Collins 20/07 – Time of reckoning for BDMs.

Super funds, accountants and the Internet are making life pretty interesting for financial planners at the moment. But while it may be interesting for advisers,Tom Collinsargues it is crunch time for BDMs.

The article in Money Management for which I have received most responses was the one about business development managers (BDMs) in April last year. Also invitations to functions rose as well. As I thought, it was time I once again received heaps of positive responses and more invitations, I am again writing about BDMs.

In the previous article I wrote of the role of the BDM: "… their role is becoming more important, is changing and will be harder". I wrote about the impact of CLERP 6 and how distribution is fragmenting. I also wrote about the impact of the commoditisation of small (a) advice. One year on, it is time to take a look at what is happening now and what will happen in the future.

BDMs are no longer the preserve of the fund manager. They are employed by master trust/wrap providers (or administration services), other service providers and dealers. I have even argued that the FPA should have one or two BDMs.

However, for this article my comments mostly relate to the fund managers' BDMs.

Change is affecting BDMs as much as everyone else. Most managers have accepted that BDMs are now relationship managers or service/support providers and not product floggers, although there is a hardy rump left - especially among the tax-effective product managers. But does the role have to change even more?

Once, and even today, managers could sell their products on brand, features and relationships. Price (MER) and performance (as long as reasonable) were not key drivers. But as products become commodities and as new distribution channels emerge, price and performance will emerge as the key drivers. And when price and performance are similar, how will the managers distinguish themselves to attract and retain funds?

I have just mentioned retaining funds. To date, retails funds have been sticky, so most fund managers' efforts have been directed into attracting new money.

However, with the erosion of entry fees, the increasing use of administration services, and the web facilitating transactions, it is likely that managed funds will be traded more frequently. BT's recent experience, when its ownership was uncertain, should be a salutary lesson for all managers.

Managers may try to distinguish themselves by having a better Web site than anyone else. Will this work? Not likely! Advisers won't want to have to access a whole lot of separate Web sites. So administration service providers and other information aggregators will provide a portal to do this for them, using screen scraping and other technologies. This way the adviser will only need to access one portal to obtain whatever information he or she wants about any fund or any fund manager. Similar portals will be available for the public as well. I understand that some managers have already recognised this and are cutting back on Web development.

The irony of some of these developments is that they are getting ahead of adviser usage. There is plenty of anecdotal evidence to suggest that many advisers are laggards as far as the uptake of the Web is concerned. They may use it for e-mails and unit prices, but few realise how it could transform their businesses. What a lot of people don't realise is that many BDMs are also laggards as far as the Web is concerned. The laggard advisers however, may provide an opportunity for managers.

The manager cannot expect advisers will know how to access their Web site or even use it properly. The Web will be the basis of nearly all interactions with the manager in the future - information, history, transactions, status reports etc. The adviser will only appreciate the value of the manager's site if he/she is properly trained in its usage. The BDM will be pivotal in ensuring this happens. The managers that provide this service well will have a better chance of building and entrenching their relationship with advisers.

However, some mangers may ask, why do this if the information aggregators are going to be the gatekeepers? Well, my answer is that it is more important for this very reason. If the manger's Web site is being accessed through an information aggregator's portal, the manager should ensure that advisers are made aware of its features and be properly trained. If not, it will be too easy for an adviser to access another manager's site through the portal. The face to face with a BDM will be more critical as more and more of the interaction with the manager is mechanised. It may end up being the only regular human contact with the manager. A properly trained BDM will be critical in distinguishing managers from competitors.

Some managers may ask, why let advisers access my site through an information aggregator anyway? Well my answer is that firstly, technology is evolving such that you can't stop it. Second, advisers are looking for convenience. Third, among the information aggregators are the administration service providers. The manger that remains precious will pay the price.

The other challenge facing the BDM is the changing face of distribution. In some ways its is consolidating, but in other ways it is fragmenting. Also, CLERP 6, whenever it is enacted, will hasten the emergence of new distribution channels.

Institutions, who currently own the bulk of distribution, are putting more and more discipline into their networks. One consequence is that advisers in these networks will have less freedom and less influence over product. So those managers and BDMs that rely on a bottom up marketing strategy will have to re-think their approach to these networks. Breakaway networks will be quick to seek support from managers to help them establish their networks, but very few will show loyalty - they will be continually looking for the best deal.

The new distribution channels - accountants and superannuation fund trustees and administrators - pose the greatest challenge to managers and BDMs. As they are new to the financial planning game they do not know the rules, they do not know whom to respect and they do not have any baggage or legacy clients.

They're joining our game with there own set of rules, baggage and expectations.

The accountants will throw up some interesting challenges. In the main, they have been advice providers and not product providers. So some will be easily lured and there will be a reversion by some managers/ BDMs to some of the less savoury marketing practices of the past. However, the majority are to more likely to be attracted to the offerings of the administration service providers and look to them to provide the support and advice that traditional advisers have sought and received from managers. The challenge for the fund manger BDM will be to find ways to have the accountant perceive him/her as someone who can add value - and who is not just the biased purveyor of a commodity.

The superannuation fund trustees and administrators are moving into financial planning in a big way - and may end up being a bigger threat to the traditional adviser than the accountants. But that's another article! Although they will exhibit similar behaviour to accountants, the will also be product providers. Many will extend their current offering to compete with administration service providers.

Already most have a public offer fund, and are adding an allocated pension.

Some are now considering non-super offerings.

This channel will also have a small number of networks (relative to the accountants) and with relative few advisers - as they will exploit technology the best. In contrast, the many accountants will operate from their numerous offices and belong to many networks.

The superannuation fund trustees and administrators will create the biggest challenge to most of the current players in the industry - advisers, administration service providers and fund managers. They will be professionally managed, tightly controlled and have the potential to be the biggest channel in the industry.

This is where we will truly see a convergence of wholesale and retail. The challenges for BDMs will be immense.

In essence, as the advice industry fragments, both in terms of distribution and role segmentation, targeted marketing becomes more critical. And at the vanguard of this marketing effort is the BDM. As stated earlier, with more and more of the interaction on the Web, the BDM will become the only regular human contact that advisers will have with the manager. This is a people business, and always will be.