Steven's Thoughts

Fund Managers don't listen to investors

Most fund firms develop their products based on internal preferences, rather then investor and or advisor research.

A recent study by the Civil Society Institute showed that seven out of 10 U.S. mutual fund investors now want their mutual funds to support global warming shareholder resolutions, but not one of the nation’s largest mutual funds voted in favor of any climate change proxy measures during 2005. 

Most of the mutual funds are distributed through financial intermediaries so the question arises who should represent the shareholders/investors interest? In my opinion it should be both. But in the long run this will hurt the mutual fund companies more then the intermediaries. They will have to start creating products that investors want and that differentiate them form the pack.   

Measuring Shelf Space

As a follow up to my last post on shelf space, opportunities do not simply just happen. Shelf space allocations are dynamic and reflect changing marketplace needs. 

Shelf space value should be calculated using a formula that weighs the size of the shelf space market share opportunity, stickiness of assets, number of competitors, recent product sales, and revenue potential. Shelf space is optimized when a firm has fully leveraged the value inherent in the space to maximize revenue generation, profitability, and the strategic value of the relationship.

But to move up, you must first know where you are. Unfortunately, many firms have no formal process in place for measuring shelf space beyond a listing of the products they make available to the distributor. A more active program would seek at a minimum to capture shelf space data with an eye to anticipating product turnover and new opportunities. By understanding how cost and performance impact a distributor’s decision making, the asset manager is positioned to develop and offer new products to meet these changing needs in a timely way.

 
Interestingly, the value of shelf space within an organization is not always equated with high volume sales. In one instance we examined, a firm focused on selling a short-term bond fund that was gathering substantial assets. The product won a significant amount of shelf space in a national wirehouse channel. However, following an evaluation of the shelf space, the managers realized that the turf they occupied was not very valuable after all. Redemption rates were high and profitability was low. As a result, they changed strategies, moving their shelf space to a more profitable large cap product with better stickiness.

Shelf Space

Historically, firms have been happy to sign selling agreements with distributors and then trumpet their access to an expanded platform. But while the selling agreement gets you in the virtual door, it doesn’t help you close a single sale. Maximizing shelf space value is not just an exercise in adding more slots but of securing the most valuable slots across the industry. Asset managers need to recognize that shelf space is not made available in random ways. Distributors have processes that drive additions and deletions of products from shelves that determine when shelf space opportunities will exist.

Like most sales organizations, financial product distributors want to move the inventory. To that end, they promote products on their shelf space that bring them the most profits. These include packaged products like defined contribution, mutual fund wrap, and SMA wrap platforms that are profitable and easy to market. Distributors and advisors like these packaged products because they streamline operations and provide clients with asset allocation and automatic rebalancing.

Every distributor is unique, but understanding the floor plan is critical to product development and marketing efforts. Firms must understand where to best “put” their products to get the best exposure to advisors. For asset managers who want to avoid the bargain basement treatment, the solution is clear: make sure your offerings are aligned with the way products are presented to advisors within the distributor’s virtual store.