Product differentiation is a top marketing and distribution challenge among mutual fund and ETF providers, who battle for advisor face time. How can providers overcome this hurdle?
According to the Investment Company Institute, by the end of 2013 there were more than 1,200 ETFs traded in the U.S. alone. For indexed products, brand strategies and distribution will be critical, says Carol Hartman, executive vice president and North American financial services practice leader at DHR International, a global executive search firm. With so many mutual fund and ETF products to choose from, financial advisors and consumers can have a hard time narrowing their choices.
"Ultimately for the retail investor, it will be the brand or advisor who they trust that will influence that decision more than other factors," she says, naming marketing and brand identity among fund providers ultimate priorities. For the advisor, providers need to bring the brand, product and pricing that helps the financial advisor close the sale. The product also needs to be easy to understand and perform.
In this Q&A with Money Management Executive, Hartman explores specific strategies fund providers should turn to in the fight for product differentiation, distribution tips and the challenges of keeping up with technology.
Q: What are the top operational challenges you're seeing now surrounding compliance at fund companies?
Regulators are still setting the tone in financial services, including asset management. I think at some point it would be good to have a balance between playing defense and offense. Setting the innovation agenda, from the back office to the product suite should be the priority for forward looking firms. This serves not only clients. It also acts as a magnet for top talent. Employers gain a reputation among talented executives for where they can make a difference.
Q: In earlier interviews you've mentioned that that the speed of consumer adoption of new technology outpaces what corporations can do to reach customers, particularly in a highly regulated industry like financial services. What are some other technology issues fund companies are up against?
Security is another area that is notable. I would include the protection of privacy and the safety of the company enterprise. Specific to the ETF space, the investment in technology as the size of the market place continues to grow. Technology is expensive and I have occasionally observed clients viewing expenditures in technology as "overhead" or "optional." In the ETF space with the incredible growth of the number of products, the complexity of the offerings, the total AUM and consequently the total number of clients invested having great systems is critical.
Q: How can fund providers be more effective in working with advisors to distribute their products?
Financial advisors are deluged with information and product options. Adding value to financial advisors is more than just handing them a brochure. They need tools and stories to tell that make investing imperative and easy. They can do this by having clear marketing materials to share with clients, customer friendly information that inspires and tools to plug product options into broader asset allocation.
Q: Why do you think advisors have leverage in today's market?
Financial advisors have many options and can align with different types of financial services firms. Currently, a top trend is that small to mid-sized RIA's are consolidating or being purchased by larger firms. Many advisors boast an open architecture approach and clients should have choices, but being able to do appropriate due diligence is important, too. Advisors who make careful selections about the asset management firms they work with will know more about the products, deliver better information to clients and get better service from the fund company.
Q: Are fund providers doing a good enough job attracting and retaining talent?
At DHR International, we focus on executive level hires. However, an area that most firms have not invested in during recent years has been undergraduate internships and hiring. Since the market crash and the simultaneous growth of the ETF and mutual fund product space there has not been an entry level training ground in the industry beyond a handful of firms. This will be a problem later. Every industry needs to groom the next generation of talent.
The retirement of Baby Boomers will put pressure on distribution of products. Thought leaders in the ETF space need to be empathetic to the changes that are happening in the long term to financial advisors.
Q: In order for fund providers to be successful in attracting young talent, where should they look and what programs should they have in place?
Top firms have to be innovators, great at compensation, good at grooming talent and always willing to pivot and bring in new leadership, too. Visionaries during this time are looking at investment products for retirees and they're teaching young people good investment habits all in the context of transparency, social media and a regulatory maze.
My advice would be to dedicate some percentage of your efforts to ideas that don't or can't exist yet because before you know it, they will.