Service still rates high with advisors

By Philip Porado | August 17, 2010 | Last updated on August 17, 2010
5 min read

Advisors generally have good relations with their mutual fund dealers and MGAs, say respondents to our annual Distribution research project.

“We have virtually nine in ten strongly or somewhat agreeing that they have a good working relationship with their dealer or their MGA,” Tricia Benn, Director of Research for Rogers Publishing Limited, told an audience at Advisor Group’s annual Distributors’ Summit. “It continues to be a good news story.”

Of course, there is room for improvement. Among mutual fund sellers, 89% either strongly agree or somewhat agree that the relationship is solid. But of that 89%, only 51% say they strongly agree with the statement, “I have a good working relationship with my dealer.”

It’s a similar story for insurance advisors, with 44% strongly agreeing their MGA relationships are strong, but 40% hanging out in the “somewhat agree” category. And when the satisfaction measures are combined with size and service factors associated with the dealers, some interesting points emerge.

“When we look at rating the statements in a little bit more depth, on the dealer side, we find the highest percentage of those who have a good working relationship, 95%, are those working with a large operation with full support. It’s the highest rating for dealers,” notes Benn. “The lowest rating is for the large operation with minimal support.

“And that relationship is consistent when you look at the MGA relationship, where the highest rating is with the large, full-support MGA versus the lowest score being with the large, minimal-support operation,” adds Benn. “So that distinction they’re making between full support and minimal-support is a big one.”

The survey finds advisors working with larger organizations favour the ability of those distributors to provide more consistent service, deeper product knowledge, and training.

Meanwhile, one of the advantages highlighted by advisors working with smaller operations is familiarity with decision-makers on the distribution side, and Benn notes this has consistently been the number 1 factor distinguishing mid-size and smaller operations in the eyes of advisors.

Why that’s important, she adds, is that the statistics on that preference are starting to trend down. Back in 2008, 62% of respondents cited the connection to decision-makers as the primary reason to go niche, whereas that number now stands at 54%. “The number 2, for the smaller organization, is the more consistent service at 47%,” says Benn.

One-stop shopping

When advisors were asked about their interest in having a single distribution channel for both mutual funds and insurance products, seven out of 10 indicated they were either very interested or somewhat interested.

“And we have nearly twice as many saying they’re very interested as opposed to somewhat interested,” notes Benn. “So, obviously, if you’re a distributor with just the one channel, this is a potential risk.”

Generally, she adds, the advisors expressing interest in these simplified structures are younger, with fewer than 10 years in the business. In aggregate, they tend to be insurance specialists who are dealing with an MGA and also indicate high degrees of interest in being able to provide clients with consolidated reporting.

“When we look at consolidated reporting, we see 87% say that it’s important, exactly the same as last year,” says Benn. “And six in ten are stating it’s very important, so consolidated reporting is definitely something they’re looking at as an important aspect of their business.”

A look at open-ended responses aimed at coming up with an advisor wish list for their distributors found the providing of support and assistance, training, and education topping the list. Advisors further asked that distributors provide product information in a timely fashion, improve communications, initiate contacts with advisors and get materials processed quickly. They also said they wanted distributors to do a better job of simplifying compliance.

When those same advisors selected from a list of preferred offerings they felt would help them expand their client bases and provide better service, the highest percentage selected CE credit courses (36%), followed by planning services (31%), after-sales customer service (28%), will preparation (27%), new business follow-up (26%), legal assistance (25%) and trust services (25%).

“Considerable interest is shown for tools; tools that will allow them to provide simple comparisons and address the issues they think are concerning their clients in terms of the products being recommended,” says Benn.

Going direct

One survey result that should be of concern to distributors comes from a question asking whom advisors would rather deal with on a day-to-day basis.

“We had half saying they’d rather just deal directly with the manufacturer. And we know it’s nowhere near half that are, but this is the size of the potential threat,” says Benn. By comparison, 44% said they preferred to deal with a distributor.

“Those who want to deal with the distributor are those who feel they’re getting full support,” she adds. “Those who have a good working relationship with their distributor and feel they’re really getting value.”

Byren Innes, senior vice-president and director at NewLink Group, notes his company’s research has found between 16% and 17% of advisors are dealing directly and that the number could soon approach 20%.

That’s of concern, he says, given efforts to move the industry towards straight-through processing of insurance applications. If an MGA’s value proposition is currently predicated on its ability to process applications, that value-add will diminish significantly when that processing goes electronic.

“So you have to, as an MGA, continue to say, ‘What’s my relevance to this advisor relationship? How do I stay relevant and how do I provide good service?’ ” he says. “Otherwise, dealing direct is more and more a viable option.”

The survey also found two-thirds of advisors would be willing to use a manufacturer’s proprietary technology if the deal included some form of compensation.

Spoiled by choice?

When asked if there were too many products available on the shelf, advisors were evenly split between those who say they’re a bit overwhelmed and those who welcome the variety.

Further, among those who say there are too many choices, 36% fault the manufacturers with the glut, while only 11% say the distributor is flooding the stream.

However, when you shift the question to whether clients feel overwhelmed by product selection, seven in ten say the clients are confused. “And we have 27% strongly agreeing, 44% somewhat agreeing,” notes Benn. “When we ask what type of product is there too much of, what becomes overwhelming for your clients, it’s 43% saying mutual funds.”

In terms of what products clients ask for, the majority of advisors say they’re fielding requests for ETFs – not the best development given the fact that MFDA- and insurance-licensed advisors generally can’t sell them.

Advisors are, however, interested in opportunities to expand wallet share. The survey found 55% of respondents are already multi-licensed to sell both funds and insurance products and that of those who are not, 21% would like their distributor to assist them with the add-on.

Of advisors who aren’t multi-licensed, 66% said they’d like to pick up an insurance licence, while 16% said they’d add mutual funds and 14% said they’d go after a full securities licence.

One possible driver for advisors looking to add an insurance licence is the lingering regulatory arbitrage between mutual funds and segregated funds. When asked if regulatory and compliance requirements attached to mutual funds had advisors thinking about moving clients into seg funds, 34% said the idea had crossed their minds; however, only 17% said they were “very much considering” the option.

  • Philip Porado is executive editor of the Advisor Group.

    Philip Porado