Expert to fund dealers: Get back in the race

As an industry, mutual fund dealers got distracted somewhere in the last few years, so it’s time now to get back to basics starting with financial planning.

The advice came from Chuck Grace, management consultant at Fusion Consulting (Canada), who was speaking at the recent Federation of Mutual Fund Dealers Dealer Day conference.

“Advisors are saying that dealers aren’t providing as much value as they could on the financial planning front,” said Grace. Identifying it an absolute area of improvement, he said it’s one of those things where industry participants can make their presence felt.

“There is an opportunity for a dealer to differentiate itself by bringing to the table some tremendous technology and processes to really help investors in the future to thrive and have positive outcomes.”

Grace trotted out some harsh facts for the industry and asked its participants to get used to them. They include a stalled top line growth, a stagnant distribution breadth. The mutual fund dealer industry, he said, should feel particularly nervous when these factors are coupled with the fact that a big swathe of advisors are thinking about retirement.

There is also the issue of intense competition in the industry. “The competitors are big and they are ugly,” said Grace. The big players are competing hard and for the entire pie. “Do not underestimate the banks, they play for keeps,” he said. “There is no room for error; you have to get it all right, right now.”

In an industry where strong product, compensation and compliance are table stakes, dealers are going to have to run hard just to keep up. There is, however, an opportunity to have some leverage by using technology, the front office and the back office to manoeuvre, he added.

The trick is to start with the tough questions. “I’d want to challenge myself, my management team and my allies in answering how we deliver double digit margins given flat revenues and modest productivity,” said Grace. “The answer is simple: If you can’t count on revenues and productivity, you will probably have to look at cost structure.”

Size does matter. Big is good, but not always better. “Any bump to the bottom line comes from product and innovation not just from adding more advisors.”

Look for uncontested market space. Find the room to manoeuvre and differentiate. “Pick your market, focus and execute really well and find an opportunity to do it differently than your big competitors,” said Grace. “They are so big they have got to have blind spots, find those blind spots and choose to compete there.”

It is not having all the right answers, but the courage to ask tough questions that’s needed to thrive in this brave new world. “If you’re not having this dialogue with your management team meetings then you are probably going to find the world a little uncomfortable in the future.”

Grace pinpointed effective technology and precession as two other areas that merit attention. “We are in an industry where precision is of paramount importance; in a low margin, high value business you’ve got to be thinking 99.999% precision,” he said adding that the deployment of effective technology only helps if there is “a plan to show advisors how to make use of and leverage that technology you just gave them.”

On a more contentious note, he urged dealers to think bigger than the MFDA.

“If you are focused exclusively on mutual funds inside the MFDA, then your firm is going to be challenged in the future to grow,” he said. “If you are not looking for a way to add segregated funds and IIROC products to your dealership for your investors and advisors, then you are going to face some big challenges in the future in terms of growth.”

Last but not least, he urged participants to not get around but get past compliance by embedding compliance in the normal business processes. “Don’t treat compliance as a separate cost structure, think of it as embedded inside your processes.”

Business process, he said, should be designed in such a way that compliance interactions don’t even get inside the building. “They must be filtered and precluded upfront; that’s not a compliance issue, it’s a business process issue.”