Service matters but information is king

The one factor that can make all the difference to fund distributors is access to more information. Akram Ben issues a warning to suppliers. When European fund distributors talk about “service” what they really mean is “information”. This is not good news for those third-party fund suppliers who frequently say distributors want a different type of service: advice. Our findings suggest a mismatch between what distributors really want, and what fund promoters think distributors want. Performance is the overriding factor which drives European distributors when selecting fund providers, according to our research. In unprompted questions, service tends to appear in sixth position, well behind performance, quality of management, and brand. Insurance companies, which value service more highly than other distributors, are an exception. But in prompted questions, which we use to double-check, service shows greater importance in the minds of European distributors. So what is it about service that matters? Service is information In a 1000-interview survey in early 2002, we asked distributors who mentioned service as a selection criteria to explain which element of service mattered most. The answers are shown in Table 1 (“Top service factor”). By far the most important element is information – of one sort or another. We asked virtually the same question in a smaller 250-interview survey in mid-2002. Chart 2 shows the results. Here, 53 per cent said service was the most important element of information. In this survey, we also asked distributors: “which one piece of advice would you give a third-party fund supplier who wanted to attract your interest?”. The most frequent distributor’s wish was for fund suppliers to improve contact and communication. This proved even more important than performance, with 13 per cent of mentions. Information, distributors are telling us, is critical. Another test of the importance of information as a service-related element is given to us by a question asked about “frustrations” to 250 interviewees late last year. Basically, what can fund manufacturers do to help distributors do their job better? Forty-one per cent of distributors referred to the need for better quality information from manufacturers – see Chart 3. Current information levels are clearly insufficient. This is not just a vague wish. There is an actual obstacle to selling funds presented by this lack of information, according to our research. What does “information” actually mean for fund distributors? A fund manufacturer determined to maintain long-term relationships must deliver a service enabling distributors to correctly answer inquiries generated by end-investors. While European third-party distributors are keen to outsource fund management, they do not want to lose the client relationship. Manufacturers must therefore provide distributors with a regular flow of information regarding management activity. This is an essential ingredient of after-sales service to clients. When distributors claim they need more information from fund suppliers, it is essentially to be able to justify the choice they have made when advising clients to invest in a particular supplier’s fund. Clear mismatch Comments given by those of our 250 interviewees in mid-2002 who chose “information” as the most important element of service are shown in Chart 4: 78 per cent of responses refer to information related to fund activity. When distributors request more data on fund activity, they generally mean information on strategy, investment process, portfolio composition and risk levels, which helps them answer clients’ questions. The second most relevant type of information is market-related. Distributors are keen to work with research-driven manufacturers, who provide them with market analysis valuable for asset allocation decisions. Another, slightly less important, differentiator is information about new investment ideas and special products, that enable distributors to offer customers diversification. Fund activity data that distributors refer to are shown in Chart 5. One distributor said: “We need lots of information, but not only about benchmarks and the likes. We would also like to know something about fund suppliers’ decision-making processes in investing. For example, why did they take this decision rather than another option?” They further want fund manufacturers to continually justify performance levels. One distributor said: “I need a clear report that enables me to explain investment returns to my clients”. In fact, all that fund distributors appear to want is to act as an efficient interface between fund manufacturers and end-investors in the after-sale stage. There is a clear mismatch between this information-led service, held dear by distributors, and the notion of service frequently mentioned by suppliers or providers of third-party funds. For many fund manufacturers, service suggests “advice” rather than information. These suppliers believe their distributors want this advice to concentrate on how to market and sell funds to clients. Frequently, suppliers go on to reveal they are in an excellent position to deliver this advice, being large, global, and generally all-knowing, and able to package up this help in a series of advisory/consulting tools and services. This notion may be a misconception, according to our data. Distributors seldom refer to a need for advice, or hand-holding. We very seldom come across fund distributors who mention the need for this advisory/consulting input. They may even consider it demeaning, since it tends to suggest they cannot do their job properly. Focus instead on information, is our suggestion to third-party fund suppliers. Akram Ben, director of marketing, Sector Analysis, a research firm dedicated to Europe’s asset management industry

Definitions Fund distributors:

• Universal banks: Multi-activity banking organisations, branch networks
• Insurance companies: Life, property/casualty, health. Not brokers
• Independent portfolio managers: Dedicated to asset management. Private Banks / independent asset managers
• Pension plans: Pension plans inside and outside corporations
• Intermediaries: Financial advisers’ networks and one-man bands Countries surveyed:
• France, Germany, Italy, Spain, Switzerland, UK, The Netherlands, Belgium, Luxembourg, Sweden