I don’t make it a regular practice to feature the work of my competitors in this blog. But after reading the recent Distribution 2.0 whitepaper from Casey Quirk, I wanted to respond to a thought-provoking graphic that they shared. The graphic, shown below, looks at the six-year trend in asset management marketing and sales headcount, expense, and net contributions. In summary: the picture isn’t pretty.
This view is consistent with my own observations in working with sales and marketing leaders in asset management: Firms have added headcount, looking to expand the breadth and depth of market coverage and win the market share battle. That headcount has generally been less expensive than that which came before, as firms experiment with hybrid roles, virtual selling, internal roles, and marketing operations teams aimed at cost efficiently extending reach.
But the net result of all that extra distribution effort is far less contribution per person. In my experience, that decline is predominantly driven by declining fee realization, rather than fewer unit sales or gross assets per person, which implies that the bar for asset acquisition is higher now.
So, what to do about this? The thesis of the whitepaper is that asset managers “should place technology at the center of distribution strategy.” I don’t disagree with this—at ZS, we have shown that data and analytics can dramatically improve the effectiveness of sales and marketing organizations in this and other industries, and we recommend this path for many of our clients.
But I don’t know of any distribution technology that has ever offset a 50% productivity decline; it is part of the solution, surely, but not the only part. To me, the picture above questions the fundamentals of distribution in asset management, and hints at the need for transformation.
Beyond investing in distribution data and technology, here are four areas I’d explore to build a sustainable, winning distribution model in the face of these trends:
- Invest in national accounts: National relationships easily provide the most leverage (and greatest downside risk) for asset managers. For most, national accounts organizations grew up alongside established retail channels and have never been fully integrated. But if we were starting from scratch, national relationships would be at the heart of the distribution model for firms who can use this leverage to their advantage.
- Elevate marketing: For most asset managers, marketing emerged from a function based on collateral development and sales support and has not moved far from that position, despite the best efforts of marketers. But no distribution tool is more scalable than direct marketing, so firms should look to gain every advantage possible there. In the boldest view, that would mean marketing calling the shots on all advisor tactics (including sales touches), far more comprehensive and always-on campaigns, and heavy outsourcing or automation of marketing operations to avoid cost build-up.
- Lower sales pay: On average, every field-delivered sales meeting costs roughly $500. While data and technology can help improve the impact of those meetings, there’s less room to lower the cost. We can’t expect wholesalers to deliver twice as many meetings per day, for example, because we are constrained by geography and travel. If anything, costs per meeting will rise over time.
If we were starting from scratch, we’d build sales teams that were less reliant on expertise and individual skill, more inclined to follow centralized direction and standard processes, and less expensive as a result. This is an enormously disruptive and impractical idea for most firms, who are rightly dependent on their top sellers. But perhaps this is something to consider when creating new roles?
- Consolidate distribution: If firms are unable to build scale in distribution, the logical alternative is consolidation. We see that happening in the Oppenheimer/Invesco merger, and we’re seeing similar dynamics throughout the retirement sector. But firms shouldn’t assume that a merger corrects this picture—without fundamental changes, there’s a risk that the trends simply continue, just on a greater scale.
Some of these ideas are a bit radical, and they certainly carry risk, though I would argue they are no less risky than a large technology investment and are equally likely to drive long-term improvement. And if the contribution trends continue, firms may have no choice but to take some distribution risks.