New research indicates that more than half of external wholesalers believe they can influence advisors’ fund redemption activity.
Ignites Research says that 51% of external wholesalers surveyed believe they can influence advisors’ redemption activity, and also claims to have identified instances when wholesalers can intervene before financial advisors redeem out of funds.
These findings were gleaned from surveys of two groups of advisors from across the United States:
- the Financial Times 400 Top Broker-Dealer Advisors, comprised of 400 broker-dealer advisors; and
- the Financial Times 300 Top Registered Investment Advisors, a list of 300 independent RIA firms.
Some 43% of the FT 400 and 48% of the FT 300 say they are likely to sometimes contact a wholesaler prior to moving significant assets out of the fund. Moreover, 60% of the FT 400 and 58% of FT 300 will ask to speak with the portfolio manager (or PM proxy) before redeeming significant assets, providing an opportunity to explain periods of underperformance or management changes instead of simply selling out of the fund, according to the report.
Ignites Research found that more asset managers are factoring some form of net sales into compensation strategy – and that the focus on redemptions is more intense these days, with fund firms struggling with the growth of rep-as-PM programs and their attendant churn. Indeed, according to the report, some 70% of sales executives use redemptions or net sales as one metric to determine their external wholesalers’ bonuses, up from 38% of executives in 2014. The report’s authors say that using additional measures beyond gross sales is becoming increasingly vital, as sales executives look to tie sales comp to the genuine drivers of success at fund firms.
Will linking pay to asset retention better align salespeople’s priorities or punish them for forces outside their control?
The report concludes that wholesalers can sometimes play a role in asset retention, either in the selecting of advisor targets or in the outreach to advisors in situations where fund holdings are at high redemption risk – and that the need to protect profitability will lead more asset management firms to try factoring redemptions or net sales into wholesaler pay. That said, every firm is different and should assess the efficacy of its sales pay structure.
