The future of investment product wholesalers is uncertain. Their business has increasingly failed to address what most financial advisors are looking for. And as asset management firms consolidate over the next half dozen years, the ranks of wholesalers are likely to dramatically shrink too.
Most of the companies have only about three to five years to reinvent themselves if they want to stay relevant to financial advisors. But those that do survive, the ones that can deliver the value advisors are looking for, will find their opportunities dramatically improving as other players drop out. That means the survivors will become essential players in the industry and be extremely well compensated.
Top Value From Wholesalers
But those that succeed must be able to offer a lot more than a menu of products. When it comes to the type of help financial advisors are seeking most from their wholesalers, the needs are evenly split between product support and client acquisition help.
Product support involves getting information on the investment products from wholesalers, including information on how the products compare with the offerings of other asset management firms. It also means support in the form of portfolio construction and market analysis. This aid is most valuable to financial advisors with fewer assets under management (less than $100 million).
Advisors handling more assets are generally more interested in wholesalers that can help them with client acquisition.
In a survey of 294 advisors, about half said financial product support was the top value they get from wholesalers, a figure that rose to 79.9% among advisors with less than $100 million in assets under management (who represented 47.3% of the respondents). About half of all advisors in the survey also said that client acquisition support was one of the top values offered by wholesalers, a number that rose to 93.9% among advisors with more than $200 million in assets under management (who represented 16.6% of the respondents).
Client Acquisition Support
It’s not surprising that financial advisors find client acquisition help an attractive quality in a wholesaler. Advisors handling larger pools of money tend to already have the expertise and resources to address investment issues. So new client acquisition is a higher priority.
A recent survey of 212 financial advisors revealed that 61.8% of them had seen negative growth over the previous five years (after market appreciation was taken out of the equation). That is, they were not adding clients and assets to replace the clients and assets they were losing. For some financial advisors, this is not a problem because the rising financial markets have made up for their losses (and then some). On the other hand, there’s a large percentage of advisors who want to seriously grow their practices organically but who are having a hard time doing it.
Another study of 303 financial advisors found that their top concern was garnering assets to manage from new, wealthier clients, something 95.4% of them wanted.
Those wholesalers whose solutions help financial advisors source wealthier clients and gather more assets will increasingly be in great demand (as long as the financial products they offer are competitive too).
Educational Programs
There are three ways wholesalers can help financial advisors acquire new clients.
First, they can provide educational programs explaining how advisors find and convert “ideal” prospects into clients. One source of clients is other professionals, such as accountants and attorneys.
These programs are of varying quality and often differ little among wholesaling companies. Their quality depends on the support they get from the asset management firms. But even the best educational programs are worthless if financial advisors fail to act. And even when financial advisors embrace an educational program and implement the ideas, there are a number of other things that can stand in their way of success. So it can be difficult to determine the success of the programs themselves.
Resource Coordination
Wholesalers can also connect financial advisors with specialists in other fields, which can help them find new clients and generate new business. For instance, wholesalers stand out if they can offer introductions to people like crisis managers or personal wealth creation coaches. It helps if the wholesalers can proactively identify opportunities and help frame the conversations in these searches.
These types of introductions can be very powerful and will sometimes lead to new business. But despite the value they add, they cannot be tied directly to asset management growth.