they spend on creating these programs will actually pay off.

Is there Value out there?

by Anu

Asset Management firms are developing Value-Added Programs at a rapid rate. Different firms have different reasons to develop these programs. One thing each firm has in common - nobody is really sure how to measure the value of Value-Added Programs. Do the programs drive new flows? Do they retain assets under management? Do they educate Advisors to optimize investor portfolios?

Nobody knows.

I am new to kasina, and in my last opportunity, I developed and marketed financial service products to US consumers -- millions of consumers. Our firm needed over 100,000 customers per product to justify the development and marketing support a product needed. To achieve mass appeal, we used numerous sales channels, with different approaches (e.g. e-mail solicitations). Then, we measured each program to the nth degree, hoping to optimize future investments. A simple measurement tool could be sending half the solicitations to geographies with no product advertising.

From this we could ask:

• Is there a different conversion rate (turning prospects into customers)?


• Are the conversion rates similar to past e-mail solicitations?


• [Fast forward six months] Does advertising bring in customers of a different quality?

Answer those questions (along with others), senior management could evaluate:

• Is advertising worthwhile?


• Do we target the right people?

But you only know this from measuring success & mistakes. Experience is the name every one gives mistakes, right?

So why don't asset managers create, promote and measure Value-Added Programs? Can we have better experiences if we don't know about our mistakes and successes?

Stay tuned for the future kasina report where we try to understand, analyze and recommend new strategies to enhance Value-Added Programs.

The Loyalty Game: Who Really Matters

by Mike McLaughlin

It would have been interesting to see where Vegas set the over/under.

A recent study of 4,000 mutual fund investors found that more than two-thirds of asset managers have negative loyalty scores. That is, most asset managers have more detractors than supporters.

The gory details, while car-crash interesting, are not necessarily all that surprising. To illustrate: Vanguard topped the loyalty rankings; Putnam finished dead last.

Certainly this is a critical issue for the industry to address. Firms need shareholders who believe in them. More importantly, though, firms need distribution partners who believe in them.

In the discussion of the study, the article references a similar survey of 23 investment distributors in which every single one finished with a positive loyalty score. Investors may not be attached to the asset manager, but they are certainly close to the intermediary selling the manager's products. To draw an analogy, people trust their doctors, but distrust the pharmaceutical companies supplying the medicine.

With distributors continuing to have more and more influence over asset managers' success, firms have to push the envelope when it comes to both selecting and engaging them. The customer loyalty enjoyed by distributors requires greater relationship-building effort from firms. Recently we have seen:

• Increased resources pointed toward the development of value-added offerings to better service partners' advisors
• Restructured Sales and National Accounts teams geared toward meeting the needs of broker/dealer research analysts to strengthen relationships at the home office level
• Re-engineered Web sites designed to not only engage advisors but the home office as well

Activities in this vein figure to only grow. Strategies that leverage the firms own strengths must be coupled with those that utilize the cultivated loyalty and power of their distribution partners. In fact, it seems that the latter may be more important than firms have recognized.

Aligning Distribution: The $500 Million Challenge

by Lee

The typical asset management firm leaves over $500 million in sales on the table every year due to poor client segmentation and targeting, mishandled lead management, ineffective marketing support, and sub-optimal branding.

While firms may acknowledge problems in one or more of these areas, few recognize the cause - a lack of alignment between Distribution functions: Sales, Marketing, and National Accounts.

To capture the over $500 million in potential assets lost due to misaligned Sales, Marketing, and National Accounts groups, firms need to evolve toward a new distribution scheme. Rather than assuming that the issues compromised by distribution alignment will resolve themselves, senior management must ensure that they set the table for success by taking the steps below, outlined in more detail in our recent "Aligning Distribution: The $500 Million Challenge" study:

Creating Cross-Functional Distribution Strategies:

Hardwiring Alignment:

Co-branding With Distribution Partners: An Entree to Consultative Selling

by Johanna

Legg Mason recently announced that it is going to work with its focus distribution partners to co-brand and tailor value-added materials through a program called The Advisor Partnership Program (TAPP). The goal of the initiative is to elevate the status of Legg Mason products through a consultative selling model.

Consultative selling is a strategy that many firms claim to pursue; however, most haven't actually devoted the time and resources to reach true consultant status. Legg Mason's plan to start with focus firms in developing these programs switches up the traditional strategy of first looking internally to determine the message to communicate to advisors. Pledging to learn about individual distribution partners, and, most importantly, incorporating that knowledge into personalized programs, increases the likelihood of making a real impact... because let's be honest, value-added programs don't have the strongest track record of demonstrative ROI.

However, before following in Legg Mason's footsteps, firms should consider the implications of their latest initiatives:

• Developing tailored programs isn't cheap, so limiting the number of focus firms ensures firms won't bite off more than they can chew.
• National Accounts involvement is critical to leveraging distribution partner relationships and identifying appropriate content and topics for programs.
• Asset management firms must maintain a flexible development and delivery of value-added programs to effectively develop and sustain programs.

While what Legg Mason is proposing may seem daunting, it is certainly a step in the right direction to achieving a true consultative selling approach for focus-firm advisors. For more information on effective creation and leverage of value-added programs, keep an eye out for the upcoming kasina whitepaper Removing the Blindfold: Leveraging Value-Added Programs.

Rethinking Fees: Pay for Performance

by Mike McLaughlin

Earlier this month, Fidelity announced its intention to add performance-fee adjustments to 19 more of its mutual funds. It's a simple concept: the more its fund managers trump (or lag) their benchmarks, the better (or worse) Fidelity will do.

According to Lipper, barely 200 funds (spanning 500+ share classes) use such performance-fee adjustments today. As a leader on this issue, Fidelity is effectively gambling on itself to the tune of tens of millions in profits.

Surprisingly, there is some hand-wringing over this move within the advisor community, with vague concerns about enhanced risk within the funds being the primary concern. I, on the other hand, am a huge fan.

Why? The primary reason is that such a structure directly aligns the interests of the:

• Firm
• Portfolio manager
• Financial advisors
• Fund shareholder

At the risk of simplifying things, everybody wins or everybody loses.

I also like that such an arrangement provides an avenue for differentiation for firms like Fidelity. Despite disclosure regulations, fees have long been a fuzzy part of the industry. However, competitive pressures and forces pushing for enhanced transparency, such as XBRL, are placing fees increasingly front-and-center in discussions about the industry and its products.

As a result, I see fees becoming a more important strategic weapon in the fight for assets. Outright price competition is one route, with pay-for-performance mechanisms another way for firms to take a potential liability and turn it into a strength.

Using a CDO to Get S & M on the Same Page

by Lee

A common challenge that our clients face is a lack of alignment between their various distribution functions (particularly Sales and Marketing). This misalignment leads to poor lead management, improper client targeting, and ineffective utilization of marketing materials, amongst other problems.

One major reason for this misalignment is the lack of dedicated senior leadership to drive distribution efforts across Sales and Marketing. While asset managers now have a CIO to oversee investment-related activities and a CCO to oversee all compliance-related activities, barely any asset management firms have a Chief Distribution Officer that centralizes Sales and Marketing (along with other functions, such as National Accounts).

Recognizing this opportunity, we have begun work on a whitepaper entitled "Wanted: Chief Distribution Officer." In this whitepaper, we are identifying the steps that are required to bridge the organizational gaps that exist today. In addition to the potential value of a CDO, we are looking at further organizational recommendations and the impact that compensation can have on alignment.

As part of our efforts to quantify theses issues and identify best practices, we are eager to speak with firms that have had success at aligning their distribution organization as well as those firms that are facing these challenges today. If you are interested in speaking with us, please leave a comment below or send me an e-mail.

Walk A Mile in Their Shoes

by Lee

I was reminded of an extremely simple yet valuable exercise that I often go through with clients to help provide some perspective. Let's say that I am working with a Marketing team on their support materials for the firm's value-added programs. First, I'll have the group critique a similar offering from a competitor. I will encourage them to think like an advisor, not like a Marketing executive. With limited guidance, I find that most teams will identify several flaws in the competitor's offering. Often, there will be firm-specific terminology that wouldn't be clear to an advisor. Many pieces will be lacking clear action steps.

After the team enjoys trashing their competitor's offering for a while, I will then ask the team to switch over and review their materials. Invariably, they will identify problems that they hadn't noticed before. This simple yet eye-opening exercise works well when reviewing any marketing initiative (Web sites, fact sheets, ads, etc.) as long as you keep an open mind and keep the customer's perspective in mind. I encourage you to try it with your team and to let me know what you find.

Getting the Most Out of Rule 22c-2

by Lee

With the October 16th deadline for compliance with SEC Rule 22c-2 rapidly approaching, many asset management firms' operations groups are scrambling. The opportunity brought about by 22c-2 to gain insight into omnibus accounts, however, should be attracting the attention of Marketing, National Accounts, and Sales teams as well.

While an extension of the 10/16 deadline is likely, ultimately having access to shareholder identity and trading data upon request will have implications across a firms' business, potentially including the ability to better...

...tie sales to wholesaler activity leading to more effective compensation schemes

...understand pentration within a distribution partner (% of advisors doing business with the firm)

...identify the firm's "best" advisors

...produce personalized marketing materials

If your firm still views 22c-2 as purely an Ops or Compliance issue, now is the time to change the mindset.

Gaining Permission

by Derek

Last quarter in our Distribution Industry Analysis, and in our recently released whitepaper called Redefining Marketing: Turning Strangers into Salespeople, kasina introduced the concept of the Advisor Continuum. The concept outlines the opportunity that asset management firms have to progress relationships along a continuum in order to have increasingly productive and beneficial contact with advisors.

Today, asset management firms are most comfortable with and do a satisfactory job of turning Friends into Customers. Firms do a poor job of turning Strangers into Friends. One critical element of turning Strangers into Friends is establishing permission to enter into a dialogue with the audience.

To gain permission, firms should devise a strategy that incorporates incentives, independent input, and the leveraging of existing customers. Examples of permission initiatives exhibited by asset management firms help provide an understanding of how firms are putting this concept into practice today.

• Fidelity's Baby Boomer campaign featuring Paul McCartney offered an exclusive message to a targeted audience and incorporated a CD give-away as an incentive to get Boomers to agree to a retirement planning consultation with a Fidelity rep.



• Nuveen Investments offers exclusive independent content to advisors through its Web site. The firm summarizes what advisors can get on a publicly available page as an incentive for advisors to register and log in.
• Morningstar ratings are commonly used in firm advertising to showcase independent value.
• Evergreen Investments and Lord Abbett offer value-added programs to a mix of Strangers and Friends/Customers/Salespeople. They not only offer the incentive of useful content, and at times independent input, but also the opportunity for the firms to leverage the interaction of existing customers.
• IXIS Asset Management offers an "e-Mail to a Friend" feature on its Web site that can facilitate the communication among Customers/Salespeople and Strangers.

Current initiatives tend to be weighted towards offering incentives in the form of free services or exclusive content. Asset management firms could do much more in the way of leveraging independent value as well as the opinions of existing customers.

In addition, in order to build permission and a dialogue, firms need to do more than just give things of value away, they must know who is consuming this information. Failing to do so may still lead to a positive advancement along the continuum, but firms will have a difficult time tracking the success of a particular marketing initiative. To be effective, permission initiatives should involve an exchange of information where the Stranger gets information from the company and the company receives information about the Stranger in order to enable the continuation of the dialogue.

Taking the Time to Prioritize

by Lee

Most companies do a poor job prioritizing - largely because they either haven't thought about how to do so effectively or haven't taken the time.

We wrote about various prioritization approaches in a recent Industry Analysis brief, and there are many that can help, but a favorite of mine is the strategy offsite. We have our semi-annual strategy offsite coming up next week at kasina, and these sessions, which we began shortly after starting the firm, provide our team with a chance to step back, review our progress, and re-evaluate our priorities as an organization. They have proven invaluable in keeping everyone on the same page.

Despite the immense value that I have seen in taking the time away from the daily grind to set strategy, I find that that most of our clients do not have mechanisms in place to do so. It is easy for priorities to get muddled when they are tackled on a one-off basis, and I encourage every firm to:

1) Schedule at least an annual, if not a more frequent, session to set the strategy
2) Do these sessions offsite somewhere (depending on the size of the team, you can even use a team member's back yard)
3) For the day (or days) that you are there, be there - no cell phones, BlackBerrys, etc...
4) Plan lots of breaks (these sessions are exhausting)
5) Have fun - it shouldn't be all about setting strategy - it is important for team building as well

How Does (Name of Competitor Here) Do It?

by Lee

Four times in the last 24 hours, a client has asked me some version of the question "How does [competitor's name here] do it? "It" has at times been related to Sales, Product, and Marketing - in each case, the client wanted to know the secret to success. The secret is that "it" is not about tactics - it is about having something unique to say. Clearly articulated differentiation helps all aspects of the business and is a necessary building block to success in all areas.

You should definitely learn from what your successful competitors do, but don't simply copy their execution - start by identifying what is unique about your organization. What makes your firm different has to be different from what makes American Funds different. We talk more about this topic in our sample Distribution Industry Analysis brief.

The Value of Online Viral Marketing

by Lauren

Lenovo, the third largest personal computer maker in the world (that also acquired IBMs personal computer division last year), just ran a viral marketing campaign on the internet, http://www.lenovo-tapes.com. The spoof Web site pretends to let people view videotaped clips of secret product tests at Lenovo, such as computers that withstand falls or major coffee spills. The site is deliberately in an old fashioned (i.e., 6 years ago) Web site style to drive home the supposedly outsider approach.

The distribution marketing manager at Lenovo came up with the idea of viral marketing to let people know that

we are Lenovo, we exist, and we are innovative.

The site received more than 3 million hits in just a few weeks. Not a bad return on a campagin aimed to get your name out in the market.

Many asset management firms think online viral marketing is not for their current core market; those that do are but missing the bigger picture. When companies put themselves out on a marketing limb, people notice. Ironically, more traditional forms of media notice too. I read about the site in BusinessWeek. The fact that the campaign also leverages the Web makes it all the more accessible and powerful.

Particularly in an industry that is known for being conservative, viral marketing is a proven concept that offers the potential for a firm to distinguish itself in multiple mediums. The concept of having a little fun at the same time makes it all the better. If people are supposed to be able to laugh at themselves, why not a company or an industry?

Time to Get Emotional

by Derek

I'm sitting at the ICI lunch on the second day, and I'm completely enthralled by the speaker. The speaker is the historian and Pulitzer Prize winner Doris Kearns Goodwin. She shared with the audience some experiences in her past and related stories about Abraham Lincoln, the subject of her latest book. Beyond being captivated by her speech, at times during her talk I found myself welling up with emotion. At first, I thought I was just getting soft in my old age, or that it was the quality of the lunch food that was causing my eyes to moisten. Or, maybe it was simply the fact that she was a diehard Red Sox fan. But as I spoke with others at the conference after lunch, I learned that several people got emotional during the session. I'm not sure if they got emotional for the same reasons as I did, but for whatever reason, they had a substantial emotional response to her speech.

I found myself asking what it was that created such an impact with me and others. Goodwin was not a flashy speaker. She did not pace along the stage waving her arms. She did not have impressive PowerPoint slides. She did not sketch elaborate diagrams on flip charts. She did not challenge the audience. No similarities could be drawn to Matt Foley, the motivational speaker portrayed by Chris Farley on SNL. She simply stood behind the podium and spoke clearly and eloquently. What drew me in and captured my attention was her ability to tell good stories - a combination of great content, sincerity, and humor, conveyed effectively for the situation. Most importantly, she elicited an emotional response from me that made the experience memorable.

Another speaker later in the day discussed the importance of connecting information to emotion. Citing psychological studies on how humans process information, he expressed the importance of placing information within an emotional context. It is not enough to simply present information; people need to make an emotional connection in order to decide how to make use of the information. This insight is so important for our information-intensive industry. The discussion was focused on the conveyance of compliance information (always a highly stimulating topic), but it applies to so much more. Story-telling can give people the emotional context by which they can understand, remember, and take action on information.

So, once again, the lunch session pointed me to the importance of telling good stories in our industry. While some of my esteemed colleagues have discussed story-telling in previous posts, I felt it was important to discuss the ties with emotion. A powerful story can elicit an emotional response that can ingrain a product, message, or experience in the mind of your customers.

Whether it was her intention or not, I intend to read Ms. Goodwin's book on Lincoln because of how fascinating I found her stories to be. Hopefully, while reading this, I have made you chuckle, grin, or maybe even grimace. If not, I have failed in my efforts to effectively convey this story, and you are likely to forget it as quickly as that memo about the TPS reports, or after reading another quip from Lee or Mike.

I am sort of a Dixie Chicks fan

by Mike Ma

In general, I hate country music.

But the cover of this month's Time struck me (not just for the cover photo) because the Dixie Chicks are beginning a branding metamorphasis. They are betting on a certain segment of their listening base for their future endeavors. They are realizing that they don't need to satisfy everyone.

The article details their unapologetic political tone and their infusion of Washington criticism into their music. It's created a bit of a backlash across the general country music listening base, but no matter to the Dixie Chicks.

Says Martie Maguire (right), "I'd rather have a smaller following of really cool people who get it. Who will grow with us as we grow and are fans for life, [rather] than people that have us in their five-disc changer with Reba McEntire and Toby Keith. We don't want those fans. They limit what you can do."

I've been having some discussions with several clients who intend on focusing their efforts on certain segments of the asset base, and I thought it interesting this phenomenon is happening across industries. It's an intersting experiement the Dixie Chicks are beginning, but I think it's spot on, and have been advising my clients as such. As you talk about quality and stickiness of assets, an asset manager may not see it as purely a product responsibility, but also a brand responsibility to focus on those few who can be "fans for life" -- it surely isn't everyone.

Partnership Marketing

by Chris Sotomayor

Apple and Nike have announced a partnership to enable a consumer to use his or her iPod Nano coupled with a pair of Nike sneakers as their electronic coach. More info about the partnership can be found here.

This is a very smart move. Apple and Nike have two of the strongest global brands. Part of what makes Apple and Nike so successful is that they invest a lot into understanding the minds of their customers. They understand that consumers are looking to strong and differentiated brands to help them tell authentic stories about themselves. Consumers are using brands to help define the way they relate to themselves.

Apple and Nike realized that they have a lot of overlap in their target consumers and knew a partnership could raise awareness of their product offerings, garner a lot of attention, and prove that they understand their customers so well that they keep delivering new offerings to meet their customer's potential needs.

Yesterday, no one knew that her iPod was just as important to help with her jogging workout as her Nike sneakers, but now that the partnership has been announced, a lot of people will be thinking " I need it. "

There is an excitement and a sexiness to this partnership.

Increasingly, smart companies are realizing the value of marketing and brand partnerships, especially as those partnerships help them to better understand their target customers and help them better meet their potential needs.

The question for the marketing teams within our industry is this:

• What story does your brand enable advisors or retail investors to tell about themselves?
  
• What marketing partnerships could help your brand and products have a more relevant or exciting story?
  
• What products would be the best fit and would benefit the most from a marketing partnership?
  
• What steps are you taking to put those partnerships in place?
  

Marketing to Advisors: Are you Wasting Their Time?

by Mike McLaughlin

120 minutes.

That's how long I sat in the waiting room at Dr. Bernaski's office last week waiting to get a physical. With only one copy of Sports Illustrated at my disposal, it goes without saying that a nice chunk of my time ended up being wasted. Not even the outdated WebMD brochures held my interest.

So, as I sat in the office getting my blood pressure up in advance of my physical, my thoughts turned to the only logical topic: asset management marketing. Ok, not really. But I did get there eventually. Here's why.

120 minutes.

The amount of time I waited to see the doctor is exactly how much time the average financial advisor spends interacting with asset management firms each week. This includes wholesaler visits, searching for content on Web sites, everything. With such a limited opportunity, the last thing firms can afford to do is annoy advisors with information they don't need.

Of course, most Marketing teams ignore this, as the industry floods the average advisor with 500+ messages annually. Not surprisingly, direct mail gets trashed, e-mail gets deleted, and advertisements get ignored. As two advisors we interviewed for our latest whitepaper stated:

• "Any mail I get from mutual fund companies goes straight into the garbage." - Wirehouse Advisor, Chicago
• "I love getting stuff via e-mail. It is so much easier to delete e-mail than throw out paper." - Independent Advisor, Los Angeles

In the end, only 25% of advisors give firms' marketing efforts any weight when making investment decisions. Not good.

Firms need to change how they spend their valuable marketing dollars. It is no longer about barraging advisors to get a sliver of their attention. This approach succeeds only in turning firms into Dr. Bernaski, who so skillfully wasted my time last week.

The key lies in constantly remembering that advisors care most about themselves, not your firm, your products, or what you have to say. Understanding this can help Marketing teams make the most of that 120-minute window of opportunity advisors give them each week.

As for Dr. Bernaski, his window with me has officially closed. Good medical references are welcome.

Happy "root canal"

by Conrad

Following what I thought would be a standard visit to the dentist this past week; I was somewhat alarmingly referred to someone called a 'root canal specialist' for a consultation. I entered the specialist's office later in the week feeling more than a bit hesitant, only to be told several minutes later that there was no need for a root canal; a standard filing would do the trick!

I was happy and relie