Distribution Strategy is Adapting to Complexity of Investment Decision-Making
Advisors, broker dealers, plan sponsors and their consultants, insurers, and bankers have changed they way they buy from asset managers. New regulations, heightened scrutiny around fiduciary risks, and pressure to maintain profits have compelled committee-based investment decisions. As the figure above illustrates, there are three types of investment decisions made by investment committees. Depending on who the client is, the 'committees' that make these decisions could look very different, for example:
A large advisor whose advisors have the discretion to mimic home office models and/or build their own portfolios. A subset of the advisors collaborate on portfolio design, asset allocation, and manager selection.
A large independent RIA where a CIO makes portfolio decisions for the entire firm, but routinely seeks approval from the principal
A large, but dispersed independent RIA with a CIO who oversees a team of investment analysts across their branches. The investment analysts could also have the authority to make certain investment decisions
A large independent RIA working an aggregator who prefers a federated model. The RIA has it’s own CIO team to support all branches
A large RIA aggregator whose home office determines risk-based portfolio designs, asset allocations, and manager line up.
The investment committee of a retirement plan, endowment, or foundation
In each of the above scenarios there is a group of people who deliberate on portfolio issues and document their options to maintain a record, before they make decisions. The investment committee could be anything from a single advisor making all decisions for the investors to a committee comprised of the CEO, CFO, CIO, business lead, relationship managers and the like. Each of the decision-makers bring their own perspectives when they represent their client or their functional team (e.g., CIO, CFO, actuary). And their opinion varies based upon their investment philosophy; their clients goals, tastes, and preferences; a strong preference by the principal; their brand; and, frequently, upon the views expressed by an investment consultant or an asset manager.
Influencing investment buying decisions of committees is very complex. It would be hard for a single person to have the expertise and time to interact with each person influencing investment decisions. Depending on whether the discussion is exploring whether a change is needed, how to change the asset allocation, or how to make a manager change, the lead sales person would need specialists to be on hand. Buying decisions are made through these discussions and therefore sales people have to find a way learn the decision-making process and be a part of it. Obviously the sales and marketing sales and marketing strategy must to be refined. In other words, to continue efficient distribution, the segmentation, value proposition, and sales process have to be examined.
