Designing a successful distribution strategy

The dynamics of investment management distribution have changed forever, with institutional channels changing and contracting rapidly. Many are eyeing the significant retail opportunity - both direct and advised - for growth, but knowing where to focus for maximum effect can be a challenge.

At a recent event in Sydney, we discussed the changing dynamics in funds management and the success-factors needed to tap into new distribution avenues. We were joined by a fantastic panel of industry leaders: Annick Donat (CEO of Clime Investment Management), Camilla Love (Managing Director, eInvest, Perennial) and Marcus Field (Head of NMPE Education at Iress). Here are the key takeaways.

Changing dynamics

As institutional flows further concentrate and contract with insourcing by superannuation funds in Australia, many investment managers are looking to the retail space for growth.

Demand for financial advice in Australia is expected to surge, with 2.6 million non-advised Australians intending to seek help from an adviser in the next two years (Financial Planning Association of Australia Money & Life Tracker report 2021). At the same time, the direct investor market is exploding. Over 1.5 million first time investors joined the market in the past 2 years, and a further 900,000 are intending to join in the next 12 months (ASX Australian Investor Study 2021).

Against this context, we see three critical ingredients for any investment manager wanting to expand into new distribution channels:

1. Engagement
2. Education, and
3. Efficiency.

Engagement

How do we engage with retail investors? For many fund managers, that means via the adviser channel. Fund managers need to put themselves in the advisers’ shoes: think about what advisers experience day-to-day, particularly those who are business owners. Advisers are navigating an enormous amount of change driven by regulation and market movements, and consideration should be given to their varying investment philosophies and client demographics.

Tapping into the retail market via direct investors involves thinking about how you can reach them in their channels of choice. The ‘always on’ expectation of the end investor means how and when you engage with them is more important than ever. Fund managers going this route must consider their use and knowledge of digital tools and communications channels for engagement. This could include anything from Facebook and Reddit to chatbots and TikTok.

Gone are the days when a phone call would be the only engagement fund managers would have with an investor. Whether it’s engaging retail investors directly or via an adviser, being approachable, nurturing the relationship, and creating a sense of community is critical.

Education

Relevant and timely investor education and information equals successful engagement.

We’re on the precipice of some big changes, which are forcing people to think differently about how they store and create wealth. A $3.5trillion intergenerational wealth transfer from baby boomers to their children, the rise of digital advice, investment platforms and differentiated offers lowering the barrier to invest, and record-low interest rates alongside record-high housing prices.

We have a big job to do to help direct investors make appropriate decisions about their financial futures in addition to equipping advisers with the information and resources they need to help clients make these decisions.

Above all, information needs to be simple and easy to understand in addition to being personalised and educational.

Efficiency

There’s no question we’re increasingly being asked to do less with more. Across all aspects of the wealth management value chain, margins are being crunched, compliance requirements are increasing and the administrative side of managing money has become more onerous.

So how can investment managers balance the need to engage with new retail audiences, effectively position themselves and educate new markets while at the same time dealing with increasing costs and compliance pressures?

For the panel participants, data was discussed as being the key ingredient. Efficiency is about using data so we can get the right information to the right people at the right time, and with as little effort as possible.

Where to from here?

Technology can be an enabler in helping fund managers thrive in the current and future environment of investment management distribution. Iress has been working with participants from across the wealth management spectrum to support them with targeted financial education content that resonates with this highly engaged, highly digital new investor audience. We’re also supporting the wealth management industry with an industry-wide solution to meet their compliance obligations for the Design and Distribution obligations (DDO) and Advice Fee Consent (AFC).

You can watch the full recording of the panel discussion below.