An industry weaned on the traditional sales pitch is being forced to adapt to new products, sophisticated investors, lower fees, and innovation.
Exchange-traded funds, separate accounts, model portfolios, alternative strategies, traditional mutual funds—investors have never had so many choices at their fingertips. While that variety has benefits—competition has led to a gradual decline in retail fees— it also means the investing industry has been forced to react to a rapidly evolving landscape. Nowhere is the change more dramatic than the sales channel—or “distribution” in mutual fund parlance. Asset flows into exchange-traded products, for example, are clear signs investors have become increasingly agnostic about the vehicle they use to fill out holes in their portfolios. Investors are demanding more information on the strategies. Today, mutual fund companies are crafting sophisticated pitches that just a decade ago would have been reserved for institutions.
Jim Jessee and Rich Dion are confronting those industry shifts head on. Jessee is president of mutual fund distribution at MFS. Dion is president of Placemark Investments, which offers a platform for separate accounts, unified management accounts, and other investment vehicles. Morningstar’s John Rekenthaler, vice president of research, and Scott Burns, director of fund analysis, recently sat down with Jessee and Dion to talk about how changes in distribution are having an impact on fund companies, broker-dealers, advisors, and other industry players. Their conversation took place Aug. 20 and has been edited for clarity and length.
Scott Burns: I would like to start off with getting some comments on the current state of fund distribution. How has distribution changed for you two over the years?
Jim Jessee: Twenty years ago, the traditional broker-dealer firms were where you spent the bulk of your distribution efforts. But now because of the various platforms that are available, like a Placemark or the defined contribution marketplace, you see a much broader universe of potential clients. That presents some opportunities, but also some challenges in terms of figuring out where the main center of influence is going to be. It’s certainly a much more complicated landscape.
Rich Dion: I think the distinction now is that distribution really just boils down to whether or not there’s a gatekeeper at the home office that’s making a selection. That changes the dynamic between the product providers and the independent advisor.
John Rekenthaler: So that complication— does that help or hurt?
Jessee: It’s a positive. We’ve got a broader audience to talk to about our capabilities than just the traditional broker-dealer community. The mutual fund vehicle, in particular, has a lot of application, particularly in the retirement space. So, there are more outlets today for a company such as MFS to potentially engage with.
Rekenthaler: Is it a matter of just finding out who the gatekeepers are and pitching them the same way? Or are there sometimes major differences in how they operate and what they want to hear?