Mutual fund distributors debate their priorities

Client satisfaction is as important as new revenues in determining the performance of sales staff, a room-full of distributors agreed at a conference held by BNP Paribas Investment Partners.

In all, 120 of the firm’s Asian clients and distributors attended the annual event, which was staged in Osaka as a gesture of support for Japan’s rebuilding efforts following the March 11 earthquake and tsunami.

It was held as an interactive debate, with participants using iPads to provide feedback on panel discussions. As such it provided a snapshot of distributors’ views and market trends. The majority of participants represented retail and private banks, and the remainder insurers, IFAs and brokers. Their clients would be classed as mass affluent, on average.

Asked what the most important aspect was in determining the performance of sales people, 38% replied “client satisfaction”, which tied for top spot with “new revenues”. They were followed by new assets (19%), branch net profit (2%) and manager evaluation (2%).

“It was interesting to see that people who are working with and selecting products take client satisfaction into account more,” said Mark te Riele, BNPP IP’s deputy CEO for Asia-Pacific.

“You hear about this being implemented into remuneration schemes more and more, distributors asking clients about their satisfaction and linking it directly to people’s pay, which is a shift you would not have seen five to 10 years ago in Asia. It is a positive trend, in our view.”

Continuing on a positive note, participants were asked what the most important criteria were for selecting a mutual fund. Unsurprisingly the majority vote was for performance (61%), but a creditable 30% said quality of investment process.

“Performance is usually a snap-shot and it still depends on the end-date,” noted Te Riele. “But you can see the more sophisticated distributors do focus more on quality of the investment process. It’s selecting good quality investing teams which should be the driver.”

In terms of the role exchange-traded funds (ETFs) should play in client portfolios, an overwhelming 69% replied “minor”, although just under one in five (19%) said “major”, while 13% said “none”.

This was quite predictable, given that ETFs are inexpensive and as such provide less revenue to share with distributors.

Acknowledging that BNPP IP does sell ETFs, Te Riele noted that investment theory suggests ETFs should have a major place in portfolios. “A lot of core mutual funds don’t add a lot of value compared with ETFs,” he said, estimating just 40-45% outperform their benchmark.

But the conference consensus, he noted, was that if you have a trader as a client, ETFs should play a major role because they’re easier to buy and sell. “Once you are talking about long-term investors, and I think the general consensus is we want Asian investors to be less trading-oriented, they were saying ETFs should play a smaller role in a portfolio.”

Asked which asset type would attract most inflows in the coming year, the overwhelming response was regular income-generating fixed income (39%), followed by emerging market equities (23%).

While not surprising, Te Riele said the sense he got from the conference was that this was a trend which would remain for a long period.

Of more surprise, perhaps, was that the majority of participants (51%) believed investment-linked insurance products added no value to a risk-averse client portfolio; 29% said they should take up a small percentage, 16% said a balanced part and just 4% went for a majority part.

The surprise comes from the fact that insurance products offer plenty of revenues to distributors.

“Retail and private banks do sell a lot of these products, but they are questioning themselves whether there is added value to that,” said Te Riele. “In a lot of cases, they were saying the wrapper sold to the end-client was not needed and that they were better off investing directly in a mutual fund.”

One question that was not asked was whether distributors thought adding an insurance wrapper made a product more sellable. “I am sure the answer would be positive,” suggested Te Riele. “It is an easier sell for a bank, and an easier buy for an end-client.”

Interestingly, Te Riele also noted that these kinds of regional conferences are rarely held in Europe. “Within the mutual fund industry Asian countries are very different in terms of regulation, and yet there is a greater sense of unity than there is in Europe,” he reflected.