Kurt Dupuis:
Welcome to the Whole Truth, where two wholesalers help financial professionals build great practices and thrive in a rapidly changing industry. We'll bring you the stories and voices from those on the front lines of this change, and we'll have some fun along the way.
Steve Seid:
We're building a community of financial professionals who are growing, forward thinking, and want to get better. Thanks for listening and contributing to the discussion.
Disclosure:
The views expressed herein are those of the participants and not those of Touchstone Investments.
Steve Seid:
And welcome everybody to the Whole Truth, from the Bay Area, California. I am Steve Seid.
Kurt Dupuis:
And from Atlanta, Georgia, I am Kurt Dupuis. So we've got a bit of a two-fer for you today. We are going to, first, have a conversation, kind of unpacking a presentation that Seid did nationwide about team structure. And it has to do with frameworks and a few processes. So you know he's really excited about that.
Steve Seid:
All the good stuff. All the good stuff.
Kurt Dupuis:
And then we will also peek into a conversation we had with Tim Kresl. He's over at Broadridge. Fascinating discussion about the trends in the industry. Some will likely surprise you. And I'll give my three summary points with that conversation with Tim before we jump into talking about some team structure stuff. But the first is that in the asset management world, particularly, there is a great dichotomy. There's two groups that he talked about that are kind of on the edges, not the fat part of the bell curve, but they are the expanding incumbents. And basically anybody that advertises on TV probably fits into that category. They're the household names. But then he talked about this other group called the innovative challengers.
Kurt Dupuis:
So that was the first point is very much a bifurcation and who's seeing flows in the asset management world, the expanding incumbents and the innovative challengers. Secondly, we talked about trends in different asset classes. So we hit it all at him. Where's mutual fund business going? Where's the ETF1 business going? Where's the active ETF business going? Where's ESG2? How about alternatives? Great data on all those. Great, I'll call it, anecdata because he told a few stories about how people are using each of those categories, for sure will surprise you some of those outcomes there.
And then lastly, my big takeaway was talking about branding as a superpower. Again, I think this is something that Touchstone does particularly well. Because if you talk to any wholesaler in the field, we largely have the same story because it's what we believe in, or at least I do. So there's a brand there, there's evidence of that too in some surveys we've seen about Touchstone and their engagements with some of our wholesalers. So I think we're doing a fair to better than maybe slightly better than average job with branding. But he talked about whether you're kind of in the captive space at a wire or completely independent, how important branding is to your business. And it's only becoming more so.
Steve Seid:
Yeah, I think a couple points responding to that, those three points that you just mentioned is, one, you could look at the overall flows or assets in the asset management business, and say, okay, well the business is growing this percent, so then all the firms in the industry are growing somewhere around that. It is not like that, right? There is winners and losers. I was in a meeting today with our CEO, Blake Moore, and he got some data and it's amazing. Some firms, it's scary actually, experiencing outflows that have gone on for 18 consecutive quarters and things like that. I mean, there's some real shakeout in the industry happening right now, and those two groups being the exception to that shakeout. And I agree with Kurt, I think we are in one of those winner groups, knock on wood.
And I think the other thing I would say is that we've had a couple of these guests on to talk a little bit about industry trends. Because I think the basis for us was, you read the articles, and you name the publication, and they're all driven in a lot of ways by marketing from large organizations. There's a trend in, you make it up, “ESG”. We've been picking on that a lot, which I don't want to beat that, but that's a huge trend in the industry. And all these articles are about firms coming out. Well, what's actually happening there? And what we're finding is that, under the hood, those headlines don't necessarily represent reality. And we wanted to have a couple of guests on to talk about that. And I think Tim did an outstanding job going through those things.
And I agree with you on the branding thing. That was just very, very cool. Particularly because, in my mind, and I agree with you, Kurt, about us doing a better job. It's taken us a while to get there…
Kurt Dupuis:
Right
Steve Seid:
…but the industry as a whole, are we really good at it? It seems like, if I'm a financial professional and I'm looking at asset management firms, a lot of them look alike. They got some great people, they all have decent product. What's really the major differences here? There's some that have done branding pretty well.
Kurt Dupuis:
We could say the same thing about the whole wealth management space, right?
Steve Seid:
Totally.
Kurt Dupuis:
We've talked about this, what, fat margins breed kind of complacency and lack of brand awareness. We know this.
Steve Seid:
100%.
Kurt Dupuis:
So we get caught up in it. But these things are only true until they're not. And that's kind of what we're talking about. I think a lot of what we talk about on here sometimes is maybe future proofing, maybe it's some things that you're not thinking about today. But if you're in this business another decade or two, these are the things that you're going to be thinking about. And these guys that are at these gigantic data gathering companies, they have better access than any. So between the macro folks like Broadridge, and then you have the micro folks like Penny or Lenz who are getting their hands dirty with financial professionals every day, those are the kind of stories we're trying to bring just to help people understand how people that are in the nitty gritty are thinking about this.
Steve Seid:
Absolutely. So we'll get to Tim's interview in a second, and let's jump into what we wanted to do on team structure. And we're going to call this Five Points on Team Structure. And this is a topic that I've talked about, as Kurt alluded to, on a couple of national calls. It seems to be getting some good feedback. But truthfully, this came out organically from the fact that, in our consulting work, we're getting all kinds of questions on team structure with teams coming together, et cetera.
So we want to share five points on team structure for you all. And so why is this important? Just quickly, industry is moving towards teaming. We know that. Teams are coming together, A lot of FAs are retiring. Even though the older generation or the senior folks in our industry aren't retiring at the rate that some have expected.
Kurt Dupuis:
Yes.
Steve Seid:
There's still a lot that are retiring or semi-retiring, and how does that look? And so people are thinking about roles and responsibilities differently. And lastly, we know that industry has a capacity problem from a number of households managed per book, et cetera. This is not a new challenge. So these are the things that are driving team structure coming up.
And then secondarily, beyond those natural forces, the world has gotten a lot more complex. If you're sitting there at a firm, they're investing a ton in resources for you all in technology. So what you have to follow and try to take advantage of if you're sitting in the seat of these firms has gotten more complex. And how do we change and adapt a team that maximizes those resources? So with that said, Kurt, you want to jump in? Let's just do five points on team structure. You good on that?
Kurt Dupuis:
Let's jump.
Steve Seid:
All right. So number one, there's an exercise that we do, and point one is we're going to do a kind of recommendation with you, with roles and responsibility mapping. We have this worksheet that you can go to that kind of just breaks down the team and simply goes through roles and responsibilities. And that's good for a couple of reasons. The first is that oftentimes roles aren't as defined as we think they are. We think that our assistant and sales assistant is responsible for X, but do they know that? Do they know what part of the role they do? So just sitting down and going through that exercise and having that dialogue I think is really good.
But the second part of it is it's an opportunity to look at your time as the financial professional and figure out how to maximize your impact and efficiency in the practice. So if we had, Penny Phillips was just on recently, I'll use her as an example. She said, "Listen, what I suggest to financial professionals is anything that's non-differentiable, anything that you spending time on that's not differential, automate it. Give it and let the rest of the team do it. And spend at least 80% of your time on business development in front of clients, things that you're able to bring a differentiated thing, something that you are uniquely qualified to focus your attention on." And so that's what we mean by roles and responsibility mapping.
Kurt Dupuis:
Yeah. And we use an analogy to describe this, which we didn't come up with, but I think it's very helpful. And when you think of your experience at the dentist, and mine has been a very good one, outside for that year plus of COVID of not going to the dentist, you're greeted by someone at the door. They ask you if you can get a coffee or water, although I don't know why you would drink coffee right before going to the dentist. The technician spends most of their time with you just cleaning, going through, and then the dentist comes at the very end, make sure everything's up to snuff, make sure they're covering their malpractice insurance by looking around, poking around, and then they're out. What I don't want to say with that analogy is, oh, well, financial advisers should spend five minutes with their clients and let everybody else do everything else.
No, the time best spent, it's that 80% rule. It's 80% of your time should be with clients and prospects. If it's not, your skills are likely better spent doing that. And the bigger a team gets, we should be thinking in multiplication, not addition. If you take a 40 hour CA3 or sales assistant and a 40 hour a week financial professional, that shouldn't equal 80. That it should equal 100 or 120. Because you can simply get more done, provide higher level of service with more folks. That's scale. That's the definition of scale. I mean, there's a couple of easy barometers there. 80% of your time with clients and prospects, or anything that's $20 an hour work, that should be outsourced to someone else or automated. That's just becoming more and more crucial as financial professionals are stretched so many different ways and asked to provide a lot more services than they historically have been. That's going to become more and more paramount.
Steve Seid:
Yeah, dig in. The dentist comes in when it's time to do the drilling work. And not to beat this analogy to death, but the advanced planning topics, the things that pop up. That goes right to you. Again, we're not saying spend less of your time, but the run of the mill stuff, the blocking and tackling, the more you can outsource, the better.
Kurt Dupuis:
Yeah. Well, and the second big point, and several of these are just around the idea of human capital. And again, I'm sympathetic to the person that got in this business 30 years ago not wanting to manage a big team, but this is the reality that we live in.
Steve Seid:
That's where we are.
Kurt Dupuis:
It's creating a career path that is going to be critical for employee retention. So who you were looking for a decade ago is probably not the person you're looking for now. So we use the example of thinking about sales assistant or CAs, but folks that want some sort of path. And I always think about this, the German education system has two paths. So you either figure out in high school whether you're going to college path or the technical route path.
Steve Seid:
Right.
Kurt Dupuis:
And the same is appropriate for support staff. I mean, if you want the same role for 10, 20, 30 years, great, that's awesome. But fewer and fewer people want that. So creating some sort of path for people to get licensed to develop skills, spend more time in client facing roles if they want it. And there's also once the path is built, there's all these drop-offs, right? Maybe someone doesn't want to be a full fledged financial professional, but they do want to get licensed. Having that on ramp available for people. Well, I'll just say this, the people that are struggling with retention and finding talent are the people that don't have these things worked out. So if you like hiring people regularly, then don't heed the advice. But the people that we see most engaged and most happy in the roles that they're in, kind of have this stuff figured out.
Steve Seid:
Yeah. And let's go through an example of the sales assistants if we can. I mean, again, stealing from one of our recent guests, Penny was talking about three paths for sales assistants. One being relationship management in-house FA. So you don't necessarily have to be going out and pounding the pavement, but we need relationship managers. We do. In some of these big teams, they're called in-house FAs. Second could be COO. Is that person, we've all come across them, that have this chief operating officer mentality and do so much for the team. Does that become a track?
And lastly, while Penny described it as being a little bit more rare, going into production. But the point that Kurt made is right, which is that we want to hire people, we want to keep them in place by giving them career trajectory. The days of just saying, this is your role, we'll give you a little bit of bump in pay over the next 15 years, those days are mostly done. Can you find that, or there's some diamonds in the rough that'll fit that role, yes, but I think it's more the exception.
Kurt Dupuis:
Yeah. And business development is it's just that some people have it, some people don't.
Steve Seid:
Right.
Kurt Dupuis:
And you know pretty early on whether they have the... But then I think you also need to make the case that if you want somebody to bring in business, you got to give them a really long time horizon too. Measurable KPIs. I think you can back into this pretty easily, but you can't make gatherers hunters and vice versa. You can't make hunters gatherers.
Steve Seid:
Yeah. And the one other thing I'd say about this is how are most teams growing? Not most, but a lot is, by client experience referrals. And they sure can do that by raising the game of the client experience while they're relationship managers, which will likely result in more growth than just starting to dial a call list.
Kurt Dupuis:
Right. All of that leads to scale. So the next point is hiring. And we like to think of this as hiring the best player available. So another analogy we like to talk about is the bus. Are you hiring for a seat on the bus? Are you hiring to get a certain type of person on the bus? And more and more, I think we're seeing the latter. When you find quality individuals that can be plugged into various roles over time within an organization, those people are more sought out after than the person that is going to be in a single role for an extended period of time. So those are the type of people that you should be looking for and hiring.
Steve Seid:
Yeah. The caveat there is, if you have some flexibility though. If you have no flexibility with what we just talked about with career pathing or helping people think through different ways that they can move in the organization, then hire the person who's the best fit in the job. But if you have any kind of flexibility or ability to think about jobs creatively, best player available. I always go back to, what is it, the football analogy in the NFL draft. You can fire it, you need a running back, you take the running back in the first round, or you could just take the best player available, which has usually historically proven to be correct. But again, I think it's important to have that flexibility.
And just one other point we'd make while we're on our thought number three on hiring, I'm bringing her up a lot in this conversation, so Penny, I'll have to give you royalties or something, but she said something else that really hit home with me. We asked her about hiring. And people have such trouble hiring things like sales assistants. And you remember what you said, Kurt? She was like, "I don't ever worry about hiring. Because every person that I meet, I'm building a bench of people that I potentially would hire." So you meet somebody really good, and this is not CSAs by the way, this is any role, every person you meet, is that somebody that potentially could be a call I make when I have an open position down the road, and building that bench? That seems obvious, but I never really thought about it that way. I always thought about it as when you have a role, let's start looking. But she's like, "No, I'm almost like always thinking about people I'm going to hire."
Kurt Dupuis:
With this, it reminds me of two things. One is if you remember back to Kolbe Modes, this is an initiating quick start type of mentality. The ability to act in the face of risk or uncertainty. And so it's like, I don't have this role today, but man, meeting people. And the second thing it reminds me of is just how entrepreneurial minded this is.
Steve Seid:
Yeah.
Kurt Dupuis:
And I think that's a big switch that we're talking about. That's a big ask that a lot of firms are having of financial professionals today is just to think more entrepreneurially. And that's one of those reasons. It was funny how we had that conversation and I, just in interacting with folks from kids' schools and everything recently, I found there's three people that I've met in the last month that I'd be like, if I needed a CA…
Steve Seid:
Right!?
Kurt Dupuis:
…I would absolutely hire this person. I have no idea what their background is, but they fit the spirit of what this embodies.
Steve Seid:
Stay in touch, touch base, drip, whatever that drip looks like. If it's an email, hey, just staying in touch. You got a bench. You got people that you're staying in touch with. So I think that's-
Kurt Dupuis:
We also should just call this networking. It's pretty basic human skills.
Steve Seid:
I guess I needed to turn that on in my brain because that I never really thought about it that way. And that was really a good point. Okay. So let's get into point number four, which is multiple sales assistants on a team. So a couple of suggestions here. You can have generalists. So you basically have a pool of sales assistants. And as work comes, you can kind of assign. That is less optimal, we have found, than actually dividing things up and creating specialties. So for example, to actually assign the sales assistant to a group of accounts, so you're dealing with accounts one through 75, sales assistant B is focused on 76 through 150, whatever it is, that we found to be better, more optimal, better experience to clients than the generalist approach like everyone fills in regardless of it. Now there's backups, there's obvious things, but it's talking about primary responsibility.
Kurt Dupuis:
So you have this scenario, because I just ran across one of these, three different financial professionals merging to go independent. And they have three different CAs. You could just take the big basket and distribute by last names of clients.
Steve Seid:
Oh, you could. Yeah. It depends on-
Kurt Dupuis:
So this is if the Dupuis family-
Steve Seid:
... how much fall in that-
Kurt Dupuis:
... calls in, you've got the first half of, and if the Seids call in, you've got the second half, if you're divide by two or three, whatever. But back to scale, if it's easier for people, especially if they're that quasi-relationship management role, to know who's on the other end of the phone, immediately establish rapport. You kind of have a background of what the problem is, these micro moments that we're solving for, that's scale. And yeah, I've seen the same thing, and it makes a lot more sense to divvy up by relationship rather than by which practice they used to work in.
Steve Seid:
Yeah. And one final point on this is giving a specialty beyond just the client….
Kurt Dupuis:
Yeah.
Steve Seid:
which is that a specialty around, hey, this is the sales assistant that covers insurance cases. This is the sales assistant that focuses on 401(k) or special planting topics. The point is specialization, focus, dedication. I think we've sort of made our point there.
So the last point I want to make actually comes from a question that I got on a recent call that had to do with teams coming together. And so the question is what should you consider when evaluating whether to merge two practices or more than two practices into a larger team? And I'll just kind of make two points on this. The first is scalability. Obviously we've used that a couple times in this episode. Is the sum going to be greater than the individual parts? Does one and one make three? Kurt just talked about that before. So if you have a team that comes together, it's pretty easy to come together, and just have a higher growth grid. And each financial professional or team operates in their own capacity. They talk some. They might share some team-
Kurt Dupuis:
Which is fine-
Steve Seid:
... infrastructure resources. It is fine.
Kurt Dupuis:
... by the way too. If that's the game you're playing, awesome. I'm all about people maximizing their own economic benefit. That's just not what we're talking about.
Steve Seid:
Yeah. It's like what's optimal.
Kurt Dupuis:
We're just talking about more optimal. Yes. From a-
Steve Seid:
Yeah. Exactly right.
Kurt Dupuis:
... structure approach, from a personnel approach.
Steve Seid:
Yeah. So what does that look like? Again, we talked about breaking up of client accounts, but also how do you work together? Does both financial professionals focus on the same things? Are they both picking investments? Are they both involved in investment process versus breaking that up? I mean there's all kinds of different synergies that you can do when you merge teams together. And I think that's what I'd be thinking about. That's where you could really unlock some real value. So point made.
And then the second one is more, I don't want to say esoteric, but do you have the same vision for where this is headed? I don't know, Kurt, if you've run into this, but I have. Let's just keep it simple. You've got two financial professionals. One wants to grow like crazy and wants to keep the practice moving, and the other one doesn't really. The other one has more of a lifestyle practice, comfortable where they are, et cetera. I mean, that could work, but I've seen things like that cause a lot of friction when teams come together.
Kurt Dupuis:
It's so rare that you just know when you find something that actually works, which is, let's call it both parties or all parties, on board with the same vision, but are also okay with everyone's contribution to that vision. But that's what we're searching for. It's almost like a purple unicorn though. It's very difficult to find. Because 50% of marriages end in divorce, and I bet that number's way higher with partnerships, and JPNs4 with financial professionals.
Steve Seid:
I think it requires just being really honest. I think sometimes people are, I don't want to say deluding themselves, but do you come across people that are just like, "Oh, I want to grow this business. I do. We're focused on growth." And then you get one question down, it's like are you really? Do you have any kind of strategy around this thought process, around this whatever. Of course, everyone wants to grow. I shouldn't say of course because there's plenty of people that don't need to grow. But being honest about that. And that requires some in-depth conversations, some real heart to heart and honesty. And so just spend a lot of time there. Talk about the vision for this thing when it comes together, and who's doing what and how this thing looks.
And so that was our five points on team structure. We could do a lot more, but we wanted to keep it to five. If you have any follow up questions on things you're thinking through with your team structure, send it to us at thewholetruth@touchstonefunds.com. To me, if I had to sum it up, there's really kind of two issues that we tend to really focus on with things about team structure. It's really a mismatch between capacity and goals. So we spend a lot of time in these five points talking about how do we create capacity, how do we create scale? And then the second one is duplication of efforts and lack of operational efficiency. So again, similar type thing. So when we're building out our content around team structure, these are the things that we're trying to address.
So with that, let's get to the second part of our episode, segment two, with our episode of Tim Kresl with Broadridge. This is The Whole Truth. Stick with us.
All right, well please welcome Tim Kresl from Broadridge. Tim, thank you so much for spending a little bit of time with us. We appreciate it.
Tim Kresl:
Steve, thanks for having me. I really appreciate the time. I'm looking forward to our conversation.
Steve Seid:
Absolutely. So let's maybe start with an overview of Broadridge, who you guys are, what you focus on.
Tim Kresl:
Perfect. Well, as you probably know, Broadridge is a fairly large organization. Broadridge is one of the global leading FinTech firms in the space, providing technology, communications, data, and intelligence across the marketplace. Now, I specifically work within the data and analytics group within Broadridge that really serves our asset management clients more so than anybody else. And within the business that I focus on, we really focus on enabling asset managers to make more data-driven decisions through a variety of different means. Whether that's the unique proprietary data that we have here at Broadridge, whether it is the deep levels of experience that we have across the organization, or whether it's through analytics work that we can do with that combination of unique skill and data.
Steve Seid:
Good deal. That sounds good. And you talk about data and analytics, what's the source of your particular data?
Tim Kresl:
So we get data from a variety of different sources. Here in the US, we get data through our unique position within the industry as a leading provider of investor communications. That gives us access to a wealth of fairly unique and proprietary information that we can use in our data and analytics packages. On top of that, we do get data through consortiums as well to supplement the information that we have, and that really helps both for markets that we don't have that investor communications information, whether institutional markets, retirement markets here in the US, certainly global marketplaces as well. And then we're constantly surveying the marketplace to try to keep our finger on the pulse of what's going on at the professional buyer level, at the adviser level, as well as at the end investor level. As well all to be able to enrich all of that really detailed quantitative information that we have.
Steve Seid:
Got it. So you mentioned asset managers. Are those your primary clients? And who else do you guys serve that that's worth mentioning?
Tim Kresl:
Yeah. So I'm, within my group, almost exclusively serving our asset management clients. We as a broader organization serve all kinds of different firms, but I get the pleasure of working with asset managers.
Steve Seid:
How about that? Aren't we wonderful?
Tim Kresl:
You really are the best. It's great. I love my job.
Kurt Dupuis:
Lucky you. And so what's some of the things that differentiate you guys from other research based organizations?
Tim Kresl:
Yeah. So probably just to quickly touch on some of the things that I'd already mentioned, the first being our wealth of proprietary data. We're in a fairly privileged position within the industry that gives us access to a lot of information that others don't have. And it gives us some really unique insights into what's going on in the marketplace. We like to think that we've surrounded that data with a lot of the top industry talent and industry practitioners on these fronts that allow us to really unlock the potential of that data, and more importantly, allow our clients to get the most out of it.
Because one of the challenges that we always see in the industry, and I'm not sure if you guys have experienced at all, is having data is one thing. We can have all the best data in the world. That the real challenge is, well, how do we unlock that data and actually be happy with the value we are getting out of it and the decisions we're able to make? And that requires a lot of additional thinking, infrastructure, what have you around it. And that's what we're trying to build here.
Kurt Dupuis:
Interesting. And kind of the elephant in the room with our conversations every day, whether we're talking to home office folks, managers in the field, or financial professionals, growth. Every FA is trying to grow their practice. But I'd be curious, what does the data say about the asset management world and what does growth look like there?
Tim Kresl:
Yeah. We've seen really unprecedented growth within the asset management space over the past decade or so. Right, I mean, I look at global assets under management over the past 10 years or so, from about 2011 to 2021, we've experienced compound annualized growth rates averaging out at about 11% a year.
Steve Seid:
Wow.
Tim Kres;:
That's pretty unbelievable. We've managed to grow from about $36 trillion to about $97 trillion in assets under management in just that 10 year time period. Through both significant capital appreciation, as well as organic growth in that time period across a myriad of different markets. Now we've pulled back a little bit over the past year, but it's been a pretty good decade for asset management from a growth perspective.
Steve Seid:
So you talk about the growth from an overall perspective, but there really are some winners, some losers, some folks in between. When I heard you guys give a presentation, there was a couple of groups that you pulled out of that data that I would love for you to comment on. The first is the expanding incumbents. I think we know who they are, but I'd love to hear your comments there. And then the innovative challengers, which I'm kind of pointing at ourselves, you can't see this, it's a podcast, but I think that's us. Go ahead.
Tim Kresl:
Yeah. That's the challenge with industry numbers, just like averages…
Steve Seid:
Yeah.
Tim Kresl:
…they hide a lot of interesting stories within them. And so when we look at the data, to your point, we like to start to group firms into different categories depending on the characteristics that they have. It's kind of segmenting the market, if you will. And so the firms that you oftentimes hear a lot about are these expanding incumbents. So it's really the largest players in the industry who have continued to take on more market share as time has gone on. This is kind of the rich get richer, if you will. This group of about 22 firms makes up roughly half of industry assets globally. They've experienced significant growth off the back of their fairly extensive platforms.
The second group that you'd mentioned is this innovative challengers group. This is a group that doesn't necessarily crack that top echelon of expanding incumbents, but have seen outsized industry growth rates over the past few years. Right, and so this group of what we would say is probably about 50 to 55 firms have experienced compound annualized growth over the past five years, about 17% year over year. Right, so that obviously outpaces the 11% that I had mentioned before over the last 10 year time period. And that's not surprising because that's how we define that group, right?
Steve Seid:
Right.
Tim Kresl:
They know what they're about and they do that very, very well. And we've certainly seen some change in that group over the past few years, but we find this to be a really interesting group to look to when we start looking at the long tail of the industry, which is all other managers that are certainly still seeing growth, because we've seen significant capital appreciation over the past five to 10 years, but aren't experiencing the same level of organic growth as some of these other firms.
Steve Seid:
We're going to get into that branding and that differentiation in a minute because that's really important. But you're a guy, you seem like you know the numbers well. You're an analytical guy. Why did Boston lose in the first round? Why did the Bruins... We were talking to Tim prior to this. We're all hockey fans here. As if I have anything to say. My Devils just got-
Kurt Dupuis:
Yeah, I was going to say.
Steve Seid:
... roasted by Carolina. Hey listen. But the Boston Bruins were a historical team in the regular season. What happened, Tim? What happened?
Tim Kresl:
I mean, I don't think there's any amount of analytics that will help me answer that question, especially not that's accessible to me as the average Bruins fan. I think the only thing that I can say is regular season success doesn't always translate to playoff success, unfortunately.
Kurt Dupuis:
It rarely does, I believe.
Tim Kresl:
We've seen that time and time again.
Steve Seid:
Yes. Sorry, I had to sneak that question in there. So back to the task at hand, one of the things that you guys talk about is personalization. And you hear that across a lot of different industries, but you actually label it disruptive to our industry. What do you mean by that?
Tim Kresl:
Investors are demanding a more personalized experience from the wealth managers that they're working with because frankly they get it in every other aspect of their lives.
Steve Seid:
Yeah. That’s right.
Tim Kresl:
Why wouldn't they expect that on the advice side? Advisers, for the same reason, their clients are demanding it. They're demanding it from the firms that they work with. Whether the wealth managers that they're employed by, whether the platforms they use, or whether the asset managers that they work with as well. And then it's a matter of implementation. Is it managed accounts? Is it direct indexing? Is it some combination of active ETFs or passive building blocks? And so I think that's really where the conversation generally centers around and where we see it being most disruptive is on the product wrapper side and on the product IP5 side as well. And that's going to take a lot of collaboration between the asset management and the wealth management community, and the advisers who are ultimately delivering those solutions to investors.
Steve Seid:
Got it. Got it. Have you heard us talk about the way we describe ourselves as being different on the practice consulting side. I don't know how deep we've shared about our value proposition. But I guess the question that I have for you is a lot of discussion about product. What we try to do, as Touchstone, is really be, and a lot of firms say this, but we try to live it, real business consultants. So being able to sit across from a financial professional, and very succinctly help them increase the value of their business and we can achieve that in a variety of different ways. Does that strike you as something that you're talking about, or is it different than that?
Tim Kresl:
I'm going to give the cop out answer here, which is I think it's both.
Steve Seid:
Yeah.
Tim Kresl:
We just mentioned how crowded the marketplace is right now. There's a lot of managers who are fairly consultative in their selling process who have a deep bag of product as well, or unique or specialized products. And so I think it's a matter of how do we both be consultative and have unique investment IP that we can deliver in the ways that our clients want that investment IP delivered. Those are going to be the firms that we're going to see really differentiate themselves. Not to say there's not a role for consultative selling, that's the future of the industry, but I do think it's oftentimes more challenging than just that in a lot of instances.
Steve Seid:
Than just that. Okay. So you mentioned a couple things that asset managers need to do to win. There's four things specifically. Product innovation, which we touched on a little bit, but maybe we can talk about that more, more flexible delivery, stronger distribution, and then the thing we mentioned before, which is better branding. Maybe let's take that one at a time and comment on each of those. What do you mean by more flexible delivery? I just want that specifically.
Tim Kresl:
Yeah. So it's oftentimes you see the conversation about delivery and investment IP being conflated to some degree. Where people think, okay, I need to have active ETFs, or I need to have a wrapper agnostic distribution approach, where we deliver through everything. And what we actually see as being best practice in this area is thinking about them as separate conversations. Where we start with the investment IP conversation, it's about how are we uniquely suited to be able to provide this specific piece of investment IP to the marketplace. From there, determining who is the right target market for that investment IP. It's likely not for everybody. So an acknowledgement of that fact and determining who it's for from an investor and adviser perspective.
And only then having the delivery conversation around, given who our target market is, given what our investment IP is, what's the right wrapper to put this in? Is it an ETF, is it a managed account? Is it a traditional open-end fund, which we certainly see waning, but we see pockets of continued success there. And so that's kind of what we think about when we think about flexible delivery vehicles. The other part of it is how do we think about delivering in a customized way to different managers or different platforms depending on what their needs are. So kind of unique distribution arrangements with wealth managers or kind of privileged distribution arrangements in certain cases.
Steve Seid:
Got it. I'm interested in the latter too a lot actually. So stronger distribution and better branding, what does it mean by stronger distribution? Is this that we're having more distribution people in the field, that those that we have are "stronger," what are you getting at with the strong distribution comment?
Tim Kresl:
Yeah. That's a great question. I think that what that looks like probably varies a little bit firm to firm, but I do think that it's about not only having the right people to be able to serve the needs of clients, right so making sure that you have the skills to be able to distribute and create relationships in the ways that advisers want, but also having them structured in the most appropriate way, such that you can deliver on that service model and can deliver effectively and efficiently.
Because I think one thing that isn't going away anytime soon is the relationship driven aspect of our business.
Steve Seid:
Yeah.
Tim Kresl:
Right? Advisers tell us that the number one resource they get from asset managers they work with is field wholesalers. That's been true for a long, long time. It was still true as of five months ago when we did this research. I'm sure it's still going to be true five years ago when we asked these same questions as well. And so it's a matter of how do I keep that personal relationship driven aspect, but how do I supercharge it using all these things that we have at our disposal now.
Steve Seid:
You know what, Tim, we agree with you on that. Wholesalers are good.
Kurt Dupuis:
Always good to hear it.
Steve Seid:
Wholesalers are good.
Tim Kresl:
Don't think that's changing.
Steve Seid:
You know what's been interesting? In branding, why is this becoming bigger and what type of branding? I don't think you mean slapping your name on a billboard, but I could be wrong. You tell me.
Tim Kresl:
No, you're exactly right. So why is it becoming more important? It's becoming more important because, frankly, the marketplace is extremely crowded as we mentioned before. And so differentiation is more important than it's ever been because of that. Now, ultimately, it's not about advertising. It's not about, well, how do we get name recognition? Although that's certainly part of it for some firms. When we're talking about better branding, it is about identifying what your value proposition is to the target market you're selling through.
And so in this case, it could just be answering the question of why should a financial adviser do business with your firm? And that's something that we ask all the time in the course of our work. I mentioned before that I'm lucky enough to get to work with asset managers every day on a myriad of different distribution related issues, challenges, opportunities. And one of the things that we oftentimes ask firms when we first come in and start doing some discovery work about their organization is we ask a waterfront of people across the organization, well, what is your value proposition? Or put another way, why should a financial adviser do business with you? I can't tell you the number of times that we've gone in and asked that question, we've interviewed 40 people within the same organization, and we've gotten 37 different answers to that individual question.
Steve Seid:
Yeah. Not surprising.
Tim Kresl:
Right, and in many cases, those answers that we do get are the same as we got from the firm down the street and the firm across the country.
Kurt Dupuis:
Real talk.
Tim Kresl:
They're not necessarily unique. And so I think it's about, A, consistency of value proposition, and B, uniqueness of value proposition as well. And I think those are the two things that are more critical than they've ever been. And then it's just a matter of how do we execute on that effectively?
Steve Seid:
I mean, lots of financial professionals out there exactly as you described, and sometimes they have a difficult time describing why you should do business with me. So yeah, it's really interesting.
Tim Kresl:
And I mean that that's another area we've seen significant change, which just for what it's worth is interesting, is when we survey financial advisers, one of the things we've heard pretty consistently over the past few years, but it's been going on longer than that, is financial advisers are shifting their value proposition more towards holistic financial planning. Just doing pure wealth management isn't enough, especially as we see wealth transfer starting and kind of more diverse needs of a more diverse client base, shifting their value proposition to holistic financial planning. But outside of holistic financial planning, who are we focusing on? What are we focusing on within that?
Steve Seid:
Exactly. Exactly
Tim Kresl:
That's a pretty broad value proposition. Overall, to your point, it's a very similar challenge on the asset management side.
Steve Seid:
Yeah. No, that's exactly right. The financial professionals that I'm seeing that are differentiating really well, it's within the realm of financial planning and their ability to specify there and say, well yeah, we do this, but here's what it means, here's specifically my process, and here's what that means to you.
Let's transition to a couple of other topics. I want to talk about Alts6, which seem to be a huge topic in the industry. You hear the firms saying, we want to do more Alts, firms being the broker dealers, et cetera, those providers. You hear our side of the industry saying, we want to do more Alts. What's actually happening there? Is there the growth? What are you seeing in the Alts space?
Tim Kresl:
We're seeing the same thing. So people are saying they want to do more, people are doing more. So we're actually seeing additional assets, quicker raises, what have you, on that side. Just over the past 18 months or so, when I look at survey data, to your point on people are saying they're doing more alts, if I were to go back to Q1 2021, about 50% of the advisers that we surveyed said that they were using alternative investments, right? Fast forward to Q3 of 2022, that number was up to 67% in just a relatively short time period.
Now, I think part of that is driven by the market volatility that we saw, right? Advisers were telling us, I'm trying to get more diversification, I'm trying to get non-correlation with traditional equity markets. And so I think that's driven part of it. And frankly, alternatives is a pretty broad term as well. Most of that use of alternatives is in liquid alternatives. Right, it's real estate-
Steve Seid:
Oh, is it really?
Tim Kresl:
... strategies. Most of it along the broader base of advisers, or among the advisers that are saying they are using them, most are using kind of more liquid real estate strategies. If you look at the money that is going into them, that's where things differ a little bit because you start looking at the illiquid side. Those are much, much higher asset values, much wealthier clients. So it might be a smaller percentage of the overall client base, but it represents a huge and growing market segment at this point as well. And one that's pretty rapidly changing from a product development perspective, from a demand perspective, even just from an implementation perspective as well.
Kurt Dupuis:
Same question, ESG.
Tim Kresl:
On the ESG side, and this is always an interesting topic, is ESG, we have seen continued growth on the ESG side of the business. So what do I mean by that? Well, we see a larger percentage of advisers that are offering ESG strategies to their clients. We see a larger percentage of clients in ESG, and we see a larger percentage of assets in ESG across the board. OK, so all metrics that tell us that this continues to grow and change.
Now, one thing that we have not seen among the adviser community is increasing sentiment around ESG. Advisers are more bearish on ESG now than they were two years ago.
Steve Seid:
Interesting.
Tim Kresl:
Which I think is interesting. Right and that's probably not surprising, especially in the seats that we sit in. Right? We talk to financial professionals. I talk to asset managers, professional buyers. There's a lot of headlines even when you just look at the trades around ESG, not a lot of them have been positive over the past 12 months or so.
Now, when you get outside of that bubble for a minute and you talk to investors, ask the same question to investors about sentiment around ESG versus two years ago, investors have a more positive sentiment around ESG now relative to what they did two years ago. Right and so investors are still saying, "This is critically important to me. I want to invest in my values to some degree." And we ask about, well, what do you actually care about? It's not just about the E in ESG either, right? Social and Governance issues have actually taken increased importance over time as well.
Kurt Dupuis:
Interesting. So the same presentation we've referenced a few times, you used the phrase peak mutual fund has arrived. What in the world does that mean?
Tim Kresl:
So this is probably something that will surprise absolutely nobody, when I say mutual funds are no longer making up the vast majority of new flows that we see in the industry, as we've seen…
Kurt Dupuis:
Gotcha.
Tim Kresl:
…for so many years. And so when I say peak mutual fund has arrived, that's basically just a way to be able to say, when we look at new flows, they're frankly more fractured than we've ever seen before across different product structures. They're going into passive ETFs, they're going into active ETFs, they're going into managed accounts, they're going into alternatives, whether semi-liquid, liquid, or illiquid.
Open-end mutual funds, that's not to say they're hemorrhaging money. Right?
Steve Seid:
Right.
Tim Kresl:
In fact, if I were to look at retail open-end flows just over the past 24 months or so, we're down over a 24 month period, but if I were to go back a year ago, we were actually up significantly into open-end funds.
Steve Seid:
Right.
Tim Kresl:
And so there's certainly still a place for open-end funds in the landscape of the future, but it's in flux and they're no longer winning all of the net new flows that are coming into the industry. The broker dealer channel, probably a little more tepid, right, in terms of the movement away. Same trend, just at a different pace, if you will.
Steve Seid:
Where are we with active ETFs? Certainly we know passive has taken a large share. Active is a direction we're going in. But truthfully, it seems like it's kind of slow to really gain a lot of ground, particularly at the larger wirehouses who have yet to really figure out how this is going to work. But what's your perspective?
Tim Kresl:
I think you nailed it when you said it's slow, right? We do see significant flows going into active ETFs. When you look at just the headline numbers, we see growth there, really sizable growth within active ETFs. But as we mentioned earlier, those headline numbers oftentimes hide a lot of nuance that's really important. And active ETFs is one of those, right? You look at active ETFs, A, it's very top heavy. A handful of providers control much of the market share. B, conversions make up a lot of that growth where there's a handful of big conversions, they can drive big growth over the short term. We've certainly seen that. And then finally, a lot of it is very concentrated in certain asset classes. Especially over the past 12 months, it's been a lot of Ultra Short7 business.
Steve Seid:
Yeah.
Tim Kresl:
So a lot of Ultra Short business going into those active ETFs, which has driven a lot of those growth numbers. When you look at kind of, and you try and strip out the impact if those, there's still growth, but it's been much, much more tepid.
Kurt Dupuis:
I was going to drill down on the value of wholesalers a little bit. So you answered the question, do financial professionals value wholesalers? What I heard was a resounding yes. But how do you drill that down? Are there particular aspects of that engagement that they value more than others?
Tim Kresl:
Yeah, good question. So I would argue there's probably a few different things that come to mind there. First and foremost, and this is probably the most obvious answer I can give, but I'll start here and then hopefully provide something more helpful, it's about access to resources. So it's about access to resources within the territory and within the firm. And so oftentimes when we look at what's the value you're getting from your external partners, it's about, hey, they're bringing new product solutions to me at the firm that I wouldn't be able to find on my own, or it would take more effort. They're bringing educational content and resources, which is consistently mentioned as the number two driver of importance with those asset managers. They're bringing specialist resources, especially on the PM side, so it's about product specialists and PM resources to bear as well. And so I think that's a big piece of it is it's one person that can frankly just curate the experience of all these things with me. That's critical.
The other piece that's oftentimes, I'm going to say, an afterthought, an afterthought in some of the conversations that we have at the very least, is bringing to bear territory knowledge. It's about what else is happening at my peers down the street, what's happening at my competitors, what's happening across the industry. It's bringing to bear all of that intelligence that wholesalers are in such a unique place to be able to deliver because they're having meetings with so many other people that are truly the peers and competitors of those financial professionals. We've seen a shrinking core set of wholesalers that financial professionals are working with. So at this point, the average adviser is telling us they're working with three to four external wholesalers in their core set at this point.
Now, that's causing that shrinkage in the number of meetings. It's getting harder and harder to get those meetings because that core set is shrinking to some degree. But what's interesting is the value they're getting from that shrinking set has actually gone up.
Kurt Dupuis:
Oh. Yeah, yeah.
Tim Kresl:
And the expectations have gone up in that same time period. They're expecting a lot more. They're developing deeper partnerships. They're just doing it with a more limited subset of people, and that fits in with how they're managing their practice.
One of the core trends that underlies everything we've talked about today is advisers and wealth managers are looking to increase the efficiency of their practices. How do I take on more clients? And so I think that's kind of the other piece of that that we had talked about as well. So like you said, resounding yes to are people still getting value out of their asset management partners and external wholesalers? It's just getting harder out there as an external wholesaler to be able to deliver that value and to be able to get your foot in the door. Which is why all these other things are arguably more important than they've ever been in the past.
Kurt Dupuis:
Feel that for sure.
Steve Seid:
Yeah. I mean, you're speaking our language there. I'm particularly proud of us because we have seen the trends about meetings in the industry going down. And really, if I can pat ourselves on the back, ours haven't, our activity hasn't dipped. And it's because of the investments we've made in being really valuable and useful to financial professionals. So maybe we'll do one final question. If you had one recommendation for the two groups of people that we generally talk about, which is asset managers, us, and financial professionals, what one recommendation would you give to each of those?
Tim Kresl:
I mean, I would go back to something we talked about earlier, which is a recommendation for both, which is think really critically about your brand. Sit down and try and answer the question of why should a financial adviser, why should an end investor do business with me and with us specifically? And then think really critically if everybody else in your organization would agree with you or say the same thing, right? And I think that that's arguably the most important thing, purely because a lot of the other things that we've talked about cascade off the back of that. If I can answer those things, that all of a sudden makes product development decisions easier because I can lean into those things. It makes conversations about target market and product wrapper easier because, all of a sudden, I know what my target market is based on who my value proposition is likely to resonate with.
That could carry through in your distribution structure. How do I create a distribution structure? How do I create a segmentation strategy that ultimately focuses around my value proposition, how that's unique and who it's going to resonate with? That's the best way to approach it. Because otherwise you end up with, and this is my specialty, so it's something that I happen to use as an example a lot, you end up with a really homogeneous segmentation strategy across the industry where everybody's calling on the advisers with the most assets. Right?
Steve Seid:
Yeah.
Tim Kresl:
If everybody's calling on the advisers with the most assets, A, your message starts to get watered down because, frankly, you've got 50 other people beating down that same door. But B, your message probably isn't likely to resonate with those people as well as it might resonate with somebody down the hallway from them that might have fewer assets, but frankly, they think about the world, they think about the market in a similar way to the way that you do, and so it's going to drive better conversations, better partnership, and ultimately better outcomes for everybody involved. All of that comes off the back of that value proposition piece.
Steve Seid:
That's an amazing answer. Thank you to our guest, Tim Kresl from Broadridge. We really, really appreciate you spending some time with us.
Tim Kresl:
No, thank you both very much. I really appreciate the time.
Steve Seid:
Awesome. We will be right back with our Costanza Corner. This is The Whole Truth. Stick with us.
And welcome back to our Costanza Corner, where we'd like to leave on a high note. Kurt, let us leave on a high note.
Kurt Dupuis:
You have Netflix, right?
Steve Seid:
I do. Enjoy it very much.
Kurt Dupuis:
It's this new thing you may have heard of it.
Steve Seid:
I've heard of it.
Kurt Dupuis:
Well, there's a guy I have followed for years, Ramit Sethi. He has a new show on Netflix based off his book and blog, and he has a podcast. The book started with the title, I Will Teach You to Be Rich. And on face value, it seems like this message of, I don't know, let's talk about penny stocks or something and get rich quick. It's the opposite. It's more of aligning whatever money you have, yes, building wealth, but aligning money to your purpose or to your values, which is just always, that's very central to the idea of psychology and money, which is always really interesting to me.
And so he's got this show on Netflix that really sparked a lot of those conversations between me and my wife. It's like, hey, well, how are we aligning our spending and what we're teaching our kids with money, and how are we aligning all those things? Long story short, my wife and I went on a quick weekend getaway a few months ago. And we're like, you know what? I think it's time to start really exposing the kids to the world. We came back and we booked a trip to Alaska. So we're taking the whole family and some in-laws to Alaska because travel, seeing the world, it's not a thing that my wife and I did much of growing up, and that's something that we want to give our kids. And so we're booked. So we're taking them all the way up there in September to go watch whales and go run around Denali and all that kind of fun stuff.
Steve Seid:
That's amazing. I'm jealous. I'm going to go to Alaska soon this year. Part of it is we had a couple of these due diligence events that we did, and one in San Francisco in particular. We had a whole bunch of people down from Alaska. And I just found the people up there, now, this is a small sample set, so I've not spoken to half of Alaska, or maybe I have, I don't know how many people are up there actually, but they were the nicest, most wonderful people ever, and I can't wait to get up there and see it. I've heard amazing things about it, the comments about last frontier and going to see bears and moose walking around, which is my kind of vibe.
So I'm really excited for you, and I agree with the premise. It's like we all want to save, we all want to invest. We all want to be smart about our money. But you have to think about, we all work hard, we've all gotten to a point in our career where you deserve to invest in the things and spend on things that you care about and that matter. There's a point with the savings. You've read the articles that are the flip side, just like, don't ever do X, don't ever eat out, or something. It's like, well-
Kurt Dupuis:
Don't spend $3 on a latte. There's like the anti-coffee police out there on social media.
Steve Seid:
I just like, calm down. I mean, relax. You got to enjoy your life a little bit too. And we're not doing it in any kind of degenerative way, so I'm way with you on this.
Kurt Dupuis:
We're outside the spreadsheet for sure.
Steve Seid:
Yeah. We all work hard, so there's a balance. And I love that message. So yeah, that's going to be amazing. When did you say you were doing that?
Kurt Dupuis:
September.
Steve Seid:
September. All right. Well, you have to come back and report back to us. Bring us a Costanza Corner directly from Alaska.
Kurt Dupuis:
I will.
Steve Seid:
That is your requirement.
Kurt Dupuis:
From the last frontier. I'll do it.
Steve Seid:
Thanks everyone for listening. We'll see you next time.
Kurt Dupuis:
See y'all. You can find the whole truth and subscribe for free on Apple Podcast, Spotify, or your favorite podcast app. We'd love it if you took the time to rate and review the show on Apple Podcasts. It helps others find the show. And for more episodes of The Whole Truth, go to www.touchstoneinvestments.com/thewholetruth. That's touchstoneinvestments.com/thewholetruth. All one word.
1ETF is an acronym for Exchange Traded Fund
2ESG is an acronym for Environmental, Social and Corporate Governance
3CA is an acronym for Client Associate
4 JPN is an acronym for Joint Production Numbers - the identifier through which revenues flow
5 IP is an acronym for intellectual property – a set of laws that protect creative and innovative products
6Alts is short for Alternative – it refers to investments that provide exposure to non-traditional asset classes
7Ultra Short means investments in fixed income securities with extremely short time periods in which they become due for payment
Touchstone and Broadridge are unaffiliated.
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