WASHINGTON -- In its seemingly narrow focus on products and performance, the fund industry may be letting down an increasingly important market segment: advisors.
So argued a panel of fund executives this week at the Investment Company Institute's General Membership Meeting.
Colin Moore, global chief investment officer with Columbia Management, recalled a recent conversation he had with the head of an advisory group, who described this disconnect.
"His basic view was that our industry is not approaching the advisor correctly," Moore said. "Increasingly, the pressure on the advisor is to do this comprehensive planning with the client. And the [fund] industry is coming in and saying, 'Do you see that my growth fund now is five-star, and do you want some?' And that doesn't tie up with that comprehensive solution that they need for that client."
Fee-based advisors make up the fastest-growing segment of Vanguards business, said Chief Investment Officer Tim Buckley, but they are becoming increasingly active as asset managers. As they adopt more dynamic management techniques, become more diligent in their rebalancing strategies and work with clients to address portfolio management from the behavioral side, they often aren't looking to investment companies for the shiny object anymore.
Advisors are "no longer looking out at our industry, saying 'Who's got all the alpha,'" Buckley said. "They're saying, I'll provide it myself."
Consequently, advisors might be less moved by metrics about a fund's performance than about how it could fit into their client's portfolio, taking into account individual factors such as investment objectives and risk tolerance.
In response, fund companies should get more creative in how they engage with advisors, said William Yun, executive vice president of alternative strategies at Franklin Templeton Investments. Yun says they should eschew the traditional product-focused sales pitch in favor of a more collaborative approach that emphasizes common ground. Yun sees it largely as an exercise in education, where new media technologies can go a long way toward spreading the message.
"When we're thinking about the advisor channels, they want a partner. Not just one product, but multiple strategies, because it's more cost-effective from their point, as well as ours. So we have to think of ways we can deliver that education," Yun said. He says that can take the form of one-on-one meetings, but it should also include webinars, blogs and multimedia sites that can deliver a message and help advisors understand what the fund companies are doing from an investment side.
To be sure, this is more than just shifting from a straight sales operation to advisor "education," the panelists argued. Investment companies must fundamentally rethink the needs of clients in the advisor channel and re-orient themselves around objectives and outcomes instead of specific products.
At times, fund companies can fail to appreciate the intricacies that might make a particular product appropriate for an investor, or disqualify it from consideration in the portfolio for another, Moore said.
Take target-date funds, what he called a "big innovation" in the fund industry, but hardy a one-size-fits-all solution. Two clients of an advisor could be planning to retire in the same year, but might have very different characteristics that lead them into two different funds.
"You cannot convince me that everybody who's retiring in 2035 has the same goals, needs, risk profiles, etc.," Moore said. "I feel we're not approaching the advisor properly at the moment. They're morphing into this full financial planning. We're still selling individual products."
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