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B/Ds Up the Ante for Fund Distribution


MIAMI-Distributing retail products has become more complex, and fund companies have to realize it's no longer business as usual. That was the message from speakers at The National Investment Company Service Association's 25th Anniversary Annual Conference & Expo here last month.

Three key obstacles asset managers must consider are: ever-crowded shelf space, appropriate sales and marketing materials and developing new products ahead of competitors, speakers said.

"There has been an evolution of distribution, and it has forced broker/dealers to rethink and mitigate risk," said Steven Miyao, chief executive officer at kasina of New York.

Many broker/dealers now have research departments to evaluate mutual funds before they will place the funds on their distribution list, he said.

Distributors' research analysts have become central figures in determining which products make it on a platform. Consequently, asset management firms are looking for ways to get on analysts' radar.

Companies should not inundate analysts with phone calls and e-mails, said Gene Goldman, vice president of separately managed accounts at LPL Financial Services of Boston.

Also, "some firms highlight recent performance and only good things," said Goldman, whose company has no proprietary products and boosts an open architecture structure.

"Firms need to be more open and share good and bad news. If a portfolio manager made a mistake, let the analysts know what the mistakes were, he said.

Goldman stated that LPL's 30-person analyst team has a mutual fund watch list. Some factors that would trigger a fund moving to the watch list include a portfolio manager or key investment employee leaving or poor performance.

"We're always investigating what goes on in portfolios," Goldman said. Portfolio managers should expect a face-to-face meeting with analysts to discuss issues with them, he said. "We don't want to surprise anyone, and we don't want to be surprised," he said.

Companies are constantly being reviewed, Goldman continued. A quarterly questionnaire is sent out to portfolio managers asking about every buy, sell and trim decision and price expense ratios. The analysts review the questionnaires to make certain the funds remain consistent, he said.

"We have two sets of eyes on every mutual fund recommendation," Goldman said. "We're gaining access to powerful information and constantly talking to the portfolio managers to gather lots of insight," he said.

LPL wants its advisers to leverage as much information as possible since the firm sends its clients letters about mutual funds on a consistent basis. If an analyst discovers a matter that raises a red flag, an e-mail goes out to every adviser that has that particular fund, Goldman explained.

Although there may not be a lot of new information about funds to provide to analysts all the time, fund companies need to package and deliver the information in an accessible format and in a timely manner, said William Rittling, senior vice president of the director advisory resources group at MFS Investment Management of Boston.

MFS has a dedicated website portal for research analysts to log in and access information. The information provided is data-focused and built around investment capabilities, not on marketing materials, he said.

However, as much influence as analysts have,"we still have a lot of funds that they might not call out that we think are beneficial to some clients," Rittling said.

Asset management firms now need to supply institutional-quality information to research departments and create transparency around underlying managers, said Hugh Kelly executive vice president of sales and marketing at Harbor Fund Distributors of Toledo, Ohio.

Additionally, as the distribution process changes, new strategies to create appropriate sales and marketing materials need to be considered, Miyao said. Gatekeepers receive a ton of sales and marketing materials every day, and companies need to access how they can get information through to advisers.

Because asset managers do not always effectively work with partner coordinators, there needs to be improved lines of communication between the two to make sure the sales and marketing materials are being utilized, Miyao added.

It doesn't matter how much money the company has spent on marketing materials if the product is not getting through to the adviser, he said.

More and more businesses are taking a step back and not making materials so complex. Many mutual fund gatekeepers at brokerage firms want to simplify the process and merely want to know what is a fund's value-added distinction, Kelly said.

Firms also need to rethink product development efforts and create opportunities within their firms for more innovative and collaborative product development, commented Miyao. There is a lot more competition in the marketplace, and advisers need to provide value to their clients, Rittling said.

Product development usually happens internally at asset management firms and portfolio managers look at trends and other products that their competitors have developed. However, most other industries also observe and talk to customers to see what products would be valuable to them. "This effort needs to be boosted in the industry," Miyao said.

This lack of understanding the end client is mirrored in asset management companies' dealings with advisers and research analysts at brokerages. Goldman's company is very asset class structured, for example, so if an asset management company were to recommend a sector fund, it might not fit in with LPL's structure or focus, he said.

Just as they would stand to gain by better understanding the end investor, asset managers would also benefit by working with broker/dealers to discuss their needs and what products they would like to put on their platform. This could also help asset management firms develop new products.

As Miyao put it, "The process needs to have a more client-cent-ric approach."

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