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Thursday, May 06, 2010

Just a Handful of Funds Win Advisors' Hearts

Reported by Sean Hanna, Editor in Chief

Are their magic bullets for mutual fund firms seeking to gain distribution through broker-dealers? If those bullets do exist, the four brokerage bigwigs speaking at the ICI GMM Thursday afternoon did not provide any obvious clues to their whereabouts. What they all agreed on, perhaps unsurprisingly, is that advisors will remain a key part of distribution solution. They also found common ground on the product versus solution debate -- they agreed their advisors and investors are seeking solutions. Not surpassingly, advisors are also seeking help for issues arising in their own business.

While the need for top investment performance was something that each of the distribution experts on the panel -- the four were Mark Casady, Peter Cieszko, Andy Saperstein and Dan Timm -- it is unlikely that fund portfolio managers and their employers are not already doing the best that they can do

Cieszko, president of Fidelity Investments Institutional Services Company (FIIS), was the most blunt in his message to mutual fund executives on a mission attempting to differentiate themselves with the mass of advisors in a crowded market.

"How are you different and who cares?" Ciesko asked the audience. He added that the answer has to be "simplified and it has to be transparent."

For those firms that have a simple and transparent answer, the rewards can be great. Cieszko pointed out that the typical advisors places up to 70 percent of client assets with two or three preferred funds. Advisors place nearly all of the remainder with the next five to six funds they are most comfortable with, he added.

The implied question, then, becomes how a mutual fund firm can become one of those handful of trusted partners. Better yet, how do fund markets crack an advisor's inner circle?

"Advisors don't need as much in product differentiation," Casady , CEO of LPL Financial, told the meeting. He added that, "I know that is somewhat of a bummer to hear for those in product development."

Casady said that what advisors need help in is learning how to be better at their own business. That includes being better at client service and to be better at marketing and brand building. He also said advisors are looking for good ideas at what to talk about with their clients. Issues that fund firms can bring to the table for advisors could include: global markets analysis, asset allocation perspectives and intellectual capital that can be applied to the advisor's practice.

"Clients are looking for ways to become reengaged," said Saperstein, managing director and Head of Wealth Management at Morgan Stanley Smith Barney.

"The are looking for story lines and solutions," he added. Saperstein also revealed that MSSB is now seeing "the strongest flows that we have ever seen into our fee-based portfolios." That suggests fund firms need to win a place in that channel to win advisor business (at least in the warehouses).

Tech is not the solution

"Technology is not going to commoditize or replace advisor relationships," stated Cieszko. His peers on the panel failed to make as dramatic a stand and agreed that social networking is one development that will transform relationships with advisors, but not eliminate them.

"It is up to all of us to embrace social media, because it will impact us," warned Saperstein. He lamented, though, that Finra regulations are creating complexity around the issue. He divided social media into two types: interactive content and static content, adding that there are "some issues around interactive content."

"We are doing a pilot with LinkedIn to allow advisors to provide static content," Saperstein confided.

"Technology is not going to replace the relationship, but it will enhance the relationship. It has to make it easier, faster, better," concluded Timm, General Partner at Edward Jones. 

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