Data & Research November 21, 2008

Expect Changes in Asset Management Distribution Strategy

Some aset management firms are looking to reduce their distribution teams but expand their territories, according to research from kasina.
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Although kasina only talked to 12 national sales managers from asset management firms, the asset management consultant said one in four expect reductions to their sales team to be more than 20%. Mounting pressure in today’s economic client and a pessimistic outlook for the future have led asset management firms to try to come up with more low-cost distribution strategies that still maintain adviser coverage, according to a release from kasina. Over the next year, 50% of firms are looking to add internal wholesalers and 42% are seeking to expand their hybrid wholesaling teams.

Five firms (42%) have already reduced the size of the external wholesaling teams. In four of the five cases, the reductions have exceeded 15%. The events in the last month seem to have taken a toll: kasina said in its October survey only 16% of firms planned or had already executed cuts.

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Meanwhile, kasina found that 42% of firms expect to increase the size of their sales territories next year. Half of firms plan to either channelize or de-channelize their sales teams in 2009.

“When you combine the revenue hit firms are facing with the significant expense associated with traditional sales models, these actions are inevitable,’ said Lee Kowarski, principal at kasina, in the release. “But with this pain comes opportunity, and we think that the efficiency of hybrid models and an enhanced emphasis on National Accounts can help firms position themselves for long-term success.’

kasina surveyed asset management companies representing more than $1 trillion in assets under management conducted, between November 12 and 18.

In Practice November 20, 2008

Vanguard Says Re-enrollment Could Help

Participants in defined contribution plans might benefit from re-enrolling into a qualified default investment alternative (QDIA), according to a Vanguard study.
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Vanguard said that as a result of the QDIA regulations issued in late 2007, re-enrollment has emerged as a way to improve the diversification of participant portfolios. The report suggests plan sponsors may choose to reenroll some or all participants into a new portfolio strategy—namely, the plan’s designated QDIA—while giving employees the right to opt out of the transfer.

Aside from when converting to a new plan provider or changing the plan investment menu, the plan sponsor may decide to reenroll some or all participants into the QDIA because of concerns that many participant portfolios are not adequately diversified, Vanguard said.

Considerations before proceeding with a re-enrollment strategy offered by the report include:

  • Consider whether re-enrollment should extend to all participants or to a targeted group, for example, those with particular diversification issues or those invested in a fund that is no longer available.
  • Examine the decisions participants have made about asset allocation and fund selection to determine whether re-enrollment is needed.
  • Review investment contract holdings in the plan to identify any potential penalties for, or restrictions on, early liquidation.
  • Evaluate the potential market impact on the company stock, particularly if a large amount of company stock is in the plan.
  • Look at whether plan fees may be affected by re-investing participant accounts into a QDIA.
  • Be aware that some employees may be sensitive about having their investments moved, even though they can opt out of the transfer.


    “Improving Plan Diversification Through Reenrollment in a QDIA” can be accessed here.

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