Can’t Stand Losing you

For the last few decades, the industry was flush with robust margins and plenty of new sales opportunities. Product development was rampant, global markets opened to new capital investment, and distribution opportunities were plentiful across a highly fragmented market. These opportunities certainly still exist but the game is changing quickly – notably from the concentration and sophistication of who is deciding which products to buy.

For many asset managers of scale, distribution strategy has largely amounted to bringing more in at the top of the funnel than slipped through the bottom. Client facing teams have been compensated accordingly – ‘gross’ sales were key. Redemptions were generally considered difficult to influence and time was better allocated bringing in new money to outpace losses. The realization finally hit that it is more expensive to bring in new clients than service existing accounts – anywhere from 5 to 25 times more expensive, according to a recent Harvard Business Review study. Where once the mantra was sell!, sell!, sell! – today, with margins eroding and new opportunities harder to come by, the first order of business for many CEO’s and heads of distribution is to retain the current book. But so many firms try to do this with an incomplete toolset and a playbook from a different era.

Also, the fact that a stable asset base enables portfolio managers to do their best work is often underestimated. Generating sustained alpha is strongly influenced by activities of underlying investors. Managing cash flow and forced selling are consistently detractors to performance, and can often create an unfair tax burden for shareholders that remain. In extremes, this can initiate a death spiral that is difficult to recover from. Most distribution teams scarcely consider how their role in client retention can positively contribute to the performance of the strategies they represent.

Only in the last couple of years have we seen some asset managers shift their focus from fully relying upon new sales to a healthier model that includes retention. It is fair to assume that given the length of the market’s long run, those who have evolved their approach to distribution are better positioned to do well in the coming decade. This is particularly true as the industry matures and it becomes apparent that the most likely buyer of a new product is a happy existing client – in fact, a satisfied client is three times more likely to use a second product than one who is simply neutral. That happiness is driven by two factors: the investment solution achieving its goal, and positive client experience. While linked, if either piece is lacking then a cross-sell to another product is an extremely difficult endeavor.

How do you keep sophisticated clients engaged and satisfied? Exceeding their expectations and being easy to work with are two drivers. Increasingly, the path to exceptional service is the adoption and implementation of new client service technologies. It is not just rolling them out, but making them a regular part of client interaction and meeting clients where they want to go.

Technology that enables the growth of transparency, trust and engagement will be the hallmark of tomorrow’s successful managers. Those that can save time and anticipate needs will be highly regarded among this resource constrained constituency. Further, as the next generation of decision-makers take roles as manager research analysts, digital solutions to processes such as the exchange of due diligence information will be the standard approach. Firms who successfully adopt this philosophy will be the most successful at retaining assets and increasing opportunity to win new business from engaged clients.

Jim Folwell -  Client Relationship Manager (US)

Door for Fund Investors

Door for Asset Managers