Discussions about evolving wholesaler compensation from approaches solely focused on gross sales to ones that consider net sales or other measures of asset retention are not new. Nearly everyone in the industry understands that firm profitability relies on both gathering and retaining assets. Traditionally, however, many sales managers (and most wholesalers) have questioned whether they can have any impact on redemptions. Over the past decade, a growing number of companies have incorporated new metrics to wholesaler compensation to align compensation with firm profitability, including net sales, redemption rates, and holding period. As of the end of 2017, 53% of asset managers used net sales (or a proxy thereof) in wholesaler compensation (see chart). In many cases, these components only make up 10-20% of overall compensation, but sometimes significantly more. Beyond compensation, many firms have begun to report on redemptions alongside sales on daily sales reports.
Percent of firms using various compensation metrics
Source: DST Research, Analytics, and Consulting, "Productivity Insights" 2017
These steps – both compensation and reporting – have had a greater impact on wholesaler behavior than most firms envisioned, according to discussions at our National Sales Manager Roundtable. Several senior executives shared stories about behavioral changes amongst their sales team after making redemptions more visible. One sales manager recalled reaching out to a wholesaler to congratulate them on a big trade, but finding that the salesperson was more focused on a concerning large redemption from the prior day rather than excited about the large purchase. Another sales manager shared the shift in approach to business planning that took place with his sales team over the past several years after incorporating a net sales component that makes up 10-20% of compensation. He found that his sales team significantly adjusted their “focus advisor” lists, removing many advisors that did significant gross but had short holding periods.
While compensation is absolutely an important part of the picture, the transparency around redemption rates and holding periods is really the critical aspect to get wholesalers to recognize that not all advisors are created equal. In collaboration with a firm’s business intelligence team, sales teams should focus on those advisors who tend to have longer holding periods. Once a sale is made, wholesalers should monitor sales trends – both purchases and redemptions, again with the support of business intelligence – to identify advisors who may be at risk of redeeming. The goal should not be to keep all assets on the books for all time since product performance may lag or market or client situations may change. But a salesperson who focuses on retention can take steps to keep assets longer or to at least retain them within the fund family.
Research, Analytics, and Consulting