Asset Managers Realign Distribution Resources to Optimize Strategic Marketing Costs
September 2, 2020 — Boston
COVID-19 forces firms to evaluate the cost of engagement and efficiently deploy resources
While the world grapples with both the health and economic impact of COVID-19, asset management distribution teams find themselves at a pivotal crossroads. As distribution executives plan for the next five years, they will have to weigh opportunity costs and reallocate distribution resources, according to The Cerulli Report—U.S. Intermediary Distribution 2020.
From 2015–2020, average strategic market costs for distribution teams in the wirehouse channel rose 64% to reach more than $600,000. At the same time, the largest broker/dealers (B/Ds) have been paring back the number of investment products allowed on their platforms. “Asset managers are fighting the effects of product rationalization at B/D firms,” according to Ed Louis, senior analyst. “It’s challenging, but asset managers need to establish shelf space and maximize their access to advisors while also being asked to lower their management fees in many cases.”
Average management fees for non-index mutual funds have declined 7% over the past three years in response to competitive pressures. Eventually, COVID-19 may push more asset managers to pursue other opportunities. “Many firms may ultimately decide that the price of admission is not worth it and instead choose to focus on other channels, particularly independent registered investment advisors (RIAs),” he adds. Nearly all (90%) of distribution executives plan to increase their resource allocation to serving independent RIAs while one-third plan on decreasing their allocation to the wirehouses.
Regardless of channel affiliation, the COVID-19 pandemic may permanently alter how asset managers engage with advisors, causing many to rethink their distribution model and resources. Distribution teams devising their longer-term strategic plans need to recognize that as wealth managers continue to adjust in a virtual environment, it is increasingly likely that the post-pandemic industry will look very different. Key face-to-face relationship-building activities like industry conferences and events—common forums for networking and engaging with large swaths of advisors—have come to a halt. “For better or worse, the pandemic has forced the issue and the importance of modernizing distribution efforts as advisors become more difficult to access,” says Louis.
According to the research, adapting to this shift is a top priority for distribution executives—78% of those surveyed have plans to shift more resources to the internal salesforce. Firms are increasingly giving internal wholesalers their own segments of advisors to cover within their territory, and more than half of externals report that their internal partners have an informal sales goal. At the same time, the average headcount for externals has declined more than 50% within the past five years. While distribution executives appreciate the effectiveness of externals, many wish to dedicate these expensive resources toward their largest opportunities.
Resource alignment, particularly in a virtual environment will be critical. “While COVID-19 has accelerated pre-existing trends and placed tremendous pressure on asset managers, distribution teams that increase collaboration amongst their internal resources will be best positioned to thrive,” concludes Louis.