Growth in the mutual fund industry has slowed down substantially, and for dealers to succeed in the highly competitive industry, they must focus on improving their technology, back office and financial planning support offerings, a recent study suggests.
Chuck Grace, a lecturer at the Richard Ivey School of Business and a management consultant with Fusion Consulting, presented results on Monday of a recent study by Fusion Consulting, a firm that focuses on investment fund distribution in Canada.
The study, completed in June, surveyed 12 mutual fund dealers and 20,000 advisors, covering 70% of the assets governed by the Mutual Fund Dealers Association of Canada.
It found that advisors were largely satisfied with their dealers’ offerings in the areas of products, support, compensation, compliance and stability. These are all critically important offerings, most of which are correlated with asset growth and distribution network growth, and firms must continue to keep advisors satisfied in these areas to survive in the industry, according to Grace.
“You’ve just got to have it to keep up,” he said, speaking at the Univeris 2010 Summit in Toronto.
The advisors surveyed were less impressed with their dealers’ technology, front office and back office offerings.
“Technology, back office and front office appear to be the weak part of the equation,” Grace said. “The advisors are saying they’re not getting all the value they need from those three areas.”
On the front office side, he said advisors are particularly unimpressed with financial planning support from their dealers. “No one’s doing a great job on financial planning,” he said. “No one’s delivering a lot of value or executing, and you’re all doing it the same way.”
He noted that many dealers leave the financial planning process up to advisors, in an effort to provide each advisor with flexibility in their approach. But advisors are now asking for more support.
This is one area where dealers should innovate to set themselves apart, according to Grace. “There’s an opportunity to differentiate your practice, your dealership and your advisors in the marketplace.”
Fund industry slows down
Differentiation in the industry has become critical as growth as slowed down. Fusion’s study found that mutual fund dealers experienced very little growth in net sales, distribution network growth and market share growth in the 12 months ending June 30th.
“Top line growth has stalled, and I don’t see it changing,” Grace said. “I don’t see double-digit top-line growth in your futures – not within the existing mutual fund dealership model.”
He said investment returns will decline in the years ahead, which will limit asset growth for the industry.
“Assets are going to be pretty flat by the standards that some of us grew up with in the 80s and 90s.”
Growth in the industry’s distribution network has also slowed down. And with many advisors preparing to retire in the next few years, the distribution base could begin to shrink.
Grace pointed out that the only dealers that experienced growth in their advisor networks in the past year were firms that hire rookie advisors.
“If you’re looking to grow your firm on the backs of seasoned veterans, I can’t find any evidence that it’s working,” he said.
In order for dealers to grow in this challenging environment, Grace said they should look beyond mutual funds to stocks, exchange traded funds, insurance and other products.
“If you want to grow your top line, you’re going to have to get out from underneath mutual funds,” he said. “If you don’t have access to it all, you’ve handcuffed yourself to a 2% industry. You’ve got to get beyond that if you want to see some double-digit change in your business.”