Financial advisors desire loyalty from their clients, but they evidently don't feel the same sense of loyalty to companies that provide their financial products. According to a study by Cogent Research, less than one-third of all financial services firms that provide products across five investment categories enjoy positive loyalty ratings among advisors who sell their products.
Among the categories ranked, only exchange-traded funds scored consistently high loyalty ratings among advisors. On flip side, only one-quarter of open-end mutual funds had positive loyalty ratings, which doesn't bode well for the industry that traditionally is the leading provider of advisor-sold products.
The survey conducted by Cogent Research, a Cambridge, Mass.-based financial services research group, contacted nearly 1,300 advisors across all channels and asked them about the products they used and the loyalty they felt toward particular providers. Product groups were ranked on the percentage of promoters versus detractors. ETFs topped the list with an average +19 rating, followed by separately managed accounts (+14), open-end mutual funds (-5), variable annuities (-14) and closed-end funds (-16).
Bruce Harrington, Cogent's managing director of syndicated research, says the firm's loyalty research dovetails with other research by the firm that looked at which financial products will most likely be winners or losers over the next two years. "ETFs and SMAs are winning products versus mutual funds, which will start to decline," he says. "There's a direct correlation between loyalty and forecasted product growth and decline."
For example, Harrington says Cogent found that mutual funds currently comprise 35% of advisory book of business, but that's forecasted to decrease to 31% in two years. Meantime, ETFs as a percentage of business is expected to rise about 60% during that time.
The Cogent loyalty study concluded that mutual fund firms and VA providers need to commit to rebuilding loyalty among advisors through client outreach, product and service innovation, and other value-added services to support advisors' changing business models.
Other findings include:
· A 122-point loyalty gap exists between #1 ranked American Funds and last-place Putnam.
· Only eight mutual fund providers, including American Funds, Russell, and Franklin Templeton have more promoters than detractors among advisors selling their products.
· Despite poor loyalty ratings among nearly all VA providers, Ameriprise achieves a rating that rivals top-tier providers across all product categories.
· NFJ Investments (Allianz, Inc.) earns the top advisor loyalty spot among SMA providers, ahead of Goldman Sachs Asset Management and Davis Selected Advisors, which are tied for second.
· While iShares ranks number one in advisor loyalty among ETF providers, WisdomTree also shows surprising strength.
For more information, contact Cogent at (617) 715-7636 or [email protected].