Changes Ahead for Wholesaler Teams

Looking ahead to 2020, Cerulli Associates believes that the advisory industry will face several critical challenges, including shrinking adviser headcount, aging client bases, and retirement regulation designed to keep 401(k) assets in plans.

In response to these challenges, advisers will team up to attract fewer, wealthier clients; large practices will increasingly centralize and specialize roles and responsibilities; and capacity strains will amplify the importance of segmentation, services models, and technology, Cerulli says in its report, “Intermediary Distribution 2015 A Five-Year Outlook on Distribution.”

Asset managers will contend with a heightened cost of distribution in 2020 as a result of the rise of passive strategies, broker/dealer (B/D) negotiating power, turnover rates in adviser-controlled portfolios, and the pursuit of the fast-growing registered investment adviser (RIA) channel. Cerulli believes that external wholesaling teams will decrease or stagnate in quantity, and they will evolve to engage advisers in a more consultative and institutional-like manner.

As the sales process becomes more institutional-like and adviser teams become larger, wholesalers will need to take a more consultative sales approach. Wholesalers will need to understand the adviser’s broader goals and objectives, and take a softer and longer-term approach than many are used to taking. This means asking probing questions, identifying needs and helping to solve problems, and positioning a product within a broader competitive landscape, Cerulli says.

According to Cerulli’s research, approximately 88% of national sales managers (NSMs) expect to at least moderately boost resources dedicated to the RIA channel. More than half of NSMs plan to heighten their focus on the defined contribution investment only (DCIO) channel.

Approximately 13% of NSMs indicate having dropped a partner relationship in the past 12 months, and nearly two-thirds (63%) are currently evaluating distributor relationships.

Approximately three-quarters of key accounts and NSMs view improving the return on investment analysis of focus firms as a moderate or major priority. Increasing or refocusing key accounts resources as the influence and cost of largest distributors grows was cited as a major priority by half of NSMs and one-third of key accounts managers.

More than half (57%) of all advisers report implementing some form of tactical allocation or overlay within their client portfolios. This proportion increases to 65% of advisers when considering mega teams with more than $500 million in assets under management (AUM). Nearly half (45%) of advisory practices with more than $500 million in AUM report employing at least one investment analyst or chief investment officer (CIO), compared with 18% for all advisory practices.

“As large, multi-advisor teams grow, they centralize and specialize roles and responsibilities to increase efficiency and the depth and breadth of their service offerings. As a result, their investment processes become more formalized,” says Kenton Shirk, associate director at Cerulli. “It’s a much longer and softer sales cycle. But given the propensity for these teams to be using models, an allocation win can mean a sizeable flow of new assets across a practice’s client base. Wholesalers will need to interface with gatekeepers, including senior-level analysts operating within advisory practices.”

More information about the Cerulli Assocates report and how to purchase a copy is here.