In the last decade, asset managers have significantly broadened their product shelves in search of organic growth amid increasing competition.
Whether in the press or at our executive roundtables, we often hear sales leaders say that they are putting their best thinking into as many investment vehicles as possible, and letting advisors choose how to access it: “We’re wrapper-agnostic.”
In truth, however, most firms are not wrapper-agnostic when it comes to their sales goals.
While a noble idea, sales teams do not need to be all things to all advisors to reach their ultimate goals: sustainable sales, revenue growth and maintaining a healthy profit margin. Distribution leaders should be keenly aware of how their choices of where to focus resources, like people and budget, impact their ability to meet their production targets.
Some flexibility is required if asset managers want deep, enduring relationships with advisors who share similar investment management and client service philosophies. The key to success lies in understanding the core needs and motivations of those advisors and their clients, and then placing the right services and support in front of them. Equally important, however, is recognizing that the wrappers in which you package that expertise can be the deciding factor in setting your firm apart.
That said, firms may also find that the drivers of interest or adoption in certain vehicles are not specific to those wrappers. Take the massive uptake of active ETFs in recent years.
Advisors are increasing their allocations to ETFs, SMAs and alternatives, but not necessarily at the expense of mutual funds. In fact, less than a third of advisors said they were sourcing new ETF allocations directly from active mutual fund redemptions; about half said it came from new client investments.
We are seeing advisors using technologies like the unified managed account and, increasingly, tools like pre-packaged model portfolios to mix mutual funds, ETFs, SMAs and even semi-liquid alternative products to meet specific client goals. These models give advisors a way to scale their business and provide more personal, holistic financial advice.
Distribution organizations need to understand how advisors are using individual products and packaged solutions to manage their practice, how they are evaluating options for various client segments and what sort of support they need to effectively implement (and in some cases customize) the solutions.
Asset managers may find they can meet core drivers of interest in new products, like cost and tax efficiency, through their existing lineup with some modifications, rather than launching and trying to gain momentum in an entirely new area.
Firms that find it strategically important to embark on new product initiatives need to be clear where they expect to source growth in those products, the costs of that focus and how to balance it with other priorities.
A dollar sold in mutual funds, a dollar sold in ETFs and a dollar sold in semi-liquid alts do not generate the same level of revenue and profit. The dollar-weighted average fee of an ETF is about two-thirds of the average mutual fund fee, according to Morningstar data. Firms focused on building momentum in ETFs through placements in models—displacing existing mutual fund allocations for the new wrapper—need to understand the revenue implications of a shifting mix.
If firms can indeed use ETFs or any other product to expand their base of producing advisors, then the innovation can be a source of organic growth. But sales teams need to do the legwork to identify those new advisors and platforms with quantitative and qualitative data. National sales and national accounts need the resources to build those relationships and make the case, and ultimately, firms need products that meet those new clients’ needs.
This takes time and significant human and financial resources. In the meantime, firms need to ensure that other resources are available—junior salespeople, hybrids, internals and/or marketing—to maintain strong touchpoints with the broader advisor base to keep production from those advisors healthy.
Ultimately, firms need to consider the big picture and total pie they are pursuing. As intermediary distribution becomes more of a takeaway business, with growth primarily from taking share versus new pools of investment capital, only a few firms will be successful in gaining enough share and new business to offset the profitable business they lose to competitors. Many will fall short.
What, then, distinguishes the winners?
First, firms must focus on what they do best and where they are most likely to succeed. That is, identifying a select number of strategies where they differentiate themselves and deliver them in a way that meets the needs of a select number of high-value advisors and/or platforms. This may mean leaning into products and packaging new to the firm; it may also mean saying no to the latest trend that doesn’t serve a need.
Second, firms must optimize their distribution efforts to maximize time and information advantages. This includes the use of artificial intelligence to add speed, efficiency and better personalization to engagement. Firms should focus on deeper relationships with clients and platforms to meet their needs, rather than solely chasing new areas of growth. They must also build products and services tailored to the specific needs of key partners. Finally, firms need to shift resources quickly when opportunities arise, adopting a dynamic approach to coverage and segmentation.
Firms that combine flexibility in meeting client needs with a clear focus on the relationships critical to their business goals are not “wrapper-agnostic.” They understand that the way expertise is packaged through the right wrappers can be the key to differentiation and success in a competitive market. By strategically aligning their efforts to harness the power of wrappers, firms can do what they do best, even better.
ĚěĂŔ´«Ă˝'s Distribution Solutions team can provide the data and insight needed to help distribution leaders understand the specific product and capability needs of their most important clients.