A 2022 Outlook on Next-Generation Asset Management Distribution

For years asset managers have discussed the need to transition to a “next-generation” distribution model to offset industry-wide margin declines. Many have been slow to adopt more advanced data, analytics, and technology capabilities, but the pandemic and the pursuant economic disruption greatly impacted and pushed asset management firms into modernizing their thinking and propelling them to take new strategic critical actions.

A recent asset management industry research study by Market-Bridge entitled “Next-Generation Distribution Enablement – An Outlook for 2022” was launched to understand where asset management companies are driving innovation, investing, and developing new distribution priorities, as well as taking into account the needs and expectations of financial advisors. We reached out to Institute member Bill Sheldon, SVP of MarketBridge, to dig further into their recent research study.]

Hortz: Can you walk us through the why and how behind developing and conducting your research on next-gen asset management distribution?

Sheldon: First, as to the why: We were seeing a number of “classic” go-to-market issues emerge in the industry which, based on our work in other industries like tech, suggest the industry is ready for fundamental and widespread changes to the distribution model― which candidly has not changed significantly in many years. 

These issues include continued margin compression, dramatic changes in customer buying behavior, the emergence of disruptive new fintech entrants, and a continued reliance and attachment to a “feet-on-the-street” coverage model.  There are also broader market trends at work like the on-going generational transfer of wealth and continued concentration within the industry—and then you throw in a global pandemic.  Clearly this forced firms to adapt and make rapid changes in their engagement model as the industry was forced to go virtual overnight.

We were interested in how firms will respond post-pandemic. Will they return to their old ways, or will they take advantage of the pandemic reset to truly transform to a data-driven “next gen” distribution model?  One that better responds to client needs, generates greater scalability for their businesses and takes full advantage of the advances in data, analytics, and technology to truly transform the customer experience in the industry. One industry executive we spoke with captured it well― “Can we take advantage of this opportunity to move from “interruption-based” coverage to “invitation-based” coverage?” 

As to the how: We first conducted a survey of 100 Financial Advisors to probe on how their needs and behaviors had changed during the course on the pandemic.  More importantly, we probed on how they expect those to change post-pandemic and asked them how they would like to interact with their asset management partners moving forward. 

We then surveyed 35+ asset managers across the AUM spectrum to get their perception of how well they were doing in enabling their go-to-market resources to identify and support those needs, and what their priorities and plans were for making a transition to next gen distribution and distribution enablement.

Hortz: What are Asset Managers reporting as to where they feel they are in their Current State? 

Sheldon: We actually started the survey with two key questions: “How would you classify your current distribution enablement strategy in terms of overall effectiveness and impact on sales productivity?”  and “How would you rank your client experience in the Intermediary, Institutional and Retail channels (to the extent that they participated in those channels). 

We were a bit surprised that nearly two-thirds of asset managers self-assessed their current strategy as Very (45%) or Extremely (19%) Effective.  Firms under $100B AUM were actually a bit more bullish, with 30% of respondents in that category saying they were Extremely Effective, while firms over $250B AUM were less so, with only 8% suggesting they were Extremely Effective. There is clearly an issue of scale at work here.

With regard to customer experience (CX), the Intermediary channel scored lowest, with 46% saying they provided a “Great” CX there vs. 63% in the Institutional channel and 68% in the Retail channel.  Interestingly firms under $100B ranked their Intermediary CX much higher.  Mid-sized firms ranked it the lowest, and larger firms ranked it higher, though not as high as the small firms. 

Interestingly, as we dug down into the components of distribution enablement in the balance of the survey, significant gaps between the importance of certain capabilities and their current level of performance emerged.

Candidly, I’d say that the sum of the parts didn’t actually seem to add up to the whole.  Perhaps a strong market and significant increases in AUM for many “influenced” their perception of their current capabilities. A rising tide floats all boats.

We were reviewing the report with the head of distribution from a large firm (>$1T) earlier this week. He was comparing it with research they had just completed with advisors.  While it was mostly consistent, he summarized the advisor point of view a bit differently— “Our expectations for asset managers are low, and you met them”.

Our hope is that the industry will in fact take advantage of this opportunity to truly transform how they work with their clients.  No doubt some will, and some won’t, but it does begin with an honest assessment of where you are today.

Hortz: What has your research revealed as to the biggest challenges asset management firms face in this current environment?

Sheldon: We probed in detail across a number of distribution enablement components and asked for top challenges in each area.  There was a good deal of consistency in the top challenges across industry. We also looked at it by firm size to see how the challenges varied based on AUM. While the challenges were similar, their relative prioritization varied―most of which we believe can be attributed to operational scale.

Here are some of the highlights:

“Improving business agility and keeping up with changes in the market” was a top three challenge almost universally, regardless of size.  We suspect this was exacerbated by the sudden shifts resulting from the pandemic, but it highlights the need for greater customer-centricity and agility moving forward.

Alignment between sales, marketing and service is a top issue for most firms and will be a focus for many moving forward.  Most firms still run enablement out of the sales/distribution teams and are often disconnected from the marketing teams.  Gaining alignment across marketing, sales, service, and product will be critical moving forward.

Tools and Technology and Data and Measurement were both highlighted as Extremely Important to success by 90% of the respondents, but there was a big gap in terms of current performance in these two critical areas.  50% of respondents indicated their performance here was below average.

“Influencing seller behavior through the delivery of advisor insights” interestingly continues as a major challenge for firms—regardless of size.  Despite increased investment in technology, data and analytics and advisor insight, getting salespeople to actually change their call patterns is still a challenge.  (PS, this is not unique to asset management!)

Lastly, we saw some big gaps between the types of support financial advisors view as important, and asset managers performance in delivering that support.  End-client facing content and education content for advisors were two of the biggest gaps identified.

Hortz: What do you see as the top critical priorities to drive Next Generation distribution enablement in 2022?

Sheldon: We see three critical priorities emerging to address these challenges and drive the evolution to Next Gen Distribution Enablement.

First, it will require agile innovation and execution at scale to adapt to continuing changes in customer behavior and to deliver the required improvements in productivity.  This will require much tighter alignment across the organization, the right measures and metrics, and a greater return on technology and data investments.

Second, the design point for Next Gen Distribution Enablement needs to be the customer, not the product! Client needs will continue to evolve. Firms must become even more customer-centric.  This will require deeper client insights, enabled with personalized and relevant content and messaging (for advisors and end clients), all aligned around a customer experience based on those insights and understanding.

Third, leaders must continue to invest in data-driven enablement programs and digitally-enabled customer experiences.  This includes the expanded utilization of third-party data sources, integrated distribution enablement platforms across the lifecycle, additional investment in AI and analytics, and an enhanced focus on driving adoption of these capabilities by the distribution teams.

Hortz: Can you drill down on any key findings you uncovered in each of these critical priorities?

Sheldon: Here are a couple of examples.  I mentioned earlier the challenge in aligning marketing, sales and service to drive more agile and coordinated execution. We found that distribution enablement is led by the Sales or Distribution teams at nearly two-thirds of the firms.  Only 30% said marketing has leadership responsibility for distribution enablement. 

We ran a similar survey in tech and fully 50% of tech firms place sales enablement leadership responsibility with the marketing teams. A few forward-thinking asset managers are talking about “marketing-led distribution”, and we expect to see this trend continue to help drive the customer-centricity that will be critical to Next Gen Distribution Enablement.

Building on that need for customer-centricity, we were really surprised to see that the “lack of well-defined segments and personas” was a top three issue for more than half of the firms!  This is a foundational requirement for engaging with customers in a personalized and relevant manner, and for providing a customer experience that is aligned with their needs and preferences. This must be a top priority for any firm truly interested in Next Gen Distribution Enablement.

Lastly, we found that “disconnected tools and technologies across marketing, sales and service” is still a top three challenge for 60% of firms.  Given that alignment across those three groups is still a challenge, this is not surprising.  Yet despite significant investment in technology over the last several years, many firms still underleverage their technology because of that disconnect.  This impedes their 360° view of the customer, detracting from their ability to understand changing customer needs, and to tailor content and messaging to address those.  

Market leaders have already connected their technology stack across the lifecycle and implemented data solutions that allow them to gather, analyze and action insights in a much more timely way.  Those who haven’t indicated that this is a top priority moving forward in order to close that gap.

Hortz: Any thoughts on how this research can help hone strategy?

Sheldon: Well first, I believe it helps build the business case for Next Gen Distribution Enablement with an external market perspective.  Given that a number of firms feel their current distribution enablement strategy is Extremely Effective, I hope this research is a catalyst for them to honestly evaluate their current approach.  The feedback has been very positive, with several firms saying this is closely aligned with initiatives and priorities they are currently working on.  Perhaps it will propel some of the laggards to deeper thinking around Next Gen Distribution. 

Second, I believe benchmarks are a useful tool for comparison of your firm’s performance to the broader industry―in very specific categories.  The structure of this research, and the framework for distribution enablement that was utilized, should give distribution enablement leaders a useful way to help them identify and prioritize their gaps across a broad range of capabilities. 

Third, we brought in “voice of the customer” in this research.  This is key to creating a customer-centric culture, and yet we find many firms still do not engage in that type of research. Highlighting the gaps between what advisors said is important, and what asset managers are delivering has been one of the most viewed charts in this report.  Hopefully this research will help firms remember to keep the client at the center!   To access the research report, click here.

Related: Innovating Investment Research for Greater Insight and Engagement