Research: Some advisors still consider T. Rowe Price primarily as a direct shop. Why isn’t that the case any more?
Cammack: To give you a perspective on our presence in the marketplace, we have a very large sub-advisory group that has about $40 billion in assets we manage for other companies, and in addition we have a very large presence in the 401(k) business where are funds are available to distributors, banks and broker-dealers who are offering packaged programs using our architecture. Then we have what we’d call our wealth management service group for trusts, RIAs and broker-dealer wrap accounts. So when we began to build out our service capabilities to advisors 10 years ago, we had an idea of how to do it.
I wasn’t initially hired to solicit intermediary business, but was instead managing the high-net-worth group. Prior to that, I was a practicing CFP for 10 years, so I really understood the evolution of the advice delivery element in the industry and philosophically felt that was the right way to go. So I convinced the firm to pursue that marketplace because there was an emerging fiduciary-based component that complemented (and complements) our values and the way we manage money.
And this doesn’t compete with your traditional retail operation?
We’re certainly not going to forsake the direct business! We don’t see any conflicts between the direct business and what we do to support advisors who have customers who are more inclined to delegate more to the advisor. There’s a large advisory marketplace that is evolving; we see it as an emerging institutional marketplace with professional buyers picking funds based on due diligence. We think it’s a better service model for the consumer and will continue to do what we can to support the emergence of that fee-based advisory model. And then you have an old legacy distribution model that we have not entered and do not intend to enter.
We’re no longer necessarily a threat to the advisor or broker-dealer; we’re simply effective at researching how people think about their money. If I could go back to school, it would be to get a Ph.D. in cognitive psychology and behavioral economics. We’re willing to share that to improve the outcomes that our intermediary partners can create for their relationships. In fact, we think our direct customer service capability has gone from having been a liability at one time to a benefit very few firms still have. It’s a competitive advantage, and the information we’ve collected about the marketplace can be redesigned for the advisor.
Who’s selling your funds?
We seem to have two types as the supply chain reorganizes. In the first group, we have relationships with large corporations that have groups within the home office charged with the responsibility of creating managed solutions. And in the second group, we have advisors doing this on their own, and these tend to be high-end producers at broker-dealers or boutique shops; they could be RIAs. The commonality is that all the people we work through are not selecting T. Rowe Price on a one-off basis.
The type of people we have are not only very well-schooled in our products, but are also very well-informed about how to optimize asset allocation solutions. Because of our retail and 401(k) divisions, we’re able to take information about how to understand those customer bases and organize that intellectual capital to share with the distribution side of those organizations. And we’ll do the same thing with advisors, talking about consumer behavior, education, how to integrate Monte Carlo into your services.
In general, they come to us. Our objective is to create high-quality, low-cost products that generate consistent alpha. We don’t really have a sales group beyond key account managers, since you can’t really convince an advisor of anything. We presume they’re all pretty efficient at having fund-screening tools, so the minute they begin a search and identify us, what we’re going to do is give them world-class support.
Where does the industry go from here?
I think advisors are going to have a bigger role given the complexity of the offerings that consumers need to integrate, not only the investment solution but liability solutions as well. A retiree needs to decide how to pay for Medicare D or self-insure for nursing home risk. Where planning’s headed is to look at these questions like a billion-dollar pension fund or other institution does, and we’ll also see it in the advisory world.
To be a value-added partner, the advisor has to move from trading stocks and picking funds to really becoming a strategist for your client. That’s moving along surprisingly fast in the wirehouses now. They’re going to give the RIAs a real run for their money, particularly if they embrace a real fiduciary culture. And then I think that in the RIA world, the era of the boutique planner is probably in its seventh inning. People who are going to survive have to evolve their competencies from “devoted practitioner” to “manager of resources,” and that world will probably consolidate as regional firms create the next generation of institutional entities.
What does a fund company need to survive?
Long-term relationships. Maybe the funds will rotate over time, but as the business shifts to an institutional model, some funds will outsource to others that have scale or internal research groups. Packaged solutions using asset allocation will be bundled with some type of guarantee as part of the retirement offer, which will allow retirees to manage liability. Proprietary asset management will be eliminated.