kasina Distribution Shifts Shaping US Asset Management

Distribution Shifts Shaping the Future of US Asset Management Mike Ma Institutional Investor Institute Senior Delegate Roundtable Aspen, CO January 19, 2010

Today’s agenda
There is unprecedented opportunity for institutional-oriented asset managers to succeed in post-crisis market
Part I: State of retail distribution today
Part II: Signs that institutionalization of retail is happening
Part III: Why this makes sense to act upon in 2010

State of Retail Distribution

The retail distribution challenge today
External wholesaling has been the primary vehicle by which assets are grown
The model has struggled to scale
Assume 20 meetings a week and quarterly advisor visits by a very large force of 100
Source: kasina, Aligning Distribution: The $500M Challenge, 2007

Two problems with the external wholesaling model
How do you know you are reaching the right advisors today?
What do you do about the ones you are not touching?
Source: kasina, Aligning Distribution: The $500M Challenge, 2007

How have retail organizations tried to respond?
Cost-cutting through lower cost distribution models and technology
Adjusting compensation to get better efficiency from external wholesaling model
Creating institutional-like sales functions in national account organizations

Cost-cutting: Lower-cost distribution models
Hybrid Wholesaling has been the post-crisis rage
Replace a traditional external and internal wholesaler pairing with one resource that can fill both roles
Will travel only 30-50% of the time at 1/3 the cost of a typical external wholesaler
Some success has been shown in this area in examining 10 implementations of this model
Source: kasina, The Truth About Hybrid Wholesaling , 2008

Cost-cutting: Using technology to drive sales
kasina found that advisors who use an asset manager’s Web sell more on average
Those covered by wholesalers sell 25% when they use the Web site
Those not covered by wholesalers sell 45% more when they use the Web site
Source: kasina, “Your Site Can Sell, Too”, 2008

Adjusting compensation
Most organizations have an over reliance on gross sales
Questionable linkage from net sales/profit to gross sales
Offers poor cost forecasting
Still changes are small and incremental due to cultural inertia

Adjusting compensation
Few firms are allocating a higher percentage of compensation to activity-based compensation
Again, changes are still small
Source: MF Wire

Retail Distribution is Focused on Tactical Reform
Cost cutting through lower cost distribution models and technology
Adjusting compensation to get better efficiency from external wholesaling model
Creating institutional-like sales functions in national account organizations

Institutionalization of Retail

Investment decisions are being centralized
Retail distributors will promote product and wrappers, such as the UMA
Despite short-term backlash against research analyst recommendations, advisors:
Spend, on average, only 17% of their time on investment management
Will forego investment-related activities to focus on client service
Source: kasina, Evolving Distribution Amid Bad Markets, 2009

Institutionalization of retail distribution
Distributors’ investment decisions are data-, not relationship-, driven
Research analysts have become the gatekeepers to the distribution platform:
National Account functions are expanding to DCIO and sub-advisory
Source: kasina, Cracking the Code, 2007

Key Accounts Strategy Is Requiring a Split of Roles
Increasingly, firms are separating the job into two roles to assist with:
Source: kasina, Beyond Key Accounts, 2005

Case Study: International Stock Funds Source: Morningstar Direct Fund Flows Update, December 2009
Let’s look at product development of the one traditional equity class that showed inflows this year

How do stars affect eventual market share?
kasina examined the market share impact of all international and global fund launches since 2000 before they were given a Morningstar rating
Source: Morningstar Direct, kasina analysis Eventual Morningstar Rating

A counterintuitive result
Why does four-star beat five, and why does one-star show positive change?
Professional buyers are exerting their influence looking for value and story
Be a rule-maker or a rule breaker, do not be stuck in the middle
Source: Morningstar Direct, kasina analysis Value buying Story

Summary: Institutionalization of Retail is Happening
While early, organizational developments at distributors and asset managers are in their early stages
Professional buyers’ influence is beginning to change the way the that products are bought and sold

Why Act In 2010?

There are significant reasons to act today
Institutional organizations are well-positioned to capitalize on this opportunity
Retail organizations are trying to do what you do
Global and internationalization efforts can be accelerated and diversified
Technology is making it easier to promote your brand

Few have done well
For all the press and coverage, only a few success stories exist
They are all new entrants to the intermediary retail space

Institutional brands matter
Dimensional could no longer ignore the grass-roots demand from the retail market
Source: MF Wire

Institutional organizations are already institutional
Institutional organizations are already better staffed and trained to handle institutional-like queries
Biggest challenge is the gross sales mentality of traditional retail organizations

Consolidation creates quality and capacity
Growth of institutional outsourcing is upping demands and talent of institutional teams
Fewer accounts to service can free extra capacity for retail focus
Source: Casey Quirk Investments Outsourcing Survey 2008

Global Implications of Institutionalization
Most of the traditional distribution infrastructure is not optimized against opportunity
Source: kasina, Distribution Summit, 2008

Mergers create single point of entry
As mergers continue to evolve, institutionalization is becoming a clearer ally to global growth
Source: kasina, Distribution Summit, 2008

Regional footprints are cross-channel
Institutional resources are being deployed first in a region with retail endgames in mind
But no matter where the investor is, the firm has tried to stay true to a simple mission: to help investors reach their objectives by being the highest-value provider of investment services -- Bill McNabb

Your audience is growing … and listening online
LinkedIn attracts more profitable advisors than average asset manager Web sites and their own firm intranets
“ Banned” sites like Facebook and Twitter are up and coming and are likely to increase with a more mature regulatory environment
Source: What Advisors Do Online 2009, kasina

Technology makes it easier to build a brand
Some of the best are just starting their efforts

There are significant reasons to act today
Institutional organizations are well-positioned to capitalize on this opportunity
Retail organizations are trying to do what you do
Global and internationalization efforts can be accelerated and diversified
Technology is making it easier to promote your brand

Closing

Anyone recognize?

“ None of the songs were suitable for commercial release”
Traditional distribution channels failed Wilco and the public
Yankee Hotel Foxtrot went Gold
Wilco has gone on to sell over a million records and continually sells out shows
The public became educated and thirsty for good music and was willing to find it
Brands matter and can be created by musicians small and large
Technology was a critical component to success
Source: http://en.wikipedia.org/wiki/Yankee_Hotel_Foxtrot

Thirsty for new ideas, and willing to work for them
The institutionalized retail channel is open to new ideas and ready to seek them out
Retail and institutional channels are merging
Traditional retail channels are struggling to match the demand
Institutional organizations are well positioned to capitalize on this opportunity

Thank You. For more information, please contact: 581 Avenue of the Americas, 5th Fl New York, NY 10011 Mike Ma Principal e-mail: [email_address] phone: +1 646 257 4470 fax: +1 212 349 7413

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kasina Distribution Shifts Shaping US Asset Management

by Mike Ma on Jan 29, 2010

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kasina Distribution Shifts Shaping US Asset Management — Presentation Transcript