Faced by escalating challenges in the mutual fund market place, ranging from rising costs, increasingly picky gatekeepers and percolating product complexity, asset managers are starting to re-evaluate their relationships with distributors, and the resources they allocate to these relationships, according to research recently published by kasina
In the February 2013 paper, titled Building Dynamic Distribution Partnerships: Management and organizational challenges dominate National Account Managers' priority list of issues
, kasina researchers saw that firms are scrutinizing all of their relationships with platforms, wirehouses, broker-dealers and
other distribution outlets to determine which accounts provide the most bang for the buck. Those that are deemed not profitable enough are lowered in priority.
"With all the challenges in the market place, and all the demands related to key relationships, when you take all of that into account, fund firms are asking themselves, 'Can we afford to support the same number of distribution partners as we did in the past?'" kasina's head of research Larry Petrone
To make his point, Petrone cited a telling figure gather from kasina's research for the February report, which included surveys of roughly 20 major asset managers.
In 2010, the median number of accounts that fund firms classified as "Tier 1" in importance was 10, while the number of accounts relegated to "Tier 2" were 15.
In 2012, the number of "Tier 1" accounts dropped to 8, while the number of "Tier 2" relationships plummeted to 10.
"A lot of national account managers have become very thoughtful about the kinds of resources they allocate to distribution partners," says Petrone.
Such costs are no joke, he said. A key account could involve one or more wholesalers, compliance and other support staff, product specialists as well as the time of portfolio managers. If these sales investments don't lead to significant returns, firms are starting to move these resources to the higher profit partners.
"There is an opportunity cost at play here. If I have this relationship with an account that is not profitable and I move it to another account that is, will I be able to drive more business? That's what these firms are thinking," Petrone said.
However, Petrone was careful to stress that re-evaluation is not the same as triage-- at least not yet. Firms have yet to completely cut off ties with their least profitable distribution partners. They are just moving such accounts to "Tier 3" categories and lower down the list. However, Petrone said, these discussions are certain to grow more serious as time goes on.
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