Traditional Asset Managers Can Significantly Improve and Increase Revenue If They Do This...
Over the years, a number of ETF wholesalers from asset management companies have shared their frustration on how the business, or more importantly, how they were being measured as individual contributors.
Let’s take a step back and understand the landscape and where the frustration originates. Wholesalers of mutual funds or trust units are measured by inflow and outflow and these flows are directly correlated with their distribution channel relationships. A wholesaler or asset manager will know exactly which channel is buying and selling, the volume and value at which they are buying and selling the mutual funds or trust units. This is very important to the wholesaler as he/she is compensated directly by these inflows. Furthermore, the wholesaler or asset manager has clear visibility into which channel is the most valued partner and which channel requires additional education and marketing efforts.
Circling back to ETF wholesalers, these professionals do not have the same visibility as their mutual fund or trust unit counterparts. The only information that is available due to the nature of exchange traded products, is the total volume of units in custody with a specific institution. The structural problem is that many market participants do not have their own broker number and/or the ability or inclination to take custody of client assets. So why does this matter or why is this even important?
There are 2 major reasons why this is important to the asset manager and wholesaler.
Firstly, the asset manager does not have clear visibility which channel is consuming their products. As important as institutional business is, retail and independent distribution make up a significant portion of an asset managers business. Without oversight into where penetration is actually occurring, the marketing and education spend will not be optimal. The ‘buckshot’ way of marketing into every channel is outdated. In this day and age, and how information is consumed with razor thin margin, effective marketing and education spend into the right channels can increase revenue and fatten up margin.
Secondly, the wholesaler cannot optimize his/her time. The wholesaler does not have visibility into which channel is kicking tires and not adopting products. Effectively, the wholesaler is measured by how many meetings are being booked into his/her calendar. Based on this form of measurement, a wholesaler is compensated purely on discretion versus actual inflow/AuM that is directly attributed to his/her efforts. This creates friction and frustration for wholesalers; especially those who transitioned from the mutual fund or trust unit side of the asset management industry. The end result is that asset managers will lose great people along with their networks the minute another asset manager opens up the wallet and offers a more attractive compensation structure.
How can an asset manager resolve this structural problem? The answer is actually quite easy.
One of the more popular buzzwords these days is ‘transformation’. There are departments and teams of individuals within organizations dedicated to transformation. Most asset managers know that transformation is a must or they will face loss of market share and increase employee attrition. Both cause significant cost to the asset manager's business. Whether an asset manager understands exactly how to transform the business is the real question.
There are WealthTech solutions available that resolve both major pain points. Both asset manager and wholesaler will have complete visibility into what their distribution channels are consuming and how much. It’s brilliant!
Now an asset manager can view in real-time where the true in and outflows are occurring and focus marketing dollars into specific channels. Wholesalers can now invest the time and educate the underperforming channels and work on account penetration strategies. Asset managers will increase revenue due to penetration of underperforming channels and wholesalers will increase their income due to clear performance indicators. That is real transformation!
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