Technology is Changing the Playing Field (and the Players)

The unalterable trends transforming the asset management industry are forcing firms to question their business models with many scrambling to maintain relevance in an evolving value chain. At the core of the disruption is technological advancement, which, until recently, has been passing many firms by. Driven by the growth of low-cost investments and other pricing pressures, new technologies such as advanced analytics, machine learning, and artificial intelligence are starting to upend traditional distribution strategies and change the long-entrenched dynamics of the advisor/asset manager relationship.

The Shifting Sphere of Influence

Among the subtler yet deeply profound changes permeating the industry has been the gradual transfer of investment decisions from the financial advisor to dedicated investment and research professionals. With the growing popularity of fee-based models, an increasing number of advisors are opting to outsource the investment aspects of their practice.

Technology is driving the use of wealth management platforms that perform many investment management functions, such as portfolio construction, automatic rebalancing, tax harvesting, and risk management, leaving advisors more time to focus on client management, business development and value-add services. The net result is that the tasks of investment selection and portfolio management activities are being handed off to home office due diligence and research teams or third-party investment consultants.

Even for advisors who continue to spearhead their own investment selection, many are taking on an institutional-like approach to their decision making, insulating themselves from product-centric wholesalers in favor of those who can offer real value. As an increasing number of advisors transition from sales-centric compensation models to advice-centric models, many are taking on a gatekeeper role to shield their clients from all but the most superior products. Advisors looking to scale their practices while delivering better client outcomes are utilizing model-based portfolio solutions, which require a different set of products and services as well as a more personalized approach to advisor engagement.

Asset Managers Must Retool to Stay in the Game

As these new spheres of influence emerge, the traditional view asset managers have of advisors is becoming outmoded, requiring the development of new strategic business relationships with a different set of key decision makers. As the focus shifts to insulated professional buyers, the concept of the traditional wholesaler is also becoming outmoded. Distribution systems must reorganize as relationship management teams equipped and trained to target and support the gatekeepers of model portfolios, home office research teams, and advisors who still have discretion over investment decisions. National accounts teams should be well-staffed to handle the more complex relationships with multiple stakeholders.

Distribution and marketing needs to be aligned along the same objectives and key performance indicators to sharpen their focus while optimizing limited resources. Sales and marketing must share the responsibility for the organic growth of assets through acquisition, retention, and growth. Marketing can support distribution by providing comprehensive analytics for targeting and prioritizing key decision-makers along with developing customized marketing programs and content that aligns with these new points of influence. The same business intelligence and marketing technologies can identify and target advisors who retain investment discretion and who can still be influenced. In either case, the emphasis should be on providing meaningful content in the form of thought leadership and investment expertise tailored to their needs.

With the key points of influence becoming more concentrated among home office gatekeepers and third-party investment consultants, asset managers must focus their efforts and resources on targeted accounts. This will require the close collaboration of marketing, distribution and product development, utilizing marketing technology and available data to create more personalized and impactful interactions with prospective clients.

Originally posted on Sondhelm Partners Insights