Advisors’ Use of Fund Firms: What’s the Truth?
Last week Cerulli Associates released a study built from a survey of over 1,800 advisors. As chronicled in Ignites (subscription), a key finding focuses on how advisors are using fewer mutual fund providers and “…the importance of cementing solid relationships to secure preferred provider status…”. A snippet of the relevant data:
- 57% of advisors use 5 fund firms or less, up from 37% in 2009
- 13% of advisors use 15 fund firms or more, down from 25% in 2008
The idea of concentrated mutual fund family usage has been increasingly trumpeted over the past few years. And I have no doubt that the data is reported accurately based on advisors’ responses. But I am dubious of the idea that so many advisors use so few fund firms. Two reasons why:
- The first-hand knowledge we have of our clients’ data shows it’s common for firms to have huge numbers of small, single-product advisor relationships.
- Many firms prioritize cross-selling over pure prospecting. Sales strategy and comp plans are frequently driven by the desire to build deeper, multi-product advisor relationships. Highly-concentrated assets among advisors, as indicated by the survey data, would seemingly dictate a greater focus on new client acquisition.
So what does this mean? Two takeaways:
- Beware Self-Reported Data: I think it’s human nature to neglect the “long tail” of small positions within clients’ portfolios. There may be 5 primary firms used by advisors, but not 5 total.
- Beware Aggregated Data: The survey is cross-channel and includes advisors with an average AUM of $50M. But fund firms typically have a more targeted, specific strategy than that. It’s important to isolate the subset of comprehensive data that is relevant and draw conclusions from there.
We’ve been involved in enough syndicated research to know that the data gathered always leaves room for interpretation. The findings here fit the bill.