January 11, 2008

Successful Product Sales Today - More than a 3-Point Story and Sleeve of Golf Balls

by Lisa Cohen, Momentum Partners LLC
Much has changed since Elliot Spitzer’s efforts broke apart the well-entrenched “preferred list” model for mutual fund distribution. Centralized home office due diligence teams are now in the driver’s seat, with advisors selecting products for their clients from their firm’s fully vetted and approved set of products. Generally, these products are offered up on a platform with a pithy name or acronym, like TRAK, or Consults. We’ve wondered for some time what all this means to advisors and the work they do with clients. In a recent survey of 537 advisors, we found out.

Before, fund companies generally made financial arrangements that allowed them access to a firm’s advisors, regardless of product quality. In the new model for product distribution, mutual fund companies must first gain admission to brokerage firm’s due diligence research groups, pass the analysts’ screens, and only then be admitted to one or more of the firm’s product platforms. These groups are referred to as “gatekeepers,” and with good reason, as many product manufacturers spend terrific amounts of time and money trying to get the attention and support of these folks. Other business arrangements may also be made (home office to home office) to allow manufacturers’ wholesaling teams access to firms’ financial advisors. Polices about wholesaler coverage vary, and all arrangements must be disclosed.

The final step in the sales process is back on familiar territory, with wholesalers calling on advisors and pitching firm and product stories. The current model does sometimes create the opportunity for advisors to ask firms to provide research coverage for a product that is of interest to their clients. Advisors with more clout (i.e. sales) are likely to have greater success in pushing for product coverage and availability.

We have wondered for some time about the impact of these changes to advisors, the final link in the distribution chain for so many financial products. We wanted to find out specifically if the new research-oriented product selection process is creating more opportunity for manufacturers to pitch products to advisors, or less. We wondered too if advisors were fully aware of the home office changes. The survey turned up lots of interesting information about how financial advisors perceive the product sales process, and what they would really like to have happen over the sales cycle to better support them in their efforts.

To conduct this research, Penton Media (which publishes Registered Rep) teamed up with us (Momentum Partners LLC) to survey 537 financial advisors who subscribe to Registered Rep or Trusts and Estates.

Here are some of the highlights of the study, titled Investment Product Distribution 2007: A New World Order.

The rise of the home office centralized due diligence team has indeed created some new opportunities for fund companies – and manufacturers of other financial products – to take a different approach to meeting financial advisors’ information and product support needs.

In general, advisors report high levels of satisfaction with internal research groups, with nearly 80% giving the groups a 4 or 5 (5 being extremely effective) on a scale of 1-5. This does not mean that they are abdicating control of the product selection process, though, as advisors also report that they are conducting their own research and evaluation work, and are the final decision makers on the products offered to clients.

While advisors’ role as final decision-makers did not surprise us, the extent to which advisors are taking an active role in product research specifically, did. We see this as an opportunity for product manufacturers to adjust the sales process to reach more and different advisors by providing value-added research and information tools along with product information and support.

Nearly a third of respondents were unable to identify exactly how many people are in these research groups, although awareness varied by channel and size of firm. We are skeptical that advisors would fully delegate a key piece of the value they add to their clients to a group they know only superficially. This lack of familiarity supports the view that advisors are acting as their own gatekeepers, effectively creating a two-step sales process. Consistent with this research orientation, advisors report significant interest in in-depth investment analysis, access to portfolio managers, and technical support tools.

Product offerings across all channels turned out to be remarkably consistent. We asked about ETFs, Funds, SMAs, insurance products, retirement products, annuities, and more. All channels surveyed – wirehouse, independent, planner, regional broker/dealers, RIAs, wealth managers, and bank/trust advisors – report selling some of all the products about which we asked. Not all manufacturers provide sales coverage for all the channels actually selling their products; contributing factors are the structure of many sales organizations and the challenges of organizing coverage for many different types and sizes of firms. As awareness of the changes taking place for advisors grows, we expect to see creative thinking about coverage models emerge and take hold.

We think an even bigger challenge presented by this finding may be the ubiquity of the product toolkit. If everyone is offering the same stuff to clients, differentiation is an even bigger challenge for financial advisors. Perhaps this is another opportunity for manufacturers to provide additional sales support tools to advisors.

Given the challenges presented by this data, it is not completely surprising that advisors report less interest in wholesaler visits and calls than in other forms of sales support. To get at some of the subtleties, we cross-referenced sales support preferences with advisors’ primary business models. We found that advisors still in the process of transitioning from a primarily transaction-oriented model to a primarily asset-based model, and advisors who do business both ways reported the most interest in traditional sales tools. Calls from internal sales desks were not high on most advisors’ lists of preferred support mechanisms from asset managers.

The survey paints the picture of a rapidly evolving sales environment with equal parts opportunity and challenge. Today’s advisor is an information junkie (aren’t we all?) with an insatiable appetite for actionable and useful tools. Product manufacturers do need to think critically about how best to position sales and analytical resources to meet these needs as they continue to work the “gatekeeper” processes.

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