The wealth management industry was already in flux and, due to the global pandemic, the pace of change is accelerating. Remote work, technological transformation, regulatory upheaval, and rising customer expectations are pushing industry stakeholders to redefine how they add value.
We sat down with Equisoft’s Shawn Gillespie, Vice President, Wealth Solutions USA, to discuss the changes that are sweeping through the business and how Equisoft can help manufacturers, distributors and advisors succeed in their digital transformation.
Q: What are the biggest challenges asset management companies face today?
Most manufacturers and wholesaler teams were doing well leading up to the pandemic. Most have dealt with the challenges presented by fee transparency and best interest rules. They are adjusting to the new environment in which the cost of compliance is higher, and margins are lower. However, following a period of growth and relative stability the economy and markets have become extremely volatile, which creates new challenges to be met.
In the past, wholesalers focused on building personal relationships through face-to-face visits with advisors, however social distancing has accelerated the evolution away from the old wine and dine approach. Now more than ever, advisors gravitate towards wholesalers that can help them improve their portfolio construction and protect their clients’ portfolios in volatile markets.
Advisors want help providing better service and results for their clients. They want to work with wholesalers who act as tech-enabled business consultants. They value those who are able to recommend the best portfolio for an investor profile and make it easy for advisors to demonstrate to their clients the value of the portfolio. This will become especially important when returns start to weaken and investors start focusing on the risk in their portfolios. Advisors need to have answers when their clients ask why they are paying for advice and yet returns are not what they expect.
Q: How is technology impacting distribution?
Even before the pandemic the demographics of distribution were changing when it came to the adoption of new technologies—for both internal and external reasons.
The aging advisor workforce is a big concern for all in the industry. Recent stats show that the average age of an advisor is 51 and nearly 40% of all advisors are expecting to retire in the next ten years according to Cerulli Associates. Only 10% of financial advisors are younger than 35. Combine those figures with low two-year retention rates for those new to the business and we can see that there is a potential crisis looming. Young people are just not as drawn to the idea of becoming an advisor as they once were.
Wholesalers themselves are under threat. Recently, Nationwide announced it is cutting its wholesaling force for mutual funds to focus on working with outsourcing asset management platforms. The trend across many firms is to reduce the size of the wholesaler network and geographically redistribute resources to take advantage of a less meeting-centric model.
All of which adds up to a big question, who is going to continue to promote products on behalf of manufacturers?
The answer may lie in a trend towards a more digital process. The opportunity exists for manufacturers to give advisors digital tools to evaluate and select investments on their own. This positions the manufacturer as a value-added partner of the advisor and helps build relationships. It also enables the fund company to better and more consistently position their products in an advisor’s book of business, since the tools can recommend ‘home team’ products in situations where those products are stronger than those from competitors.
Q: How are wholesaler teams evolving in the industry?
Within wholesaler teams a shift is taking place. Traditionally there has been a pretty clear demarcation between the role of the outside wholesaler, who spends their time meeting with advisors and speaking at industry events/promoting the company’s products, and the inside wholesaler who works over the phone and digitally to support the former. The pandemic has accelerated the adoption of the concept of a hybrid wholesaler—a traditional outside wholesaler who now needs to be as effective in the remote world. This hybrid advisor leverages technology to provide a value-add service to their advisor customers.
What we’re seeing is an increased appetite from advisors to work with wholesalers on portfolio construction. As a result, we are seeing increased usage of portfolio construction tools to expand their role and offer more value to the advisors they deal with. They can use tools like Equisoft/analyze for wholesalers to perform portfolio analysis and recommend stronger products that will better help clients reach their goals.
Q: What do wholesalers need to succeed in the transformation of their role
I think one of the key messages for wholesalers when it comes to evolving into a business consultant is, “It’s okay not to have portfolio construction expertise, our tools will do it for you.”
Equisoft/analyze for wholesalers is a sales acceleration platform featuring guided investment product positioning and analytics. It enables wholesalers to identify or create sales opportunities using a suite of guided and automated investment product positioning and analytics tools.
The digital platform includes portfolio optimization, investment analysis, and proposal generation tools. Because of this Equisoft/analyze enables wholesalers to offer portfolio analysis and construction as a value-add service to advisors. That ability to help advisors better meet their clients’ needs positions wholesalers in a new way—as business consultants to their advisors. Wholesalers are able to build stronger advisor relationships, improve their own productivity and increase sales.
It enables every member of the wholesaling team to be seen as an expert in portfolio construction—even if that is not a strength for some wholesalers. The solution guides them through the process of making product recommendations and it makes it clear to the wholesaler, advisor and investor how a product or managed portfolio of funds could be a good replacement.
Equisoft/analyze for wholesalers uses a very easy, guided three-step process:
Step one: The wholesaler captures the data from the current portfolio gaining an understanding of its construction and what components it contains.
Step two: Guided selection of which products would be an appropriate replacement. Since all wholesalers are working from the same tool the entire sales force is playing from the same song sheet when it comes to product recommendations.
Step three: Compare the current and proposed portfolio. The wholesaler can actually prove the benefits of adopting the recommended product by conducting a hypothetical historical evaluation of how the product would have performed versus the existing products. Additionally, the benefits of the proposed portfolio are summarized in a client ready proposal.
Equisoft/analyze for wholesalers is configurable and customizable. It can be rebranded or white labeled—not just using a fund company’s colors and logos, but in a more fundamental way. The tool can be configured to reflect a company’s advantages in the market, recommending their products for profiles that match their strengths.
For instance, Equisoft/analyze for wholesalers can recommend products in asset classes where they are appropriate but perhaps not expected. For example, a real estate fund company had a wholesaling team that was very good at speaking with advisors about real estate and their products. But not every advisor sees real estate funds as an appropriate building block in certain portfolios. Using the asset allocation tool the wholesaler was able to demonstrate how their real estate investment product could replace a fixed income product—with the same risk but higher long-term return potential than a bond fund.
Q: How do you see the role of data evolving in the industry?
Data is a foundational element in wealth management. For advisors to be able to help their clients reach their goals they need transparency on products and performance. And for wholesalers to act as business consultants and assist advisors with their portfolio construction they need the ability to look-through mutual funds and ETFs to analyze the portfolio down to the level of individual securities.
That’s why Equisoft has developed a strategic partnership with Refinitiv Lipper. Refinitiv Lipper provides independent insight on over 330,000 collective investments globally, covering mutual funds, ETFs, domestic pension, and insurance products. Refinitiv Lipper’s proprietary classification based methodologies generate meaningful peer groups to select, compare, and benchmark investment funds while proprietary ratings & rankings provide the best insights into investment selection.
Lipper gives leader ratings for various aspects of a product, such as returns, fees, preservation of capital. That makes it easy to compare funds on key metrics and make better quality decisions.
Another way in which Equisoft/analyze data drives results is, if asset managers make an advisor version of the tool available to their advisors. Advisors can build their own hypothetical portfolios using the tool and the manufacturer’s investment products, while business intelligence reports on the advisor’s usage is reported back to the wholesaler.
These reports identify what investments advisors are comparing in their hypothetical portfolios. This enables wholesalers to talk to advisors about the company’s solutions that feature in the comparisons. It helps the organization in terms of product positioning, and it makes it easier for advisors to select the best choice funds for their clients.
Q:Should manufacturers build their own portfolio construction solution?
Some of the biggest asset management companies have attempted to build their own platform from scratch. In those cases, the organizations take advantage of their nearly unlimited resources to build a portfolio construction platform and procure all the necessary data.
The reality is though, those companies could achieve the same outcome more quickly and less expensively by licensing the Equisoft solution which is purpose built for wholesalers. The platform could be white-labeled to match their marketing identity so that it appears proprietary.
For most manufacturers building an in-house solution is not a viable option. They are asset management companies first and foremost with limited IT staff. The cost and time involved in building an in-house platform make the idea a non-starter. Even if they can tackle the initial build out, few have the ongoing IT resources required to manage upgrades and security, create mobile and tablet versions, as well as versions for Windows, Mac and Android.
Then there are data considerations at play. Licensing the data adds significant costs. And, it takes a lot of data to be able to look back as long as an investment has been available and judge its performance against other instruments. That makes implementing an in-house build cost prohibitive for most firms.
Equisoft has spent 22 years developing Equisoft/analyze for wholesalers and we continue to develop and enhance the platform. We have more expertise in building software solutions than any fund company because of our experience with so many firms.
We can brand the solution for any company and differentiate the platform through configuration so that it tells their story. And the solution is available as part of a SaaS—private cloud model. We support, manage and upgrade the software. We manage the data. When new Lipper leader ratings or data feeds are released Equisoft integrates the changes into platform. The ongoing maintenance of the solution doesn’t impact the manufacturer.
Q: How does Equisoft contribute to the digital transformation of the wealth industry?
At Equisoft we believe in innovating to bring value to all stakeholders in the industry. Our integrated digital solutions help manufacturers better position their products with advisors. We enable wholesalers to evolve into a new tech-enabled business consultant role that delivers more value for the advisors they work with. And, we provide the tools advisors need to work more efficiently and more effectively serve their clients.
At a time when regulation is putting pressure on margins and technology is forcing disruptive change on traditional wholesaler and advisor ways of working, we continue to develop new ways to help everyone succeed in their digital transformation.
To continue the discussion about the future of the industry and the wholesaling role please feel free to contact Shawn directly.
Vice President, Wealth Solutions, USA