Traditional methods of predicting financial intermediary investment preferences based on distribution channel segmentation provide little insight into underlying behavior and may actually be counter-productive, according to the results of a new study conducted by kasina, a New York-based consulting firm.The study, "The Six Segments: A Comprehensive New Look at Intermediary Behavior" examines the investing behavior and product preferences of financial intermediaries across the full range of distribution channels, including wirehouse and regional brokers, registered investment advisors, independent advisors, accountants, and bank- and insurance agency- based agents.

For the study, kasina worked with @RISK, a Berwyn, Pa.-based firm that develops customer analysis and decision support systems. Multivariate data about intermediary demographics, attitudes, and behavior were used to analyze intermediary behavior and identify the inherent segments, or groups, that naturally exist in the marketplace.

"Historically, asset managers have assumed that the intermediary channel was the key determinant of financial intermediary behavior and product choice," said Steven K. Miyao, CEO at kasina. "What we have discovered with this study is that simply knowing that an intermediary works for a wirehouse or is an independent advisor tells you very little about their client base, their investment product choices, or the assets they control. In order to more effectively interact with intermediaries, firms must first take a step back and understand what determines intermediary behavior," Miyao added.

The survey of 1,033 intermediaries provided a glimpse into the behavior and attitudes of the 500,000 U.S.-based financial intermediaries. The study identified the six segments of financial intermediaries:

  • Advice Seekers: 39.3% of intermediaries, 29.3% of intermediary-advised
  • assets. Looking for help in running their business and receptive to wholesaler support. Have an above-average number of clients with below average assets.
  • Mom and Pops: 18.0% of intermediaries, 11.4% of intermediary-advised assets. Act as a one-stop shop for their few clients. Have limited relationships with asset management companies.
  • Self-Sufficients: 17.1% of intermediaries, 22.6% of intermediary- advised assets. Rely mainly on performance, portfolio management, and fee structure to make investment decisions. Are not interested in wholesaler support.
  • Order-Takers : 13.0% of intermediaries, 13.5% of intermediary-advised assets. Have a very large number of clients (448 on average), but low average assets. Demonstrate no particular brand loyalty, but sell whatever they can.
  • Indiscriminants: 11.1% of intermediaries, 5.7% of intermediary-advised assets. Have the lowest average client size of any of the segments, with a higher percentage of client assets in annuities than other groups. Are unsure of what factors influence their investment decisions.
  • Rainmakers: 1.6% of intermediaries, 17.9% of intermediary-advised assets. The "Big Kahunas," with an average account size more than ten times the industry average, and total assets under management nearly ten times the industry average.These individuals are primarily in urban locations. Clients are, on average, the oldest of those surveyed (58 years old vs. an industry average of 52 years).

The study found that intermediary channels are distributed almost equally among the six Segments: roughly 55% of each segment consists of independent financial advisors, 16% were wirehouse brokers, 11% national and regional broker/dealer representatives, 7% insurance agents, 4% accountants, 3% bank employees, and less than 1% were attorneys. An additional 4% of each segment consists of other intermediaries.
Other findings from the study include:

  • Portfolio management and product performance were the top two factors influencing investment decisions across the six segments.
  • Order-Takers invest with an average of 16 asset managers, compared to only seven for Mom and Pops, nearly 10 for Indiscriminants, Advice Seekers, and Rainmakers, and 13 for Self-Sufficients.
  • American funds was by far the top manager choice across all segments, sold by 67.7% of intermediaries.Other companies, however, have established significant in-roads in certain segments: 92.3% of Self-Sufficients, for example, invest with Franklin Templeton Investments, and more Rainmakers (41.2%) invest with the Vanguard Group than any other asset management company.

Source: kasina

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