View From The Desk: The changing face of ETF distribution

How are ETF issuers adapting to the post-pandemic world?

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This year has been eventful in all sorts of ways and its impact has been profound, none more so than how ETFs are sold. Face to face client meetings have been replaced with zoom, business lunches have been done away with and collecting air miles seem a distant memory.

Some of the changes forced upon the market may prove temporary, yet some may be the start of a more seismic shift in how the distribution landscape develops over the coming years.

Zoom works just fine but will never replace face to face interactions

All sales teams have been forced to shift to a virtual model to service their clients and win news business. By and large, the model has worked just fine. For some clients, the zoom model is more efficient and helps save them time. For sales teams it can be trickier as if you do not already have existing relationships with clients, then developing them virtually is never easy. A lot can still be said for the chit chat moments before the meeting begins as a means of building relationships.

The outcome of this has been that if you are a large-scale established player, then the impact has been limited as you probably already had strong relationships. But for the smaller players or new entrants to the market then this is more of a challenge. Trying to hustle for client’s attention and develop your brand recognition purely within a virtual world is challenging and for those the feeling is, the sooner they can start getting in front of clients again, the better.

Is the role of sales changing?

Yes and no. The days of solely relying on your existing relationships to generate business and presenting yourself as a generalist are surely numbered. Clients do not want to be presented with a menu of products and asked to select what they want. Clients want solutions, they want the salesperson to understand their business and know where their pain points are. This requires a more consultative and education led approach, not a cold calling strategy.

Portfolio analytics as a service is still in its infancy but is going to take off and become a core tool in the salesperson's toolbox. Salespeople will need to be able to interpret this information and help the client determine what products best suits their needs. Firms such as BlackRock and Vanguard are already going down this path. The rest will need to follow.

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A successful salesperson now not only needs to have the ability to develop great relationships, but they also need to be product specialists with a degree of technical knowledge which exceeds their predecessors. Relationship building will always be a key skillset but that in itself will not be enough to capture new clients going forward.

What impact is technology having on how firms sell ETFs

Digital marketing has no doubt increased in importance in recent years and is only going to get more important. One industry participant told me their firm is currently getting 90% of their leads from data generated from how prospects are using their website and other digital market tools.

In fact, I would go as far as to say that digital will be the primary way in which firms reach their clients going forward. The boots on the ground approach of hiring lots of salespeople is not only expensive but is a limiting strategy in a number of ways:

  • It does not serve well new entrants to the market who have limited or no brand recognition

  • The next generation of investors are very comfortable with the median of digital

  • ETF buyers tend to be more self-sufficient and digitally friendly

  • A digital first approach does the heavy lifting for you, building brand recognition, gaining access to the entire market

  • COVID-19 has accelerated the trend to more digital adoption

  • Digital offers scale at a more cost-effective level

New entrants to the market who are embracing a digital first approach is Rize ETF in the UK and ARK, RoboGlobal, Defiance and Roundhill in the US.

Despite my bullishness, the industry is still a long way from taking technology to the next level, a level which requires a closer relationship with the end investor and having access to the client’s data.

The goldilocks moment will be when firms are able to predict and interpret what clients really need based on the data. BlackRock is probably furthest along the road here with the data it collects via its Aladdin platform and the work it does with its BPAS business, but everyone else still seem a way off. The “Amazonisation” of the asset management industry still feels very much a pipe dream right now.

Can technology replace humans in the sales process?

If I asked this question to a thousand salespeople, I am absolutely certain I would get a thousand answers back saying NO! It is human nature for us to think that our job role could never be replaced by a machine and so why should salespeople think any differently.

However, the use of data is going to become more sophisticated, how firms target prospects and clients is going to become more scientific and how firms use salespeople is going to change. To deny any of these occurrences is short-sighted.

Having teams of internal salespeople cold calling clients all day trying to generate leads will no doubt change. Algorithms will be able to far greatly predict where leads can be generated from and systems will be able to generate digital marketing campaigns at the clients all without any human interaction.

Salespeople who have not learned to become more specialised or have not become able to interpret data will find themselves at the edge of where the action is or worse still unemployable.

Brexit, not good news for the smaller players

For many firms Brexit will feel like the gift that keeps on giving. Regardless of the amount of red tape and bureararachy it creates, it is also going to have a major impact on how firms interact with clients.

For some firms, the days of servicing clients via a fly in fly out model from London will be challenging to say the least. Plus, if you do not have a local office or local representation then the likelihood is that you will be prohibited from interacting with clients at all.

The outcome of this again is that the larger firms will be fine as they all have a local presence, but smaller UK based firms who do not, will have to come up with some serious creativity in order to service European based investors. That is neither good for them, nor good for competition within the market.

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The events of 2020 will recede but the impact it has had will be felt long into the future, no more so than how firms interact with clients. Any firm thinking or hoping that life will revert back to the old ways are going to be in for a shock. The asset management space has traditionally been slow to adopt to change but now is the opportunity to address that. Sales are at the tip of that change, and so it is now or never.

View From The Desk is a new series whereMichael O'Riordan, founding partner ofBlackwater Search & Advisory, a specialist ETF and digital asset executive search firm, examines the key trends taking place across the European ETF industry from a people's perspective.

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