Retail Intermediary Distribution Trends

Retail Intermediary Trend Highlights:

  • Returns in the retail business continue to be heavily concentrated among top firms (top 10 managers control 70% of the flow). Simultaneously, success and continuity are sometimes unpredictable and have left room for less known firms to gain an advantage.
  • There is an increasing cost in distribution, particularly for sales and marketing, management of funds and overall operational and compliance costs.
  • US Retail is expected to drive industry growth for the next three to five years.
  • It is projected that the majority of growth in assets will be concentrated in retail alternatives, where growth has been strong across all asset classes.
  • There has been a noted increase in the focus on unrated funds which are capturing market share from some of the top funds.
  • Discount/Direct, IBD, and RIA/IFA channels have been winning the most share over the last 5 years.
  • The overall market is seeing an increase in demand for liquid alternatives.
  • As the appetite for Alternative funds continues to evolve, portfolio advisory and education remain the primary factor in asset allocation strategies.
  • Regulators remain very focused on the financial arrangements between fund managers and distributors.

Emphasis on Salesforce and Coverage:

  • Many firms, both large and small, are committing significant capital to the growth of their distribution teams, particularly national accounts and wholesaling.
  • The hiring process around wholesalers and national accounts continue to be at the forefront as the likelihood of success still remains with the strength of the sales force.
  • As competition and demand by advisors for a more educational and consultative approach grows, there is a significant need for wholesalers with “institutional sales DNA”, who possess deep product knowledge and can add overall value to an advisor’s business.
  • As distribution has demonstrated itself to be the #1 key to market share and diversification, the compensation requirements of wholesalers and national accounts has come to reflect the uncertainties of the market as well as an emphasis on team collaboration.
    • Pay-out variables that incent for both specific types of wins based on the institution’s offering and growth objectives
    • Internal collaboration with the wholesaling team (sharing of ideas, educating on the “language” and appetite of specific platforms)
    • The establishment of a one-year guarantee (base salary and a “floor” for the first four quarterly commissions)
    • Cash or equity-sign on to buy out any money left on the table
    • Transparency

Channel-Specific Coverage Areas and Strategies:

  • From a wholesaling coverage perspective, wirehouses remain the strongest focus with about 40% of most wholesalers focused on them.
  • On average, about 30% of wholesaling teams cover Regional Broker-Dealers and another 15% cover RIAs.
  • In the last few years, the heaviest increase in coverage has been to the private banks, where many are just recently opening their doors to outside solutions for the first time.
  • Given that growth across the asset classes is demonstrated to be unique for each channel, some firms are rethinking their sales approach and using more analytical research in order to best approach each client type.
    • Wirehouses are showing a decline in focus on traditional bonds and will continue to increase the demand for alternatives
    • RIAs and BDs by nature continue to experience the most growth in ETFs
    • Independent/Regional BDs are heavily concentrated in active fund management
    • Bank & Trust companies tend to have a more passive appetite; however, are demonstrating more interest in active funds