Distribution-led companies will dominate
The dominant asset management brands allocate a high percentage of their revenue to their distribution effort…focusing on the people in the value chain and the efficiency of their technology. Distribution-led companies will dominate, and product-led companies might get trapped in the doom loop.
In this newsletter Mike Clare (founder of Mike Clare Consulting) explores the complexities and power dynamics within the retail value chain and the interdependence between Asset Managers, LISPs, DFMs, BDMs, intermediaries, and the client.
To change is the challenge
Regarding the lack of retail success that some asset management boutiques are experiencing, their challenge is to focus on the development of a professional distribution strategy that will lead to significant capital inflows.
Ad-hoc engagements with advisers by fund managers, whilst ostensibly a promising idea, are merely a steppingstone towards being able to match what the dominant brands are doing on the battlefield.
The boutiques need to learn from the approach adopted by the leading life assurance and asset management brands, especially the LOSMD and ANC, respectively.[1] Expensive, but effective for scaling businesses working to establish a bigger distribution footprint across multiple channels and adviser segments. This approach will lead to an accumulation of assets under management and the resultant annuity revenue that assures sustainability.
An effective retail distribution strategy needs to be a personal and digital engagement that is customised to match the needs and demands of independent, tied, bank and direct channels.
Tailoring is required to ensure that advisers working in each segment within these channels are regularly engaged by people who can influence them. These customer-facing people need to understand the complexities and power dynamics within the retail value chain and need to be attuned to the interdependence between Asset Managers, LISPs, DFMs, BDMs, intermediaries, and the client.
All influencers must be able to articulate the value proposition in a way that arouses interest and subtly challenges adviser and DFM assumptions and choices, which is where the decision-making power sits.
A bit more of the “why choose us” and less of the “what we do” is required.
A more consultative approach should be applied, rather than the “show-up and throw-up” style that knowledge and information-heavy asset managers unleash on their target market.
The “red ocean” approach of mimicking competitor behaviours and discounting fees to win adviser support or DFM mandates are short-term tactics that ignore the reality that the retail market responds well to “blue ocean” behaviour such as being noticeably different and uncontested in style and process.[2]
It is the “challengers” who will win in the SA environment, in which so much of the AUM is controlled by so few.[3] “Relationship marketers” will not displace the competition, “hard workers” are sometimes more about busyness than business and “lone wolves” don’t contribute to the team effort required for exponential growth. An assertive and challenger-style sales approach is required to displace dominant brands and to establish a presence in the LISP, DFM and wealth management community.
The flywheel and the doom loop
Good small companies often strive to become big great companies. “Good-to-great transformations never happen in one fell swoop. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.”[4]
The dilemma faced by the smaller asset management companies is that to get the flywheel moving with an unstoppable momentum, there is a considerable salary bill required to retain the services of a person or people who will do the pushing.
The dominant brands allocate a high percentage of their revenue to their distribution effort and the value loop they have created ensures rapid growth of their assets under management. Their smaller competitors either do not appreciate the value of funding an expensive distribution effort, or they simply ask the fund manager to add to his day-job and double-up as the new businessperson. The outcome is that no distribution-push leads to a stationary flywheel, which means low investment inflows, which perpetuates low revenue, which then means no money to pay the pusher. Strategic conversation shifts to the language of staff cuts, cheaper digital marketing interventions, mergers, and even closures – as their competitors strengthen their distribution foothold.
Trapped in a doom loop.
Understanding the landscape
The value chain shown in diagram (1) illustrates how asset managers can connect to customers via various channels. An understanding of the critical connecting and influencing roles performed by BDMs and BCs[5], an appreciation of the importance of being listed on the LISPS[6] and the wholesale scale-benefits that DFM-endorsement provides, needs to be backed by deliberate activities implemented by key people in the business to ensure optimum results at all links in the chain.
The traditional life assurance owned brands have been using the IFA, bank and tied channels since the 1980s and are well established in terms of distribution reach. Much of their strategic change has focused on broadening their exposure by franchising their distribution and consolidation of AUM through book-buying. Assertions that injecting growth-equity capital into IFA practices is a win-win, are merely thinly veiled ploys to tie-down IFAs who don’t regard their independence as sacrosanct.
Independent asset management companies do not enjoy the benefit of dedicated bank and tied channels and have primarily focused on the IFA channel and, to a lesser extent, on the smaller, more specialised wealth and investment segments in the tied and bank channels to distribute their funds. Direct channels are developing steadily as life assurers and asset managers seek to target the bigger, but less affluent customer segments neglected by intermediaries and to also get access to those customers who are comfortable engaging with a tele-seller, interacting online or transacting via their mobile phones. Direct online access to investment product is becoming increasingly more available and is attractive to digital natives and informed DIY investors who do not regard advice as a value-added service and who are not prepared to pay for the purchase and ongoing review of a product or fund. The robo-adviser option is a slowly developing theme in SA, highlighting the reality that when it comes to building, growing, and preserving wealth, people prefer dealing with people rather than with robots.
Diagram (1)
Copyright: mikeclareconsulting
Although depicted as orderly columns aligning channels to different customer segments, the reality is that distribution of products and funds comprises a disorganised network of relationships connecting product providers to customers. The understanding of this landscape, the quality of the people connecting the links of the chain and the efficiency of the technology, is where the dominant brands standout.
Strategy and war
“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win,” said Sun Tzu. “The opportunity of defeating the enemy is provided by the enemy himself,” he added. [7]
Strategy and war references are often shared by distribution teams huddling in the boardrooms, scheming about ways to disrupt, outfox and win some battles in their quest to win the war.
Building strategy through dedicated strategic conversations among the leadership team with the intervention of an outsider who and is willing to provoke and challenge narrow thinking, will ensure that plans are devised to outmanoeuvre the competition. Having that voice in the room that can read the terrain in battle and help develop a war plan, could be the next inflection point in a business ready to make an impact.
Insiders are often slow to see the changing dynamics and are often inhibited by bonus structures that encourage strange behaviour and preserve outdated commission-based rem-structures. Experienced campaigners in SA will remember how Allan Gray, Coronation and Investec toppled the complacent giant life assurers in the ninety’s, driving them back to focus on their lifeblood (pun intended). Currently, we are all witnessing the clash of the ANC with the boutiques, as money flows from the haemorrhaging hedgehogs to the agile foxes.[8] Some hedgehogs are proving to be foxier than others and are defending well, whilst benefitting from the “big-brand-is-safe” mentality of many Saffas.[9]
My experience shows that the blend of traditional marketing tactics and innovative digital ones is dependent on the type of customer being targeted. The top-end of the market is about deep relationships, trust, sophisticated advice, personal referrals, and customisation, requiring effective engagement with educated and experienced people who have established trust over the years. The middle and mass markets appear to be more easily influenced to act by the digital-message-avalanche that has been unleashed upon all of us.
Diagnose before you prescribe
Client-facing people in this industry need to be sophisticated, hi touch fast-connectors who have sufficient knowledge and confidence to be able to assess and understand an advisory and DFM practices’ investment processes and portfolio choices, share insights that educate decision makers.
They must be bold enough to challenge choices and recommend alternatives. Asking good questions about why, and then asking more questions about why, followed by more why-questions to unearth the inhibitors to change. In essence, listen more.
Adopting a soft-sell relationship approach devoid of any constructive tension, will seldom disrupt the status-quo. A challenger approach that is consultative, yet assertive, introduces an energy into the sales-engagement that will elevate the conversation to a level where new alternatives can be explored.[10]
The opposite of love is?
Well, it is not as emotional a feeling as hate is, but it could be something like an attitude of indifference. The same can be said about the opposite of an adviser’s commitment to a fund. It is not negativity, but an indifferent disregard for the people involved, the features, the story, and the value proposition of the product.
Shifting the intermediaries – the advisers and the DFM gatekeepers – who possess the most power of all the people on the value chain, is the challenge faced by the people on the frontline. They are relentlessly pursued by BDMs measured on activity levels and new flows. Unless affiliated to a brand requiring support of a proprietary platform, multi-manager solutions and their in-house funds, they answer to no one. Yet once committed to an asset manager they are loyal partners, which makes it worthwhile spending at least a year shifting them from being indifferent, through the states of being agitated, to curious and then to above the line states of interested, engaged and finally to being committed. Decisions to displace an asset manager from an adviser’s buy-list only take place when the sales process has progressed them above the line, as illustrated in Diagram (2) below.
Diagram (2)
Think pink
Salespeople, armed with titles such as Investment Consultants, Marketers, BCs, BDMs, and New Business Developers, are the ultimate implementers of the distribution strategy. In an environment that is more about “seller beware” than “buyer beware,” their activity levels and demonstration of technical acumen and salesmanship in the field have a massive impact on both the quantum of new investment inflows and the retention ratio of assets under management of the brand they represent. This takes time and requires hard evidence of the promise.
Daniel Pink in his book titled, To Sell is Human, “suggests that 90% of us are in the business of influencing people to act, aka selling. His thinking around the impact of the words we use and the way we deliver the message are lessons to all of us that in the financial services industry, ABC does not stand for Always be Closing. Applying his suggestions on how to be more Attuned to buyers, always being Buoyant when influencing potential buyers and to be able to provide Clarity when articulating complex solutions, will yield better results.[11]
Wrapping up
Developing and implementing a radical distribution strategy in a post-Covid environment, is about introducing more of the blue and pink tactics and less of the red tactics. To change your outcomes, you need to change your approach. #beentheredonethatjustsaying.
When the strategy is set, put highly paid, effective people onto the battlefield. Influencing, challenging, and displacing the dominators requires face-to-face combat. Extending the military metaphor further, if striving for greater reach and scale is the objective, then deploying more aircover by using all the digital tools available, will reinforce the work of the troops on the ground. No need to label the new way of working with silly names like “phygital.” Just call it “professional distribution” and know that in this industry, distribution-led companies will dominate, and product-led companies might get trapped in the doom loop.
Out-think and outmanoeuvre the competition by getting your strategy and your people selection right. As Sun Tzu said, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. Attack your opponent where they are unprepared, appear where you are not expected.”[12]
Editor’s Thoughts:
There are complexities and power dynamics within the retail value chain. Who will win in the SA environment? As mentioned above, the quality of the people connecting the links of the chain and the efficiency of the technology is where the dominant brands standout. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts rianet@fanews.co.za.
[1] Liberty, Old Mutual, Sanlam, Momentum, Discovery, and Allan Gray, Ninety-one, Coronation
[2] Blue Ocean Strategy by Renée Mauborgne & W. Chan Kim, 1 March 2003
[3] The Challenger Sale by Brent Adamson & Mathew Dixon, 10 November 2011
[4] Good to Great: Why Some Companies Make the Leap...and Others Don’t, by Jim Collins, 16 October 2001
[5] Business Development Managers and Broker Consultants are the product provider representatives who engage with intermediaries
[6] LISPs are linked investment service providers that offer investors access to collective investment schemes across different asset management companies
[7] The Art of War by Sun Tzu, 6th Century BC
[8] The Mind of a Fox by Clem Sunter, 1 April 2011
[9] (slang) Also Saffers, a colloquial expression for a person from South Africa
[10]The Challenger Sale by Brent Adamson & Mathew Dixon, 10 November 2011
[11] Daniel H. Pink, “To Sell is Human,” 2012
[12] The Art of War by Sun Tzu, 6th Century BC
Mike is the founder of Mike Clare Consulting. He is an independent consultant who focuses on providing specialist distribution services to asset managers and currently distributes for alternative asset management companies Valloop and Jaltech. In addition, he is part of the Asisa Academy team that provides black graduates with a foot up into the wealth management community via an internship. Recent consulting clients include Westbrooke, Hollard Investments, Ashburton and NMG Consulting. Past corporate distribution roles include mCubed Capital, Liberty Life, STANLIB and Alexander Forbes Investments.
