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Competing on Advisor Services in the Small Retirement Plan Market

By Rubesh Jacobs

Companies such as Bank of America Merrill Lynch, ING, Mass Mutual, ADP, American Funds, and John Hancock, are fierce competitors in the small (less than $5 million in assets) and medium (less that $20 million in assets) retirement plan space.* (Lemann, M.)

Some of these firms (e.g., Bank of America Merrill Lynch, ING, and Mass Mutual) are also significant players in the large (greater than $20 million in assets) market. In the larger plan space, as a result of the scale, where they compete on the level of their services to woo top retirement advisors, top advisors receive customized, high-touch attention.

Most of the very same top advisors also serve clients in the small and medium plan space as well. As a result, firms focused on the smaller plan market are compelled to compete on the quality of their services in order to woo business from top advisors.

So, the question is: how can firms focusing on the smaller plan segment cost-effectively compete with larger firms, providing higher levels of services to advisors?

Our research and experience in the small retirement plan space suggests the following steps:

• Segment advisors: Top advisors deserve the best services the company can offer. Not-so-top advisors deserve not-so-top services. So, analyze your book of business to understand who your top and bottom performing advisors are. Once established, create the platinum, gold, and silver service packages. Use these packages as a recruiting tool as well as a carrot that encourages higher performance.
• Provide an integrated online and offline service experience: Integrate your backend systems and processes so that from an Advisor's perspective, your services are consistent whether they call or go online. A service rep should have an intimate knowledge of the advisor and his/her plans to be able to provide customized, high-touch service. The Web site should mirror the same level of information, accuracy, and consistency.
• Use a performance dashboard: Develop a small, but insightful set of metrics that reveal performance of advisors, quality of service, and the economics. The metrics should be used judiciously with each segment of advisors to improve growing relationships, mend those with high potential, and end unproductive ones. Conversely, firms can also use the dashboard to "promote" advisors to Gold, Silver, and Platinum. Most firms are adept at measuring the quality of service using internal metrics. Operational metrics notwithstanding, the quality of service is truly determined by the recipients. So ask advisors, sponsors, and participants. Last, but not least, observe the financial performance metrics over a few quarters to account for seasonal patterns before digging deeper to capture the value from the new services platform.

Bibliography:
*Lemann, M. (2010, June 16). Ignites. Retrieved 07 22, 2010, from http://www.ignites.com/c/114643/10983/vanguard_fidelity_bofa_brands_score_market

Camaraderie and Community

By Deb Wetherbee

Having just finished the Boston Marathon (which I am happy to talk about with anyone willing to listen) I am struck by the camaraderie and community the runners develop while preparing for the race. More than 27,000 runners come, each with personal reasons and goals for the marathon, all aiming for the same spot in downtown Boston. The support, goodwill, sharing of advice and experience is truly a wonderful thing to experience. Coincidentally, Inc. Magazine published, "The Case, and the Plan for the Virtual Company", which got me thinking about camaraderie and community in the work environment, two things virtual employees, such as wholesalers, can miss. However, this is changing with the proliferation of social media and technology that make virtual communities possible.

Over the years, our industry has tried to build great communication and community for wholesalers using company intranets. Social media and technology allow us to emulate environments in which we can exchange experiences and ideas. Wholesalers are usually only at corporate headquarters or sales meetings a few times a year. This has been their only time to catch up with peers, compare notes and war stories, refresh knowledge on products and get up to speed on the programs their firms offer. The infrequency of this contact leaves a lot to be desired. Technology and social networking offer additional ways for wholesalers to support each other and share best practices. Groups on LinkedIn (Wholesaler Connect, Investment Wholesalers of America), blogs and Web sites specifically focused on wholesalers (www.wholesalerbriefcase.com), provide access to articles and discussion threads, enabling wholesalers to connect with their colleagues and peers at other firms. As they all focus on the same goal - improving sales, they can easily share their successes, tools and war stories.

Technology improvements, coupled with the proliferation of social networks, have greatly expanded our access to continued learning, support, idea exchange, and even the coveted sales lead. As social networking tools devlop, wholsalers will reap the benefits of this new type of community, especially if it is as inspirational and full of advice as the marathon blogs were for me. There is nothing like personal support and community at sales meetings, as well as at the marathon. Wholesaler social communities and networks will continue to connect great wholesalers and help them improve their businesses.

Should Schools Bribe Kids? Should Asset Managers Bribe Better?

by Mike Ma

I know I am on this purpose and mastery-driven compensation kick in the last few months month, but it's everywhere I look. Time's cover story this month, "Should Kids Be Bribed to Do Well in School?" has a lot of interesting implications for our industry.

They cover the controversial work of Roland Fryer, a Harvard economist, who is testing the effects of paying kids for school performance.

Fryer ran different experiments in paying kids to learn across the in 4 cities. The results are summarized in this graphic:

While I don't want to start a policy debate (Fryer himself has received death threats), it is very interesting to note that the classes in Dallas and Washington had more favorable results. For instance, the Dallas kids had reading scores that went up by .4 standard deviations, the equivalent of 5 extra months of schooling. Why? Because they are incentivizing behaviors, not results.

Kids may respond better to rewards for specific actions because there is less risk of failure. They can control their attendance; they cannot necessarily control their test scores. The key, then, may be to teach kids to control more overall -- to encourage them to act as if they can indeed control everything, and reward that effort above and beyond the actual outcome.

Or this nugget form says Joshua Zoia, who founded the much publicized KIPP Academy:

Our ultimate goal is to get kids to be intrinsically motivated. But we have to get kids hooked in. We have to meet them where they are.

In short, what if we substitute the word "kids" with "employees," can we learn something? Could we do something different in our compensation plans this year or next? To paraphrase Dan Pink, it's scary sometimes to look at what social science knows, and business ignores.

Please feel free to call/write to discuss!

Would it help to test the sales force for pay?

By Mike Ma

Next week, I am taking my Level III exam. No, not my CFA, but rather my Level III certification from the American Association of Snowboard Instructors. Like many who take the Level III of the CFA variety, I fully intend to fail my first time. It is a grueling experience -- for 3 days, my teaching technique, knowledge and personal riding will be under an unforgiving microscope. I have been so worried about this exam that I have been using all my time on the snow (whether I am teaching or not) as practice for the exam.

Why do I bring this up? Well, for the management benefits. As far as my supervisors at the mountain are concerned, there generally is little need to measure my output or performance (guest satisfaction, professionalism, technical knowledge, upsell conversion rates), since I have been training for this level. They also never have to worry if I will do the right thing with a guest, since the exam is far more difficult than the most frustrating guest or most challenging lesson.

Wouldn't this be nice if this same were true for sales managers? You wouldn't need to manage salespeople to their goals, rather you could coach them past it.

As I continue to riff of my last post about mastery and perfection, I was thinking, what if we did the same thing with our sales forces (or any function for that matter)? What if we were to make an in-house practical exam or test the basis for bonus or other compensation methods? What if the test was so difficult and grueling that a wholesaler would be at her best all the time in the field only to get practice for the test which would determine a significant part of her compensation?

I've been thinking about this since one kasina position on compensation has been to offer activity-based metrics as the primary way of reducing dependence on gross sales. I was challenged on this by Mary Anne Doggett of Interactive Communications during a breakfast. She said, "If you pay on activities, you will get bad activities." I don't entirely agree with this; however, I do think she has a point -- we ought to incent behaviors, not results. The idealist part of me agrees, but until now I didn't know how to structure it.

I think that this exam concept has some mileage. Perhaps even a national certification of some sort that is geared just for the wholesaler. As I wrote in my last post, you could attract, retain and certify the hardcore wholesaling geeks and nerds, those who are passionate pursuers of their craft's perfection. When you find them, I bet that we too would be able to rely far less on managing goals, and we could focus on coaching past goals, toward mastery.

Perfection Is Unattainable

By Mike Ma

An interesting statement came up yesterday as I was wrapping up a Distribution Audit of a client's retail organization. After hearing our views about changing compensation from gross sales to activity and behavior-based metrics, the President of this client remarked:

"Well, we are asking wholesalers to work harder. Of course they'd be upset."

Why is that exactly? Can we expect our people to be sales geeks, nerds, or dorks? That is to say, should they love selling and treat it like a passion? They'd research every sales tactic and hone in on every sub-segment like an Olympic skier trying to shave one one-thousandth off their time or a golfer achieving artistry through their swing. Not because they would make more money as a byproduct of doing any of these things (which all three wholesaler, golfer, and skier would), but because they strive to be the master of their craft. To quote the wisdom of Roy McAvoy seen below, "Perfection is unattainable."

There are a couple paths to success that lie on the shoulders of the wholesaler here, but I think the bulk of it actually lies on the management.

1) Hiring -- For any new hire, we have to test not only how great their presentations are, but test them for their own internal development drive. Do they care about selling? Do they want to be world-class in it or are they just here for the bps?

2) Compensation -- See some of our previous posts and studies on this matter, but we have to use compensation as the start to change the dialog of what is important. Behavior-based metrics are not an end state or a silver bullet to all compensation issues. It should be seen as a way station to get more predictable, all-weather compensation plans that apply in markets good or bad

3) Training -- Are we focused on giving all of our wholesalers, even the very best, most seasoned more skills? And all doesn't have to be training programs per se, but this thought alone can change the dialog of what we say in our weekly/monthly meetings. Let's ask less "What did you sell?" but more "What did you learn this week?"

And I don't mean to single out wholesalers, this is true for anyone in the business,-- marketing, operations, technology, compliance, no one should be exempt. We should all want to work harder, depending on how you look at it. After all, perfection is unattainable.

How iPads May Help Wholesalers

by Lee Kowarski

Since Apple introduced the iPad, several articles have discussed how financial advisors will be among the audiences to benefit the most. While iPads can certainly be helpful for advisors, I think that the iPad will have a greater impact on how wholesalers use technology. Before the iPad was introduced, I'd already heard of several asset managers that were considering scrapping laptops for their wholesalers and replacing them with netbooks. I think that firms should now explore the opportunities presented by the iPad to enable wholesalers to access CRM information, access intranet content (e.g. brochures, fact sheets, etc.), present content to advisors (including dynamic charts, videos, and more), and more.

The iPad will boast many advantages over both PDAs (e.g. BlackBerrys and iPhones) and laptops or netbooks:

• Simplicity of use - perhaps the key advantage of an iPad is that it has an intuitive user experience that doesn't require technology expertise. Wholesalers, traditionally, are not the most tech savvy folks and will appreciate the simplicity of Apple's design
• Battery life - the iPad should be able to last a full day of meetings without needing a recharge - the same cannot be said for most laptops or netbooks.
• Weight - while heavier (and larger) than a BlackBerry or iPhone, the iPad is far lighter than any laptop or netbook.
• "Cool" factor - for at least the first several months, having an iPad will be a conversation piece with advisors.

Because asset managers are typically so slow to embrace new technology, I don't expect many firms to get iPads in the short-term, but I do think it is well worth exploring.

Retail + Institutional = 2010 Priority... for real this time!

by Mike Ma

Last week, I delivered a keynote address at the Institutional Investor Institute's Senior Delegate Forum, and I wanted to share the slides with our blog community. My message to this audience, consisting mostly of people from the institutional side of the business, was clear. Given that our blog's primary readers are retail, let me summarize my points and why they should matter to you.

1. The merging of retail and institutional is happening now and you need to care
2. Retail is responding to this but it isn't happening fast enough
3. Real financial and organizational changes are happening right now
4. Institutional organizations are well-positioned to move in on this opportunity

My desire is not to create internal competition. My point is that the walls between these organizations should come down if they want to get in on this opportunity before someone else does.

I would love any comments, or thoughts from the community. Please call or email me to discuss!

Redefining the Wholesaler Team

by Deb Wetherbee

Over the past few years, in an effort to grow their businesses, more and more advisors have adjusted their traditional broker/sales assistant tandem to a team with more specialists. This is evident in our new FA Vision research, where 73% of advisors indicated they were part of a team. With increasingly sophisticated investors, it only makes sense to have more expertise available on your advisory team. The larger team concept is catching on, from inclusion of investment specialists to estate planning experts to business development experts. The benefits of working on a team are evident, and the idea is catching on in wholesaling too.

As kasina has been saying, asset managers need to maintain strong distribution teams that contribute to overall firm profitability. Our Costs of Compensation study suggests that you need to reward your best producers and find ways to keep job satisfaction high. We are beginning to hear about innovative distribution team arrangements in the field that help to retain top sales people. The team structure allows the members to focus on what they do best. The external can focus on face-to-face meetings while the hybrid deals with sophisticated RIAs (read our blog on this topic). Creative firms are, like advisors, turning to new team structures.

I have spoken with a number of firms that have added a third individual to the traditional internal/external team in each sales territory. The first example includes firms that have added a hybrid wholesaler. This givens the team the flexibility to cover the territory in the most appropriate way, based on the unique geography and advisor segments of each territory. In larger territories with fewer money centers the hybrid may cover advisors in remote locations. Alternatively, in territories with more money centers, the hybrid may cover more sophisticated advisors who do not require many in person visits.

Another example of using a third team member is the addition of a "CFA-type" or "National Account-type" to each existing external/internal team. This allows the team to bring additional portfolio expertise to sophisticated advisors, RIAs, Bank Trusts, or even the home offices that in their territory.

These models give teams the ability to customize their service offering at both the advisor and territory level, as well as optimize the different skill sets of the internal, external, and hybrid or "CFA-like" analyst.

Just as financial advisors have responded to investors' more specialized needs by creating teams of their own, asset managers have also begun to mirror their clients (the advisors) with creative sales team structures. The rewards for the asset manager are plenty: a more customized level of service to the advisor, efficiencies at their own firms, a more diversified firm/advisor relationship, and more ways to control compensation. I expect to see more unique team arrangements on both the advisor and wholesaling fronts over the next few months.

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.

kasina Study Shows Sharp Compensation Decline, Projected Rebound, and Offers Recommendations To Optimize Practices

This week, kasina released Costs of Compensation: Sales and National Accounts 2009 . As you would expect, data showed that on the heels of the fourth quarter meltdown that drastically took down markets and fund flows, Sales and National Accounts professionals took a big compensation hit in 2008. For example, external wholesalers saw declines of 10% in base compensation, 22% in variable compensation, and nearly 21% in total compensation versus 2007 levels (see graph below).

The data show that, depending on their roles, most Sales and National Accounts professionals experienced total compensation declines ranging from 10% to 30% in 2008 (versus 2007). Internal and hybrid wholesalers were mostly insulated from these declines. The silver lining is that firms estimate that 2009 will see modest increases in total compensation for most roles, but not enough to get back to 2007 levels.

Despite the fact that all firms were dealing with similar challenges in the sales space, three distinct approaches to handling compensation and headcount during the financial crisis emerged (see my prior blog piece, Crisis = An Opportunity Not to be Missed, for a discussion of these approaches):

1. Duck and Cover: 33% of firms
2. Across the Board Cuts: 45% of firms
3. Opportunistic Rationalization: 22% of firms

The report makes three main recommendations:

1. Rationalize intelligently to ensure reasonable pay and keep top people happy
2. Incentivize productive activities, not just end results
3. Tie sales to profitability

We found that firms starting to deploy these strategies are better positioned to capitalize as the economy and market recover. Their best sales professionals will still be fully engaged and with the firm. Furthermore, their compensation systems and processes will be aligned to reward performers who help advance the firm's long-term value creation and profitability.

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.

Advisors Care About Simplicity and Compensation

by Anu

Last month I was fortunate to moderate a panel at DST's annual Retirement Forum. On a brilliant day in Chicago, three seasoned, top producing advisors instructed asset managers on the challenges of selling 401k plans to small business owners.

I re-learned three important lessons:

1. Finding leads is hard. These advisors are constantly hustling and exploring all avenues in order to grow their businesses.

2. Compensation is shifting. Compensation needs to be fee-based and not commission-based for new and small plans. Two of the advisors thought that $800K was the bar before commissions could even be considered. Those advisors referenced a Capital Group plan that compensates advisors more fairly by providing compensation floors in case commissions are insufficient.

3. Entrepreneurs do not ask for specific funds. Their clients are not looking for any specific fund manager or set of choices. Primarily, they want two features:
- Easy-to-use Web site for plan participants
- Low, low cost

As the Defined Contribution Investment Only business grows, asset managers should look to the lessons above and follow the mantra: Simplify the advisor's life, ensure that compensation is fair.

BlackRock and MainStay Tops in Wholesaler Satisfaction

by Lee

As you may have read in Ignites this morning, our recent FA Vision survey found that the most effective mutual fund company external wholesalers are those from BlackRock and MainStay Investments. The survey was (to our knowledge) the industry's largest-ever survey of financial intermediaries: 3,129 responses gathered between April 2nd and April 20th, 2009. We also announced that we are starting an FA Vision "Nugget of the Week" newsletter where we will share additional findings from FA Vision each week. I encourage you to sign up to receive these updates.

BlackRock's wholesalers, who received an FA Vision Wholesaler Effectiveness Score of 84 out of 100, are specifically acknowledged for their ability to help conduct client meetings. MainStay's wholesalers (83 out of 100) are especially recognized for their availability and responsiveness.

The firms with the highest Wholesaler Satisfaction Scores in the FA Vision survey are:

1. BlackRock
2. MainStay Investments / NYLIM
3. JPMorgan Asset Management
4. Nationwide Funds
5. MFS Investment Management
6. Natixis Funds
7. Ivy Funds
8. PIMCO / Allianz Funds
9. DWS Investments
10.Janus Capital Group

In the increasingly competitive mutual fund industry, firms must work to understand whether they are getting the most out of their investments in a wholesaling force. The best wholesaling forces are spending more time segmenting their advisor base and focusing their wholesalers' time. This is illustrated by the fact that each wholesaler from the firms with the best Wholesaler Satisfaction Scores meet with fewer advisors more frequently. Among advisors that meet with an external wholesaler, we found that the average producer meets with a firm 2.81 times per year. Wholesalers from the firms with the highest Wholesaler Satisfaction Scores meet significantly more frequently with their producers: BlackRock (3.80 meetings per year), Nationwide Funds (3.57), JPMorgan Asset Management (3.29) and MainStay Investments / NYLIM (3.27).

The Wholesaler Satisfaction Score is a weighted average of evaluations of a firm's external wholesalers by advisors who do business with that firm, in each of the following categories:

• Knowledge about their firm's products (22%)
• Knowledge about competitive products (20%)
• Availability / responsiveness (20%)
• Ability to deliver value-added programs (19%)
• Effectiveness of follow-up (19%)

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?

Home Office Desires Conflict With Those Of Advisors

by Deb

Lately the interests of home offices seem to be diverging from those of advisors. This is curious, in that they should have a shared end goal of selling more financial products and services. This discrepancy became increasingly apparent to me as a result of the findings of our new research, Evolving Distribution, as well as what I learned at our own National Accounts roundtable and the Morningstar conference. This gap has always existed to some degree, but seems to be widening (at least temporarily). It certainly makes marketing and sales strategies difficult for our asset management clients.

Home Office Priorities:

• Models - home office due diligence


• Removing redundant products (fewer asset managers)


• Passive approach

Advisor Desires:

• Advisor due diligence


• Adding asset managers and choice


• Active funds

We know that margins are down and that merging distributors will address the redundancy of both products and platforms in the coming months. Additionally, distributors are increasingly using models and UMA platforms to bolster profitability and strengthen their holds on client assets. Lastly, home offices seem to be focusing more on passive investing.

The advisor story is in sharp contrast. They claim they are ramping up their own due diligence, ditching the buy and hold strategy (did they ever really embrace it?) and moving towards active managers. Some advisors have increased the number of asset managers they use per asset class and are claiming diversification.

I am very much looking forward to gathering real intelligence on this "gap" from the results of our joint advisor survey with Horsesmouth, FA Vision. It will be enlightening to hear what 3,500 advisors have to say about their current practices, including investment decisions, product choices and favorite firms. Taken in conjunction with the information from our Evolving Distribution report, this will arm our asset management clients with comprehensive information about both home office and advisor desires as they embark on intelligent planning for 2010.

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.

Fighting the Downturn from the Top Line

by Mike McLaughlin

Amidst the ongoing cost-cutting across the asset management industry, an old Harvard Business Review article provided me with a good reminder this week.

Leading Change from the Top Line presents an interview with Schering-Plough executive Fred Hassan and his strategy for turning around flagging businesses. Mr. Hassan's approach contains good food-for-thought for asset managers.

Unlike many of his peers, and, coincidentally, current asset management executives, Mr. Hassan prioritizes top-line growth to navigate difficult business environments. In other words, in tough times he focuses on motivating and investing in salespeople to foster a business turnaround. Three primary reasons:

• Product development cycles (in Mr. Hassan's business, and in ours) are too lengthy to immediately transform results.
• At some point, there are no more costs to cut. Cost management can help for a year or two, but top-line and market share growth do more to ensure long-run success.
• Salespeople most directly impact clients' moods. As their morale goes, so goes that of clients. And damaged or lost client relationships can take 6-18 months to repair.

That last point resonates most with me. Assuming the markets eventually recover, a motivated, positive salesforce can enable a firm to take advantage of that recovery ahead of the competition.

Of course, many asset managers face additional issues within the sales ranks. Specifically:

• Firms have already shed many wholesalers.
• The wholesalers that remain in place are not the happiest campers. Any loosening of the labor market will bring a lot of turnover along with it.

So where does this leave us? For firms to position sales to help lead themselves and their customers to greener pastures, I think firms need to take honest stock of three things:

• Sales Morale: If the market recovers later this year, how much turnover will we see? How much disruption will this turnover cause to our relationships and our business?
• Compensation Structure: Does our sales compensation model do enough to protect our sales professionals in down times and the firm when business is great? Or does it ensure drastic highs and lows that undermine the stability of the team?
• Team Structure: How can we inject or augment our use of hybrid wholesalers to expand our relationships with advisors and gather assets more cost-effectively?

It is vital that firms undertake these analyses now, not after things have turned for the better. By then, it'll be too late. Proactivity on all three fronts - morale, comp, team structure - will position firms to deliver on Mr. Hassan's tried-and-true strategy of using the sales team to lead business turnaround.

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.

Hybrid Wholesaling Works Says "Sales Success of the Year"

by Mike Ma

For those of you who weren't at the 16th Annual Mutual Fund Awards last Thursday, Ivy Funds was named the "Sales Success" of the year. Hybrid wholesaling was one of the major reasons cited for the success. From Fund Action's coverage on Friday:

Much of the success of the fund was due to sales in the independent broker/dealer channel. Butch and Ross last year helped to supervise the creation of that channel, adding 10 wholesalers to its team to focus on the independent channel. Six of those wholesalers are hybrids that split their time between the internal sales desk and the road, helping Ivy Funds to save money--the average hybrid wholesaler makes $124,000 a year, while the average external wholesaler makes $372,000, according to a study by kasina.

The stuff works. Let me know if you'd like to know more about our research and work in this area. I'd love to talk with you more.

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.

2009 e-Business Budgets Take a Hit

by Johanna

e-Business and e-Marketing teams at asset managers haven't escaped the consequences of the recent market crises.

Out of 18 asset management firms that kasina surveyed in 2009, 67% are seeing decreased budgets from 2008 to 2009. Some firms are being hit especially hard: almost 30% of surveyed groups have had to cut their budgets by over 50%.

Despite this grim picture, the good news is that most teams have maintained the number of staff dedicated to the intermediary channel, and 2 firms are actually increasing their team size in 2009.

However, e-Business leaders aren't throwing up their hands and giving in, and we can look to many new innovations online in 2009 and beyond. In fact, 25% of firms are working on site redesigns, and an additional 39% of firms are working on enhancements to site content in areas such as education and value add.

Furthermore, at many firms, marketing groups are focusing on lowering costs by decreasing the amount of print advertising. Correspondingly, e-Business leaders are focusing on providing more effective online delivery services via e-mail and other technologies, such as RSS.

Stay tuned, in the upcoming months kasina will debut a new research report on how firms can leverage the Web for cost effective distribution. In this report we'll provide guidance on how firms can maximize precious resources.

Identifying a Philosophy in Sales Comp Plans

by Mike McLaughlin

Last week I touched on how wholesaler compensation plans work against the long-term interests of the firm and the customers. The lingering question: so what do we do?

Anyone who's worked with me knows that (a) I repeat myself, and (b) I hate answering a question with "it depends." Doesn't everything? That said, I have no choice. It depends.

Why? Because I think there are two plausible philosophical camps when it comes to managing and paying wholesalers. First, Camp Short-Term, where people believe:

• The era of the long-term wholesaler is basically over
• Once a situation goes sour financially, the nature of a wholesaler will lead them to seek greener grass, if possible
• The move to a possibly-hungrier, definitely-cheaper alternative to fill a vacant wholesaler slot has genuine appeal

Alternatively, there's Camp Long-Term, where people adhere to the ideas that:

• It is possible to keep your best wholesalers over the long run
• Maximizing continuity and cohesion in a sales team is critical both for the firm and its clients
• Paying more for wholesaler continuity is well worth it

I think most asset managers reside in the middle, with aspects of both philosophies applied at different times. To me, this is a problem. Being in the middle results in having no philosophy at all.

This makes our consulting work on comp fun. We work within the confines of our clients' philosophies (or lack thereof) to generate solutions that maximize the opportunity of keeping the best people while not overpaying underperformers.

But I think identification of a clear philosophy is the missing ingredient for most firms. Having one would do so much to alleviate the inevitable hand-wringing and painstaking analysis that goes into comp plans year in and year out.

As for me, I'm in the short-term camp. One reason: I think our collective cost-benefit analysis radar needs some repair when it comes to evaluating individual people these days. You're probably aware that this has some national traction right now.

But something closer to home is what most reinforces my perspective. After more than 37 years, my father-in-law was suddenly laid off from the only company he's ever known. Besides the obvious sympathy, the secondary reaction from most everyone is "37 years?!?!?" That's telling. Transient careers have become the expectation.

But regardless of the camp you sit, there are plenty of untapped opportunities for improving comp plans. Next time I'll move past "it depends" and get into them.

Compensation for the Long Term: Not Just for PMs

by Mike McLaughlin

David Kathman over at Morningstar wrote an interesting article this week about portfolio manager (PM) compensation. In short, Kathman lauds firms who align PMs with long-term performance and shareholder benefit.

The faculty of New York University, in their Restoring Financial Stability whitepaper series, applies the same concept to compensating executives and "risk-takers" in financial services companies.

The issues raised by both Morningstar and NYU have parallels within distribution, specifically for wholesaler comp. Wholesalers clearly fit the "risk-taker" label, and yet, for most firms, their pay is largely a short-term vehicle. Consider:

1. Monthly commissions condition wholesalers to think short-term. If I had a nickel for every wholesaler I've heard mourn the haircut in his monthly commission check over the last few months, I'd fear not the financial crisis.
2. Deferred compensation plans industry-wide are generally weak. As we've written, deferred packages for externals often comprise 10-15% of total comp. This enables good wholesalers to move liberally when better near-term opportunities arise.
3. Wholesalers face no direct financial penalty for bad outcomes for the advisor and shareholder. An underperforming product takes time to reveal itself after a purchase. And the wholesaler has the market and the PM to bear the brunt of the responsibility. By the time a relationship dries up, the commission check has long-been cashed, new relationships forged, and maybe even a new job found.

The idea of going more long-term got me thinking about a client of ours. They had a unique structure for wholesaler comp: base salary and an annual bonus. Monthly commissions? Nope.

As you might guess, the sales team was not boisterous in its support for this strategy. And at first I sympathized with them. But I now think the firm was more right than wrong here.

Sure, the firm had the substantial challenge of being an outlier in an insular industry where non-standard approaches are met with great skepticism. But they were attempting to plant a longer-term mindset within the sales team. That is a strategy I can support.

So what new ideas are out there for creating better comp structures for the long-term? We are all ears to hear yours, and we'll throw out a few of our own next week.

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."

Twitter comes to Asset Management

by Anu

Twitter began in March of 2006. In two years (only had data up to March 2008), the service has gone onto significant success with nearly 3 million "tweets" each day.

Michelle already brought up twitter versus yammer last week.

This week, kasina joined Twitter at http://twitter.com/kasinaUS. Visit and "follow" our tweets as we share insights from consulting, research, and beyond. We look forward to fellow "tweeps" "nudging" us. If you have any questions about how to use twitter and want to start with an e-mail, send your question along.

Happy New Year

by Steven

I hope all of you had some time over the holidays to catch your breath. I caught mine in Chile, enjoying the beautiful climate and wonderful wine. But, coming back to NYC has not been easy. The financial climate has not gotten any better and the industry is still facing major obstacles. Here are my thoughts on how the current crisis is transforming our industry's distribution landscape:

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.

Twitter for Asset Management, Are You Kidding Me?

by Steven

When I first heard about Twitter - an online tool for instantly sharing short updates and following others who do the same - I wondered who would ever want to do that, and thought it would be a waste of time. But I've been testing it out for a while now, and after listening to some of the discussions at our recent e-business roundtable, I reconsidered, and realized it could be a great internal tool for wholesalers and national accounts managers.

How Does Twitter Work?

Twitter users have 140 characters to answer the question, "What are you doing?" If you join Twitter you can "follow" others who also post. You can also direct message them, but always in 140 characters or less. Twitter interactions can be viewed and updated on the Web, through desktop apps, and on mobile devices. It's a way to quickly share information without having to send mass-emails.

Twitter for Wholesalers and National Accounts Managers (NAM)

Simply speaking, Twitter is a communication tool. Wholesalers frequently talk or email each other about successes they had with an advisor or a fund that they tried to promote. Rather than sending these successes as a long sentence or comment in the header of the email - I know you guys do that - wholesalers and NAMs could use a tool like Twitter to post these successes and follow them throughout the day.

The advantages of Twitter over email are:

• Every wholesaler in the organization has access to it


• Stored in a central location


• Searchable for future reference


• Limited to 140 characters to ensure concise messaging

If you're still wondering whether asset managers would really find this useful, I would suggest testing it out. This quick and easy service could provide a leg-up for the next generation of successful and progressive wholesalers and NAMs who depend on networking and the internet to facilitate communication.

Never Allow A Crisis to Go to Waste

"Rule one: Never allow a crisis to go to waste" - Rahm Emanuel

By Steven

The industry has already lost $1.3 trillion in assets under management in the first three quarters of the year. Distribution teams are responding by cutting the bottom performing wholesalers. Organizations are taking this opportunity to reassess their wholesaler territory strategies, and focus on understanding the difference between overall territory potential and the actual impact of the wholesaler. Understanding this difference is fundamental to a successful wholesaling strategy.

To better assess territory and wholesaling potential, we recommend that firms:

• Acknowledge that the territory and the wholesaler are not one and the same - 50 percent or more of incoming assets within a given territory may be derived from advisors that the wholesaler has never actually engaged.


• Apply more rigor to the analysis of wholesaling opportunity - Firms can incorporate information from National Accounts and supplement it with data from outside vendors, such as Coates Analytics, IXI, and Discovery Data.

Once firms understand the underlying potential of their territories, they need to improve upon how they evaluate their wholesalers. We found that the following steps lead to success:

• Compensating for wholesaler alpha - Pay wholesalers for lower-than-average redemptions in their territories. This can be done simply by taking the average redemption rate for the firm and paying wholesalers that have fewer outflows then their peers.


• Matching the wholesaler evaluation metrics to the sales goal so that both are grounded in wholesaling potential - Separate assets derived through wholesaling contact from those acquired without wholesaling contact. Pay only on the assets that wholesalers influenced.

87 percent of Sales managers do not know the percentage of assets coming in through a given territory that results from the efforts of wholesalers. This is often the cause for underperforming Sales teams. Take advantage of this crisis by redesigning your territories, and reevaluating the way you measure and compensate your wholesalers.

Stabilizing Sales Compensation

by Mike McLaughlin

In the midst of tumultuous markets, and with substantial profit declines looming, our mid-October survey of firms' strategic and compensation-related plans for 2009 revealed some promising news on the distribution front.

(One quick caveat: this is definitely a fluid situation. Recent news from public firms has not been so positive. So, we expect this snapshot to move with the markets in the months to come. We'll keep you posted. Now back to the program.)

Consider:

• 85% of firms have ruled out near-term reductions in wholesaling staff.
• 31% of firms are looking at creating or adding to hybrid wholesaling teams in 2009. (And yes, we have and will continue to Hammer on the advantages of hybrids. Capital H.)
• Firms are considering an array of options - more, less, bigger, smaller, channelized, dechannelized - to optimize sales territories.

Volatility, both in the market and distributor landscape, provides firms with both uncertainty and the opportunity to introduce long-term strategic initiatives. It is these initiatives that will lead to success during any prolonged downturn and the eventual rebound.

There is similar movement when it comes to sales compensation models. For example:

• Approximately 75% of firms envision flat to higher compensation levels across Sales and National Accounts in 2009.
• 23% of firms are looking at adding a net sales element to wholesaler pay.
• 31% and 38% are considering increases to wholesaler base salaries (by 10-15%) and discretionary bonuses (by 5-20%), respectively.

Again, this is promising, though still not enough. As I have noted before, compensation models in our industry too often do not pass logical muster. The extensive reliance on gross sales means that rewards vacillate much more wildly than actual wholesaler performance.

The wholesalers who were great in January are still great in October despite the 50%+ decreases (in some cases) in their monthly paychecks.

I think we'll continue to see firms enhance the stability of their compensation models. Specifically, this means significantly higher fixed elements - base salaries and relative bonuses derived from the strategic objectives of the firms - and less reliance on the volatile nature of sales.

Such an approach:

1. Limits the drastic swing in wholesaler pay from year to year, whereby firms need to pull back in great years and play defense to avoid turnover in bad ones.
2. Reduces the importance of paying wholesalers based on the sales delivered by the advisors they actually engage, something few firms do today.
3. Acknowledges that wholesalers are vital but not the singular driver of sales thanks to the proliferation of other resources - the Web, research analysts - that outfit advisors with firm and product information, not to mention the finicky beast of market psychology that hangs over us all.
4. Increases efficiency by limiting the amount of time/resources that will need to be invested in managing the nuances of compensation plans year after year.

The work we're doing with our clients now is designed to stabilize compensation not just for 2009 but for all of the years like 2008 that lie ahead. I, for one, am hoping that more firms look to do the same.

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.

Taking a Chance on the Web

by Anu

In our study, "Your Site Can Sell, Too," kasina surveyed advisors across channel and demographic data. Across channels, 15% of advisors said they preferred to use electronic communication in lieu of Wholesaler interaction. Did you hear that? Some advisors do not want your Wholesaler to visit! They are asking you to save your money and frustration.

But are firms listening? In subsequent conversations, few firms are considering wholesale (yes, pun intended) changes to the service model for 2009. A simple idea: test your online power. Gather all the advisors that you did business with in 2008. Then find out which ones used the Web 'often' (I'll leave that for a later debate) and were visited by a Wholesaler. Select a group of one hundred advisors from this list. Don't select the advisors most desired by Wholesalers. Don't select advisors that are prime candidates for your revolutionary focus firm strategy. But do select a hundred advisors and, in 2009, don't visit them.

That's right. Don't send a Wholesaler to visit them. Continue building great online tools and providing commentary. Please send them valuable, timely e-mails (oh, and very few of them, if you will). In July, review the production for those hundred advisors. If the production was significantly lower than the other population, premium coffee is on me. If not, I'm expecting you to pick up that cup.

I'm already looking forward to that Iced Yirgacheffe.

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!

The No-Traveling Salesman

by Mike McLaughlin

"Within five years, technology will obliterate the need for business travel." - an entry in The Big Idea series from Fast Company

The assertion is easy to dismiss, and would probably draw laughs in many of the traditional intermediary sales organizations in our industry.

But as I dined on my knees folded into an "economy-minus" seat for six hours on a recent cross-country flight, I began to think the idea has some teeth. Consider:

• Travel continues to be less appealing. Elevated oil prices have triggered rising airfares, not to mention ancillary costs, and a decline in driving across the country. Time spent in traffic has nearly tripled over the last two decades. And decent legroom in coach doesn't come free.
• Technology continues to improve. A wise former employer of mine is just one company using cutting-edge videoconferencing technologies to save millions and improve the quality of remote interactions.
• Companies increasingly think green. Nationwide cut its carbon footprint by 80% over five years in part due to reduced travel, and Calamos has constructed a certified green headquarters.

Less travel. Enhanced technology. Positive environmental impact.

The proliferation of hybrid wholesaling is just one way that these trends are manifesting themselves when it comes to selling to financial advisors. Maybe it's just the start.

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.

Planning the Downside

by Anu

Recently, I read an interesting article on oil price's impact on the global distribution of packaged goods. The head of P&G global supply detailed how the company plans for different oil price scenarios. He commented that his company's distribution system was built on decades-old assumptions of cheap oil, ad infinitum.

Decades old-assumptions are no longer relevant for P&G and the packaged-goods industry, which brings to mind the question: are executives in our industry making similar mistakes?

Specifically, is our industry assuming intermediaries will exist, ad infinitum? In recent conversations with Sales executives, we heard the push to place product at all distributor platforms, at any and all costs. During the 1980s S&L debacle, 10% of US banks failed. Is it inconceivable that distributors may fail? These are interesting times we live in. Two weeks ago, a major retail bank had trading halted on the New York Stock Exchange. Last week, securities regulators coordinated a six-state probe into sales practices on auction-rate securities. And this week, the Treasury announced that government-sponsored entities may require the US taxpayer to provide a $25B bailout (note: double the MSFT annual net income).

With the brainpower in the industry, the C-suite could plan for "extreme" scenarios. It seems that in the case of distribution disruptions, a bit of business contingency planning would enable quick decision-making. In these interesting times, is this money well spent?

Gross Sales Compensation Is Looking Gross This Year

by Mike Ma

In the last few weeks, I have been working with a number of firms who have had to make adjustments to their compensation plans. Some have had to pay people a bit more than their gross sales merit, and some significantly less.

The national sales managers are sharing some of their frustration with gross compensation.

We understand, we've been saying that for years, but I understand the allure of a gross model -- we want people to have clear motivation and purpose.

The dilemma is that we most are trying to keep wholesaler compensation in acceptable band (say, $250K-$500K) of compensation. I understand this as there are financial, but more importantly cultural implications by defying this band too often and by too much.

I think the way out of this dilemma is paying more on sales activity. We have to deem the actions that we think are valuable, and then pay for their execution. This type of compensation is typically called "discretionary" which I think has been too small, and misnamed. Discretionary sounds optional. I think of it as non-commission variable. Not great, but we are working on it.

And I think that there is more to be gained managerially rather than lost -- we want loyalty from our employees, we want them to be "good soldiers." Then we owe it to them to have a better battle plan. The two prerequisites to making this a bigger part of your game plan are segmentation and metrics.

Think about what this would garner. In a bad year, if you think that you are going to lose 10% of assets due to performance, you could be excited that you only lost 5% with good wholesaling? In a good year, if wholesalers are just riding a performance wave, you could help concentrate that momentum to the advisors that matter most.

A greater slice of the compensation pie is going to be based on valuable, quantifiable metrics such as:

• Team based touches between sales and marketing
• Cross selling advisors to new, more stable, or profitable products
• Cross selling strategies to different product wrappers
• Penetration of new advisors at key firms
• Identification and development of top advisors
• Increasing usage of known loyalty, sales-correlating activities such as the Web

These are just a few things that come to the top of my mind. Two things stand in the way ... the ability to think of new metrics and courage to push this in your sales organization.

I would be up to help anyone in the business that is up for the challenge.

How Big Will 130/30 Be?

by Mike Trapanese

Today, around $100 billion in assets are held in 130/30 strategies. Merrill Lynch envisions the worldwide market for 130/30 funds at $1 trillion in just five years time. More ambitious, the TABB Group doubles the estimate to $2 trillion and claims that 2 years should do the trick. Looking at recent growth, neither of these figures sounds outright unrealistic.

Research from Macquarie Capital Markets (Empirical Analysis on Active Extension Strategies, April 2008) shows that relaxing the long-only restriction can raise the transfer coefficient of a fund, thus increasing its information ratio and boosting excess returns. In an alpha-crazed environment, this helps to explain the 130/30 hype. As mainstream investors pour into long/short strategies, however, the cost profile of short trading is bound to change.

Short positions require borrowed securities. For an asset manager, a prime broker will locate lenders and facilitate an exchange. There is a natural limit to the number of shares on short offer, however, and this quantity is necessarily far less than the number of long shares on the market. Growth in 130/30, along with other long/short hedge fund strategies, will increase demand for borrowed shares and drive up the cost of borrowing them. Scarcity will enable both lenders and prime brokers to increase fees, eating away net returns.

At a recent NICSA conference, I heard a prime broker put a great deal of faith in his firm's ability to rehypothecate shares, effectively stretching the number of short shares currently available. When he was asked if $1 trillion was realistic, his answer was telling: "maybe."

Short trading will undoubtedly play a role in future fund innovations. In estimating the future market, however, we must be cognizant of the limitations of our current one.

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.

Redemptions a Problem? Internals, the Cure

by Mike Ma

"We are beating benchmark by 1300 bps and we are suffering net outflows!"
"How do we stem redemptions from products that have good performance?"

This first statement was said by a good friend of mine I am vacationing with who happens to be a portfolio analyst of a high-profile asset management firm. The second question was also brought up in a call today with the head of marketing from one of the top 10 asset managers in the industry (I am on a working vacation ... lovely!) -- Two similar questions in 12 hours, so I figured a post was in order. My answer to both --

The internals.

Get the internals out there more, but do it with more intelligence. Two quick tips and thoughts, in order of preference and effectiveness:

1. If you own their own transfer agent ... - One of our clients has used the internal desk to call an advisor when a redemption order came through. You have T+3 before settlement and I'd bet you will be surprised at how many advisors you can talk off the ledge.
2. Or else ... use the Web reports - If you know which products are on your watch list make sure traffic reports or downloads of information about those products are promptly and delicately followed up on with by your internal desk on a daily basis. I'd like to reiterate the word *delicately.* You don't want your internals to come off as big brotheresque; rather, have these advisors be put into a regular call pattern with regular leading questions.

This is a situation best handled by people who can readily get to wherever they are needed. Who better than the internal wholesaler?

We just have to give them better tools.

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.

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.

Where Have All the DB Players Gone? DCIO

by Sean

According to a recent study by Sway Research, "asset management firms are earning average margins of 25% on DCIO business versus roughly 18% in markets, such as mutual fund wrap and sub-advisory, and only 12% on the SMA business." As such, major defined benefit players such as BlackRock, Goldman Sachs, and PIMCO (among many others) are making a major push into the $1.7 trillion defined contribution investment-only business. In so doing, they'll be up against entrenched players like Capital Research, Fidelity, and Vanguard.

So what is it going to take for these firms to be successful? Here's the short list of things firms must consider:

• Establishing strong brand visibility among plan sponsors
• Gaining access to the large, open-architecture platforms
• Rolling out new products that meet plan participants' demands for income protection and generation over specific time horizons
• Increasing collaboration among historically channelized institutional and retail distribution and operations functions

In an environment where, according to kasina's "Future of Distribution: Stay the Course or Innovate," 90% firms are experiencing declining margins, firms with strong institutional investment management capabilities should take a hard look at the DCIO space.

Choosing Your Battles, Wisely

by Mike Trapanese

Pop quiz: what do Merrill Lynch, Morgan Stanley, Wachovia, UBS, Smith Barney, LPL, and Raymond James all have in common? (Besides national networks of high production advisors, of course).

Answer: They're all on your list of '08 focus firms. You and everyone else.

It is no surprise that this is the case for large, well-entrenched asset management shops. What's perplexing, however, is that this focus defines the industry all the way down to its smallest participants.

In the investment management profession, we often see smaller shops establish a niche by developing focused expertise. Examples that come to mind are Matthew's, Domini, Diamond Hill, and Nuveen (the manager, not the distributor). In the investment business, however, it is far more rare to see a distribution team carve out a niche within a major market segment.

Most distributors cover the national grid, however sparsely, and treat the biggest distribution partners by assets as the biggest opportunities. This is fair on paper. But given the history and stiffness of the competition, it may not make sense for a relatively young, relatively small firm.

Imagine this: a $10 billion mutual fund shop with a 5-man hybrid schmeek team focusing on the largest RIAs in the Southwest. Here's a less far-fetched hypothetical: a traditional wholesaling force that goes very deep with only Merrill and LPL. Or maybe ML, LPL, and the two largest regional brokers in each major geographic region.

The strategy should clearly vary from firm to firm based on size, approach, and existing relationships. But the question is a pertinent one for any distribution team that feels outgunned by powerhouses like American Funds, Franklin Templeton, and MFS: if everyone's focus list looks eerily similar, doesn't that leave a host of niche-building opportunities on the table?

Sometimes you've just got to let the big dogs eat-- but that doesn't mean you have to starve.

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.

Having the Right Letters After Your Wholesalers

by Lee

Ignites ran a Q&A today discussing the value of wholesalers obtaining a CFP designation. Advanced certifications, such as CFP, CFA, or CIMA, certainly help wholesalers be able to better assist advisors and lend instant credibility to the wholesaler. Not every designation, however, is a perfect fit for every asset management firm. Ideally, companies should have a consistent distribution approach whereby its value-added programs, marketing brochures, wholesalers, and the rest of the organization tell a consistent story. It is therefore critical for firms to understand the "story" that comes with each designation and to consciously choose the right fit.

• CFP: a generalist designation focused on personal financial planning (taxes, retirement, health care, estate planning, etc.)


• CFA: a specialist designation for investment analysis and portfolio management


• CIMA: similar to CFA, but with a greater focus on asset allocation, risk measurement, and performance measurement. CIMA is only available to individuals with three years of client-centered investment consulting experience

In most firms today, wholesalers acquire whichever designation(s) are of interest to them (often without the support or involvement of their firm). There is an opportunity for firms to guide their wholesalers towards the program that is best suited to the company's distribution focus (e.g. firms that are pushing into complex alternative investments may look to have more CFAs, firms that focus on their investment process and analysis may lean towards CIMA-certified wholesalers, and firms with strong value-added programs on broader personal finance issues may gravitate towards CFP).

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.

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.

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.

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?

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.

Getting Ahead of the Curve on Prospectuses

by Mike Ma

On Dec 30 of last year, industry pundit Chuck Jaffe issued a pretty gloom prognosis of the SEC's goals to reform the mutual fund prospectus. He wrote:

"The Securities and Exchange Commission is pushing for new prospectuses, but the proposals aren't such a radical change that the average investor will actually read the dumb things, let alone understand them."

Furthermore, other Chairman Cox's colleague Commissioners echoed concerns about the reforms:

"Several Commissioners voiced reservations that they hope will be addressed in the public comments. For example, Commissioner Paul Atkins questioned whether quarterly updating of the summary prospectus was necessary and whether disclosure of top ten holdings should be included in the summary. Commissioner Kathleen Casey wondered if the financial intermediary disclosure could describe concisely conflicts of interest arising from compensation arrangements. In addition, the Commissioners stressed the need for input from retail investors on the proposal. The Staff indicated that it will attempt to obtain the opinions of retail investors and likely will conduct investor testing, focus groups and individual interviews."

My question is:

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.

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.

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.

Map vs. Territory: Separating Wholesaler Productivity from Territory Potential

by Steven Miyao

Anthropologist Gregory Bateson wrote about the difference between "map and territory" in his 1972 book, Steps to an Ecology of Mind. By this he meant that the maps we hold in our minds, while often useful, can in no way be expected to reflect the complexity of the real-world territory they are designed to represent.

Asset management firms seeking to boost wholesaler productivity face a similar challenge trying to isolate the sales contributions made by a given individual or sales team from the sales potential of a territory. In a recent study conducted by our firm, we found that fully 87 percent of Sales Managers do not know the percent of assets coming in through a territory that results from the efforts of their wholesalers. Without that basic understanding, it is impossible to effectively measure the productivity of the sales force, or to accurately gauge the impact of the marketing effort on the firm's ability to collect new assets.

As the industry moves more towards packaged products, which are typically selected by research analysts at the home office with little or no input from wholesalers, the ability to differentiate the value added by the wholesaler from sales potential inherent to a territory is more important than ever before. A better understanding of this relationship can lead to a much more efficient allocation of sales and marketing resources and, ultimately, a dramatic increase in inflows for asset management firms.

Separation Anxiety...

Posted by Steven Miyao at 8:06 AM Permalink Comments (0)

February 6, 2007

How Good Is Your Wholesaler?

By Derek

If you read Mike McLaughlin's blog entry from October, or have had discussions with us regarding wholesaler evaluation, you have probably heard us talk about the Lake Wobegon effect. We have observed the Lake Wobegon effect in the Sales organizations of asset management firms. Every senior manager interviewed for our recently released whitepaper Separation Anxiety: Differentiating the Wholesaler from the Territory communicated a sincere belief that his or her wholesalers are top-notch. Sales managers often rely on gross sales figures for a territory, anecdotal evidence, and "gut" instinct to determine their assessments of wholesalers.

There is no question that Sales managers often have a lot of experience to guide them. But how do they really know which wholesalers are above average? How do they know whether each wholesaler is getting an equal opportunity to succeed? How do they know the true impact of their wholesalers as the intermediary channel becomes more institutionalized? How can they gain more productivity from their most expensive sales resource?

These are questions we sought to address in our new whitepaper. We think it is important for firms to recognize the difference between the sales results of the territory versus the sales impacted by the wholesaler. We also think it is important for sales organizations to invest more time into understanding the dynamics of this difference in order to set more realistic sales goals and to have the proper context by which to evaluate wholesalers.

Why invest in the effort? A better understanding of wholesaler impact can lead to increased productivity. Consider the impact of a 20% increase in effectiveness across the typical wholesaling force - such a change could lead to new flows approaching $1 Billion or more for a firm. Furthermore, the institutionalization of the intermediary channel is quickly changing the distribution landscape and asset management firms need to realign their strategies appropriately or risk leaving assets on the table.

Posted at 5:32 PM Permalink Comments (0)

January 19, 2007

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.

Posted by Lee Kowarski at 4:31 PM Permalink Comments (0)

January 12, 2007

Territory Prophet

by Derek

In formulating ideas for our newest whitepaper on wholesaling, one of the things that we spent time thinking about was managing territories against profitability, not just production. For many organizations, profitability is something that is largely confined to the senior corporate offices.

To explore the issue further, we spoke with the Heads of Distribution and Sales Managers at a number of asset management firms. What we found is that few firms are infusing the idea of profitability into their sales organizations. Very few are concerned with expenses beyond keeping an eye on T&E.

In an ideal situation, we feel firms should be paying more attention to the expense side of the equation to get closer to Intelligent Distribution. To improve profitability, firms should set territory-specific expense allocations instead of a blanket, equal division among territories. Firms should infuse a profitability mentality into their wholesaling teams so that they are managing a territory budget instead of just concentrating on gathering assets.

However, few firms are in an ideal situation. In fact, we feel that it is too early for firms to be implementing a detailed P&L for their territories. While most firms track T&E for compliance reasons anyway, harder expense buckets to allocate are fulfillment, marketing and transaction costs. Some firms are currently implementing systems to get a better handle on fulfillment costs and how they tie back to specific territories, but how do you tie value-added programs, transaction costs and the Web site, for example, to specific territories? Is it really worth the time and resources to push it down to the regional or territory level?

While we advocate getting a better handle on expenses, and we are in favor of concepts such as making the wholesaler CEO of his/her territory and increased Sales Manager diligence, we feel that it is too early for the asset management industry to implement territory P&L. Instead, in addition to monitoring T&E, firms should start infusing profitability at a conceptual level throughout the distribution organization so that managers, wholesalers and other distribution personnel start thinking more within that framework and look for any practical ways to track and control other expenses as opportunities arise.

Posted at 2:37 PM Permalink Comments (0)

January 6, 2007

Inconsistent Goals Produce Inconsistent Results

by Lee

As part of a recent project where we reviewed a client's distribution strategy, we found that the firm had the following goals:

• Regional sales managers should spend 70% of their time coaching wholesalers
• Regional sales managers must spend 7 days per month coaching

These goals are not necessarily inconsistent (the 7 days per month is only a minimum), but spending 7 days per month is no where near 70% of a regional sales manager's time. We often see wholesaler or management goals similar to these and typically find that people respond to the more tactical (and achievable) goal (in this case, "7 days per month coaching") as opposed to hard to track (and hard to achieve) goals ("70% of their time"). This situation leaves firms disappointed with the results.

In order to eliminate this type of discrepancy and ensure that desired results are achieved, firms should consider:

• Reviewing all goals to ensure consistency and that goals are being met
• Ensuring that all goals are measurable. If a regional sales manager has no way of knowing what percentage of their time they spend on various tasks, percentage goals for their time have little meaning. Many of our clients are implementing systems (CRM technology, scorecards, etc.) to enable them to monitor progress against established goals
• Setting minimum goals that you would be happy with (e.g. If you want 70% of time spent on coaching, set a target of 14 days or 110 hours per month coaching

For more on measuring wholesalers and territories, check out our "Border Patrol: The Case for Smarter Territory Management" whitepaper that will be released at the end of the month.

Posted by Lee Kowarski at 1:13 PM Permalink Comments (0)

November 27, 2006

Sales Executive Roundtable - Opening Remarks: The Rebirth of Wholesaling

By Steven Miyao

Every asset management executive wants to get more out of his or her existing sales force -- even more so today than ever before. The institutionalization of the retail business, due to the heightened role of the research departments at broker-dealer firms, will reduce the products that are sold by advisors. In turn, this reduction will make it harder for asset mangers to compete, and will force them to better scale their wholesaling forces, focus on fewer firms, and align their distribution efforts.

I greatly enjoyed the interaction with the heads of distribution who came to our Sales Executive Roundtable to discuss these issues. I opened this year's roundtable by painting the imminent future of wholesaling and how it must change to address the developments at the broker-dealer firms.

Today's ultra-competitive landscape requires that firms get the most out of each wholesaling dollar. To increase the scale of their sales forces, firms should:

• Align wholesaling with National Accounts and Marketing
• Dictate wholesaler activity
• Better organize their territories
• Create hybrid teams
• Rethink compensation

For more details, please download the presentation.

Posted by Steven Miyao at 4:49 PM Permalink Comments (0)

November 16, 2006

A Wholesaler by Any Other Name Would Sell as Sweet?

by Derek

Recently kasina hosted a highly successful Roundtable for Sales Executives. Among the myriad of topics we touched on, one session focused on how to move closer to consultative selling. How can firms effectively move away from the product-push mentality that is still a commonplace remnant within the wholesaling function? How can firms get their wholesalers to avoid a focus only on the hot-dot product?

Three things struck me as interesting to point out with respect to our discussion:

• Participants emphasized the importance of coaching - Coaching is a critical way to make sure wholesalers are asking the right questions and building relationships with their advisors, and many firms are exploring ways to increase their degree of coaching. I think this is a positive trend since our research has shown that training initiatives are often the subject of a lot of talk, and not much action, in sales organizations. Managers are often already spending time with wholesalers as part of the evaluation process, but this time needs to incorporate more coaching elements. One firm has also created a new role called a "Field Trainer" which is a wholesaler that spends time training other wholesalers.
• Firms are using different names to describe their wholesalers - The degree of variation for wholesaler titles seems to be escalating. The concept is in line with trying to change the perception of the wholesaler in the minds of the salespeople themselves, others in the organization, and the advisors they service. The difficult aspect of this change is that no firm seems to want to adopt the same moniker for their wholesalers. Currently some terms out there include regional director, regional consultant, regional vice president, practice management consultant, regional sales director, vice president of sales, etc. Such variety may actually be causing more harm than good in the eyes of advisors - confusing them rather than making them feel at ease. Titles that are not straightforward should fit into a scheme that aligns with the firm's brand and story, all of which should be clearly and convincingly communicated to advisors. While we are all for differentiation, if advisors are getting confused by them, titles may not be the best place to make your differentiating mark.
• Some firms are instituting fines to curb negative associations - At least one participating firm is fining employees that use terms or phrases such as "drop a ticket." In line with the second point above, one firm is also fining employees for using the term "wholesaler." This extreme involving the stick instead of the carrot carries risks, and has to be carefully considered.

While the latter two tactics above may not make sense for every organization, the idea behind all three is that firms are actively looking for ways to change the mentality of their sales organization from a product orientation to a relationship orientation. This shift is critically important as sales organizations look to build deeper relationships with fewer advisors, secure positive net flows, and create asset stability. However, firm's efforts may be better served by investing more time into coaching rather than creating a fancy, differentiated title for a wholesaler.

Posted at 2:44 PM Permalink Comments (0)

October 25, 2006

Alignment Through Compensation

By Steven

I recently completed a compensation workshop with a client and was pleased that the final results led to a complete alignment of the firm's distribution organization. Proper alignment across Sales, Marketing, and National Accounts is one of the fundamental keys to distribution success.

The heightened role of research analysts at broker/dealer firms is decreasing the relative impact of wholesaling and marketing efforts. Neither group can begin to impact asset flows without National Accounts' role in getting products on the right shelves. National Accounts, therefore, must be structured to ensure that the company's products are on the right platforms and recommended lists, and that the firm achieves the best internal profitability while maximizing revenue generation potential and the strategic value of each relationship.

Alignment needs to continue throughout the Sales organization so that Divisional Managers, external wholesalers, internals, and hybrid wholesalers are all measured on the same success metrics. This should include both qualitative as well as quantitative measures.

Nirvana would be attained if Marketing would work in concert with National Accounts and Sales. While rare, a few firms in the industry have started to compensate Marketing organizations on certain sales objectives. These objectives are usually tied to the success of specific value-added programs or a combination of sales and firm wide success.

Only once all parts of the Distribution organization are properly aligned will firms be able to get the most of each distribution relationship.

Posted by Steven Miyao at 8:51 PM Permalink Comments (0)

October 16, 2006

A Place Where All Wholesalers Are Above Average

by Mike McLaughlin

NetFlix and sports bars with NFL Sunday Ticket. Without cable, that's what my wife and I rely on when we want to watch TV. Actually, she doesn't care about the Sunday Ticket part.

Anyway, having watched hundreds of movies over the last few years, there are times when our NetFlix queue gets a little barren. Now is one of those times, which is how A Prairie Home Companion ended up in the top slot and on its way to our mailbox.

I knew nothing about Garrison Keillor and his radio show that inspired the movie, so I spent a minute on the show's Web site. Critical research, for sure. A central element of the show is the fictional Minnesota town of Lake Wobegon, a place where "the women are strong, the men are good-looking, and all the children are above average."

It is the last part that is intriguing to me. After all, most of us are aware of how human beings tend to overrate themselves, whether we're talking about looks, intelligence, or social skills. What I didn't realize is that this natural human tendency to overestimate ourselves has a name: the Lake Wobegon effect.

As the link illustrates, this effect has been formally identified among all kinds of groups, including CEOs, drivers, and college students. Interestingly enough, our latest research effort is showing that it may exist within the Sales teams of asset management firms as well.

We have been conducting numerous interviews recently with Sales leaders about the way they evaluate their wholesaling talent. These interviews raise interesting questions, as we have seen that:

• The mechanisms used to evaluate wholesalers are remarkably consistent across the industry
• Sales managers almost universally believe their wholesalers are among the industry's best
• Sales managers also feel that they have a good handle on just how good their wholesalers are, both in absolute (inter-firm) and relative (intra-firm) terms

Of course, statistics tell us otherwise. After all, by definition, 50% of wholesalers have to be below average. Resolving this apparent contradiction is something we are talking about with our clients today, and will be part of the conversation at our upcoming Sales Roundtable.

We will have a more comprehensive review of the opportunities we see for firms to update their evaluation schemes upon completion of our research. In the meantime, I need to get ready for the undefeated Chicago Bears' appearance on Monday Night Football. And by the way, take a pass on A Prairie Home Companion. I can pass along about 500 better recommendations if you need a good movie to watch.

Posted at 8:11 AM Permalink Comments (0)

October 2, 2006

Net Sales v. Net-like Components

by Mike Ma

I've been fielding a lot of questions about net sales in the last few months as firms are starting to redesign some of their compensation plans in preparation for the new year.

It's my experience that net sales are a goal that everyone should strive for, but one cannot just throw it into a line item in an excel spreadsheet and make it happen. Typically, I see firms who want to do net sales and will

- determine the total commission pool at target
- attribute a portion to gross sales in a territory (say, 80%)
- attribute the balance to net sales in a territory (thus, 20%)

The problem with implementations like this is that it doesn't affect behavior in the field. Weekly loops and call plans won't look any different if this is what we put in front of them.

Instead, we have been working with clients in developing net-like components into comp plans. Targets that are

- Measurable - they have quantitative basis to determine if a wholesaler hit them or not (e.g. # of new producers at a new, strategic distribution partner, or growing assets in more profitable asset classes)

- Substantial - non-commision variable compensation comprises less than 10% of total compensation at most firms, and therefore no matter how sound they are, or measurable, they won't change behavior. We are challenging our clients to double that amount, but pick activities they would really be willing to pay for.

While net sales across your entire wholesaling force may be some time off for most firms, there is nothing stopping firms from putting net-like components into comp plans today in order to build smarter wholesaling for tomorrow.

Posted by Mike Ma at 3:38 PM Permalink Comments (0)

September 5, 2006

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.

Posted by Lee Kowarski at 6:02 PM Permalink Comments (0)

August 18, 2006

A New Type of Wholesaler?

by Lee

Whether you know it or not, your firm's wholesaling strategy may be hurting the efforts of your National Accounts group.

When meeting with distribution partners, National Accounts teams often set an expectation for the amount of wholesaler coverage in the distributor's branches. Today, these expectations are often not being met because wholesalers have virtually complete freedom to go where they want. Luckily, most distributors are not attempting to track this or are unable to do so effectively. Times are changing, however, as we heard consistently during research for our "Breaking the Bottleneck: Achieving Distribution Success by Supporting Gatekeepers' Needs" whitepaper. Distributors are increasingly evaluating coverage and benchmarking asset management firms' wholesaling efforts against their peers.

Because of this change, firms must ensure that their wholesalers go where National Accounts has promised that they will. Many wholesalers, however, will say that they shouldn't visit certain offices because there is not a good opportunity there. While this may be a cover for other issues (bad location, difficult branch manager, etc.), it is often true that some branches within a network are not worth visiting. Firms nonetheless must ensure that the coverage that is promised to the home office is delivered in the field. Whether this objective becomes part of a firm's compensation plan or not is a firm-specific decision, but this must be a factor that is accounted for somehow in every firm's wholesaling strategy and something that is managed against.

As firms explore non-traditional wholesaling models, they want to even consider a new wholesaling role dedicated to covering the less desirable branches at the firm's key distribution partners. Individuals in this lower cost role would not have the same sales expectations as a traditional wholesaler (or possibly any at all), but would rather serve to fulfill promises that were made, and possibly pick up some additional assets along the way.

Posted by Lee Kowarski at 1:07 PM Permalink Comments (0)

July 24, 2006

How Many Advisors Can You Handle?

By Steven Miyao

Most Asset Managers realize that their wholesaler cannot cover 1,200 advisors, but what is the right number and what is the right rotation?

In the last couple of months I have helped a number of Asset Managers focus their wholesalers on their key advisors. The thing that struck me was that it was so hard for the wholesalers, as well as their mangers, to give up advisors in their territory. The disagreement is usually around how often and how in depth the visit needs to be. But unless firms want to continue to push product rather than build true relationships, wholesalers will have to spend time with the advisor to build these relationships.

In order to build a relationship, a wholesaler has to meet with an advisor at least four times per year.

That translates into 200 advisors visits per quarter, or about four meetings per day or 20 per week.

The coverage issue also depends on the kind of advisor you are dealing with. Most wires don't allow you access more than four times per year. But some firms truly help independents optimize their business, and are starting to bring the advisor numbers down to even 50 per wholesaler.

Companies need to evaluate their coverage model. Relationship-selling firms have to bring down the advisor target, otherwise they are just paying lip service, not building relationships.

Posted by Steven Miyao at 9:40 PM Permalink Comments (0)

July 14, 2006

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

Posted by Lee Kowarski at 2:35 PM Permalink Comments (0)

July 10, 2006

What is the "Price of Admission?"

By Sean

If you're going to this Thursday's Kelly Clarkson concert at Jones Beach (like one of my colleagues), it's roughly $50. If you're hoping to stand in Fenway Park's Green Monster Section for the August 19th Red Sox game against the New York Yankees, the bidding starts at $599 for 2 tickets. If you're an asset management firm hoping to put yourself in the good graces with the home office of a large distributor like Merrill Lynch or Raymond James, the price of admission might just be an effective value-added program.

Conversations with National Sales Managers and distributors' Mutual Fund Coordinators for our upcoming study, Breaking the Bottleneck: Acheiving Distribution Success by Supporting Gatekeepers' Needs, suggest that distributors are increasingly leaning on asset managers to support their advisors through the delivery of value-added programs.

The cardinal rule with these types of programs: Don't push your products, focus on helping advisors. The "value" of value-added programs to asset managers lies in generating wholesaler follow-up opportunities. In terms of topics, distributors frequently cite two areas as being important:

• Practice Management - Supporting the growth and ongoing management of advisors' businesses
• Team-based Selling - Helping advisors successfully adapt to, and thrive in, team-based selling environments

As more advisors, including those with wirehouses, shift to fee-based business models, these types of topics will be increasingly in demand by distributors. And, despite the claims of many industry reports that retail mutual fund distribution is driven entirely by legions of number-crunching CFAs, effective value-added programs are central to building strong relationships with distributors. As one Sales Director put it, value-added programs are the "price of admission" to large distributors' home offices.

Which reminds me, can anybody loan me $600 to start bidding on those Sawx tickets? They will win the East this year, finally!

Posted at 9:54 PM Permalink Comments (0)

June 29, 2006

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.

Posted by Lee Kowarski at 11:45 AM Permalink Comments (0)

June 6, 2006

Enterprise Selling the GE Way

by Mike Ma

One of the questions we are tackling in some recent projects are around sales staffing for multiple product lines. Our intial advice has been to have one wholesaler who can represent his company -- not just its products. It doesn't always fit, but this has been our initial hypothesis in working with clients and in Future of Wholesaling study -- to be a quarterback orchestrating a team around him.

I was reading this months HBR interview with Jeff Immelt and he was commenting on "enterprise selling" -- where one GE rep can bring in business for multiple lines of GE's business. Says Immelt, "What we need to do is set things up so that the medical rep can bring the lighting rep, the turbine rep and so on." As GE is focusing on organic growth rates that are 2-3x the global GDP , Immelt sees this as a critical strategy that works better than individual selling.

(BTW, isn't it awesome that GE compares itself not to other companies but to countires with respect to growth rates).

While I know we think that it is hard to have domain knowledge of funds, variable annuities, separates, closed end funds, ETFs, etc -- at least they are all investment products. GE faces this from turbines to hospital equipment.

To do this in our world, I think it requires three things on behalf of the wholesaler and their supporting functions:

a) Company Vision -- to see the cross selling opportunity. This could be supported by a business intelligence or customer segmentation team. The GE reps are not just one trick pony product jocks.

b) Adequate, Not Total, Knowledge -- just enough knowledege to gain permission to put an expert in front of the prospect. It is not always a "I need to know it all" endeavor.

c) Responsive Support -- the response needs to shortly follow the advisor's demand/wholesaler opportunity before the lead gets cold. This could be a retirement expert, an analyst on a portfolio team, or an internal following up immediately to on a wholesaler request. This has to be factored into the support equation.

Does it work? Well, I could live with the results that Immelt sees:

"Enterprise selling is only maybe 10% of the company's sales but out market share is probably twice as high when we combine things in that way."

Posted by Mike Ma at 7:25 AM Permalink Comments (0)

April 23, 2006

Hybrid Wholesaling Gains Momentum

By Steven Miyao

In the last 3 months alone, I have spoken to more then 10 firms about how to implement hybrid wholesaling. Most approach hybird wholesaling as a strategy alone, rather then a means to increase scale. Successful distribution organizations understand that they need to make hybrid wholesaling an integral part of a larger strategy in order to get more quality contacts with advisors. As a result they earn more assets.

The following are the most important characteristics that we have identified as successful indication of hybrid implementation:

- Coverage; Hybrids should service two or three times as many advisor relationships as an external. This will ensure that firms are increasing coverage with hybrids and, as a result, inflowing assets.

- Travel; To maintain responsibility for a larger number of advisor relationships, hybrids should operate primarily from the home office, using the phone, e-mail, and other Web-based tools to engage advisors. At most, hybrids should spend only 25 percent of their time traveling to meet with advisors.

- Compensation; Hybrids’ compensation model should be similar in structure to an external. To reflect their reduced travel, hybrids should receive a slightly lower base salary than externals, but should otherwise be eligible to receive a percentage of every new dollar they bring in the door, just like externals.

Again keep in mind that this is just one of the tactics that will help distribution organizations get more scale.

Posted by Steven Miyao at 10:44 AM Permalink Comments (0)

April 19, 2006

Retention Comes in Many Flavors

by Lee

The topic of retention has come up in several recent conversations I've had with clients. What comes to mind when you think of retention? For most people that I've spoken with in the industry, the focus is on retaining their best employees (especially wholesalers). Many executives are worried that their best salespeople are going to jump over to a competitor, taking "their" clients with them. I see two primary flaws in this logic:

1) "Their" Clients: advisors should be doing business with the asset management firm, not the wholesaler. In our Future of Wholesaling whitepaper, we spoke about the common mentality of viewing external wholesalers as CEOs of their own mini-enterprises. Asset management firms need to take steps to turn these "lone gunslingers" into optimally-designed extensions of the overall organization.

2) Ignoring Asset Retention: retaining employees is certainly an important issue and is not to be ignored. That said, firms need to spend more time thinking about how to retain assets. This can be viewed through several lenses - by product, by distribution partner, by advisor, etc. - but the key is to have your finger on the pulse of your business. Most firms feel that their wholesalers can not impact redemptions, but that is not true. Pushing a "hot dot" leads to shorter-term assets than an appropriately sold product, for example. Ignoring asset retention leads to poor retention.

Accordingly, firms need to take steps to align the objectives of their wholesalers with the objectives of the entire organization. Some firms have already taken steps in this direction by introducing a net sales component to compensation, by focusing wholesaler resources on key distribution relationships, etc.

Posted by Lee Kowarski at 3:43 PM Permalink Comments (1)

March 25, 2006

Charging for Seats vs. Rewarding with Seats

By Lee: When traveling to London last week on Virgin Atlantic, I inquired about the availability of an exit row seat and was shocked to find out that there were actually several available (which is rare on a red-eye flight). Then came the news that these seats cost an additional $75. I joked with a co-worker that they'd start charging for window seats next. I was wrong - but not by much. NWA (the airline, not the rap group) announced that it will begin charging passengers for the right to sit in aisle seats.

I definitely understand that these seats are valuable, but I think that American Airlines' current approach is far smarter for the airline - they choose to reward their best customers (Executive Platinum and Platinum AAdvantage members) with the ability to reserve the exit row seats. Other passengers can only get these seats at the gate if they are left over.

Travel is already so expensive - why add the extra frustration of additional charges and have the seats taken up by anyone but your best (most profitable) customers?

If you have extra seats left over, is the extra $75 really worth it, assuming you even get it? Most of the seats on my Virgin flight remained empty and were simply taken by smart travelers who moved over.

Think about the value instead of (a) rewarding your best customers and/or (b) providing an unexpected perk to other customers with any remaining seats. Remember, there are many ways to reach the end result (increased profitability).

How you are you rewarding your best customers? Do you even know who they are?

Posted by Lee Kowarski at 2:03 PM Permalink Comments (0)

March 24, 2006

The future financial advisor

By Steven
I recently spoke with an executive of one of the largest asset managers in the country. He was the first, outside of kasina, that has been trying to figure out what the next generation of financial advisors are going to be like and what impact they will have on his business.

The future advisor is now 26 years old and four years out of college. He/She has been:

- Using a PC since elementary school
- Blogging for the last three years
- Doing all research, at school, for term papers through the Internet
- In school downloading her professors lectures from the university Intranet
- E-mailing since 15
- Communicating with friends through IM for the last eight years
- Having a myspace.com profile for the last two years and before that was on friendster and facebook
- Podcasting about recent trips to Costa Rica and Peru
- Using wikipedia to help understand many finance topics

What are the implications of this for selling asset management products? The advisor of the future will use technology like advisors of the past used the fax, phone and their Rolodex.

The advisor of the future will:
- Primarily use the Web to research products
- Read blogs to stay informed and educate
- Write a blog to communicate to clients
- Write a blog to share her expertise with colleagues
- Communicate with IM and e-mail to their clients as well as to the asset manager
- Share research sites through del.icio.us
- Podcast or videocast to clients
- Want to use tools such as:
- Webex
- Brainshark
- Use wikies to collaborate with her colleagues

Most heads of distribution are looking in the rear mirror instead of seeing the signs ahead. It was very refreshing to talk to someone who is interested and has vision for the future.

Posted by Steven Miyao at 4:25 PM Permalink Comments (0)