The line between external and internal wholesalers will continue to blur post-pandemic, as asset managers are expected to staff up with hybrid wholesalers, according to a new report from Cerulli.
Cerulli believes that one of the impacts of the COVID-19 pandemic will be an acceleration of advisors focusing more on coaching and client communication resulting from the uncertainty and volatility their clients have faced, the firm says in its latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
Should clients follow through on plans for a financial reset post-COVID, advisors will likely have less time to focus on investment management, creating an opening for more assistance from asset managers. This translates to a potential for managers to move beyond just selling products and understand how their firm can be a provider of asset allocation intellectual capital as well.
Positioning Key Accounts and Wholesalers
In anticipating expected shifts in advisor behavior, Cerulli believes they will be more likely to leverage model portfolios, more open to using different investment vehicles, will value and prioritize flexibility, and will remain open to remote work.
As such, these changes will ultimately lead to alterations in distribution strategy, including how asset managers deploy their key accounts and wholesaling functions, the report notes. To that end, Cerulli identifies several areas where distribution executives can sharpen their strategy to be more competitive amid these changes, including communication strategies, staffing and compensation.
Communications
In moving forward, Cerulli believes that wholesalers will likely use a blend of in-person and web-based meetings to connect with advisors as distribution teams adjust their strategies. As the landscape remains titled toward virtual meetings, asset managers should continue to leverage the ability of internal and hybrid wholesalers to flexibly execute sales activities, the report suggests.
Coming out of the pandemic, it is likely that video will continue to play a major role in distribution. To help engage wholesalers, distribution executives should focus on the efficiency gains that virtual meetings can bring, especially for externals covering wide swaths of territory that require significant travel time. Prior to the pandemic, nearly 20% of wholesalers’ time was spent on traveling to appointments and advisor entertainment, which is a significant amount of time that could be reallocated elsewhere, the report observes.
“Advisors’ willingness to engage in virtual meetings has magnified the ability of internal and hybrid wholesalers to gather and retain assets. Resource-constrained distribution teams should leverage the flexibility in staffing this creates to cover advisors more efficiently, while larger groups can use this to deepen the firm’s reach within a territory,” notes Ed Louis, associate director at Cerulli.
Distribution teams should also consider applying more portfolio construction services as part of their communication efforts, understanding that advisors are increasingly focused on finding assistance amid market volatility and the need to spend more time coaching clients, the report further emphasizes.
Cerulli also finds that advisors are increasingly going digital and that can be expected to continue, given the efficiency of the technology available. One area where this technology is being leveraged is alleviating the operational hurdles of switching firms. “Advisor recruiting will remain the primary driver of marketshare gains across retail channels in the post-COVID-19 landscape, so it behooves wealth managers to focus on this,” the report advises. Cerulli also suggests that there is an opportunity for strategic partners to help with technology adoption for those that may be lagging.
Headcount and Compensation
Meanwhile, the effectiveness of the hybrid role while operating remotely has bolstered the case for increasing headcount. According to the research, tier-1 asset managers (those with more than $20 billion in advisor-sold products) expect their hybrid headcount to rise from a median of five in 2020 to 10 by 2023. While not as significant of a bump, internal wholesalers are expected to rise from a median of 23 currently to 26 by 2023.
In addition to evaluating headcount and responsibilities, firms continue to shift larger portions of wholesaler compensation away from gross sales toward other factors aligned with longer-term firm goals. Bonuses based on factors such as net sales or firm profitability accounted for 17% of wholesaler target compensation, and distribution executives wish to increase this to 41%, according to the research.
There will also be downward pressure on external wholesaler target compensation depending on the degree to which travel requirements and production shift. “Top performers will likely still be able to demand a premium but will need to demonstrate that they are true revenue drivers,” adds Louis.
As distribution teams devise activity metrics, Cerulli emphasizes that they must include the flexibility to engage with advisors in ways that are best suited to their needs and preferences, as no two territories will operate identically. Similarly, firms should continue to align wholesaler compensation to focus on broader firm initiatives such as profitability and collaboration. “It is essential to clearly spell out the factors that impact compensation buckets and to ensure that entrepreneurial wholesalers maintain a sense of control over their destinies,” concludes Louis.
