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Rethinking Financial Advice from a Wholesaler’s and Technological Perspective

Wealth Management

By Thomas Etheber, PhD, CFA  |  August 11, 2021

Gone are the good old days where wirehouses, global asset managers, and other traditional players could rely on their good reputation, breadth of products, and investment expertise to attract advisors and customers. Of course all of these factors still matter but, particularly in the U.S., the stream of financial advisors breaking their bonds with former employers has been growing for years. Globally, advisors are expanding their breadth of services and are deepening their relationships with clients. Furthermore, there is a trend where advisors, instead of shopping around for the best offer, are now seeking to hold close relationships with only a few selected asset management partners.

As a result, wholesalers’ key advisor distribution channels are at risk. High margin pressure and market saturation in terms of the mere number of (often fully replaceable and indistinguishable) investment products endanger existing revenue streams. In addition, advisors are becoming more focused on the question, “What’s in it for my clients and me?” If there is not a sufficiently clear answer in terms of a significant value contribution, advisors will no longer be willing to meet with wholesalers and their traditionally close relationships with wholesalers will continue to weaken. We have not even touched on the other fundamental forces shaping the industry, such as increasing transparency levels, higher client demands, tighter regulatory standards, low interest rates, the surge of lower margin passive investing, and the growth of technologically enabled competitors. In short, the asset management industry seems ripe for consolidation.

What can wholesalers do to protect their important advisory distribution channel?

Given this new normal, what can wholesalers do to protect their important advisory distribution channel? A likely answer is to own the advisor desktops, or at least own as much of that business as you can. The key ingredients for such a strategy are the adoption of a digital-first mindset, organizational nimbleness, thoroughly rethinking current advisory workflows, and leveraging the capabilities of modern technologies to realize efficiency gains and to offer novel value-added services to your sales staff, advisors, and clients. In this series of articles, we will concentrate on the technology part of this story and present some of the key characteristics of a modern wholesale distribution platform.

Putting Yourself into the Position of Your Advisors

Before we consider modernizing existing workflows, let us first quickly reassess the needs of the new breed of advisors. From an abstract and admittedly oversimplified perspective of an asset manager, advisors are a sacred and very knowledgeable resource pursuing the active sale of manufactured products (i.e., mutual funds, ETFs). If you lose an advisor as a client, you effectively not only lose business yourself, but you are also implicitly strengthening your competitors.

Because clients are accustomed to technology-enabled servicing models from other industries, advisors must deal with clients actively demanding better service.

Because online financial information is present everywhere, and clients are accustomed to technology-enabled servicing models from other industries, advisors must deal with clients actively demanding better service. As mentioned before, some advisors are distancing themselves from wholesalers because it seemed easier for them to earn more for themselves and their clients without any institutional boundaries. Sophisticated robo-advisors are gaining traction and are offering comparable services at much lower rates. In short, all leads to the overall requirement that financial advisors need to change their overall value proposition by establishing deeper, higher valued, and long-lasting client relationships. In the end, to grow their businesses, advisors want to provide investment insights, which are not readily available elsewhere. They need to be able to gain trust, credibly demonstrate their investment competence, and communicate their value add. Only that will allow them to earn their fees in the long term.

Putting yourself in the position of your advisors should allow you to prioritize your strategic roadmaps more easily, put emphasis on empowering your internal relationship managers, and help them to lift their advisor relationships to completely new and more advanced levels. If you make sure that your befriended advisors can employ your offered services to differentiate their businesses, come into a better position to serve their clients, and provide a more convenient and valuable investment experience to their clients, your salespeople will no longer have to wait for their next appointment with an advisory firm.

What matters for close advisor relationships (and with that sales success) is no longer just plain old investment performance—your advisors must perceive your service offering to be better than that of your competitors.

The term “investment experience” demands some clarification. To put it bluntly, what matters for sales success is no longer plain old investment performance—your advisors must perceive your service offering to be better than that of your competitors. From a pure sales perspective (i.e., increasing assets under management), it does not matter whether your provided services are better from an objective standpoint (if such an objective measure exists at all). In the end, the perceived relative and not the objective service quality determines sales success.

When we think of “owning the advisor desktop” from this perspective and subscribe to offering technology-enabled workflows that are both not only information-intensive but also increasing advisor efficiencies, it opens a full new dimension of service provisioning. That dimension so far has been mostly neglected in the asset management industry. Whereas a typical asset management firm is packed with financial competence, technological competencies that can tie together different systems, combine data from multiple data silos, and have the financial and technological competencies to design seamless workflows with an exceptional user experience are often scarce. Therefore, it can pay for most firms to partner with specialized software providers instead of initiating long lasting “do-it-yourself” projects, which distract critical resources from core activities and frequently try to reinvent the wheel.

In this series of articles, we will explore what a technology-enabled sales process could look like in practice.

Other articles in this series:

Rethinking the Wholesale Distribution Workflow (Part 1)

Rethinking the Wholesale Distribution Workflow (Part 2)

Rethinking the Wholesale Distribution Workflow (Part 3)

This blog post has been written by a third-party contributor and does not necessarily reflect the opinion of FactSet. The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Thomas Etheber, PhD, CFA

Head of Investor and Marketplace Solutions, Upvest

Dr. Thomas Etheber is Head of Investor and Marketplace Solutions at Upvest. In this role, he and his teams are reengineering and innovating the machine room of today’s securities markets’ infrastructure. Prior, he was a lead consultant on market development at FactSet and has held a variety of client-facing roles in professional services and market development in the financial services industry where he primarily specialized in digitizing financial advisory processes. Dr. Etheber earned a doctorate in finance from Goethe University Frankfurt and is a CFA charterholder.

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