Manager evaluators hold the keys to industry-leading distribution channels. Manager evaluation and selection has gone from a niche-product support function at retail investment distribution firms to a primary determinant of success for third-party providers of mutual funds, separately managed accounts (SMAs), and other packaged products.

"This function has emerged over the past decade from a modest effort that was used to support nascent businesses such as SMAs to today's role where it is a defining aspect of a brokerage firm's client value proposition and future profitability," says Howard Present, a partner of the Financial Research Corporation (FRC), Bisys' Boston-based research affiliate.

And, he adds, any investment-management firm that doesn't recognize that distributors view the manager research as integral to acquiring and retaining clients and even top advisors, "and [are] not making changes [with] to respect these teams' needs and impact, is making a critical mistake."

Get used to it

Distribution firms are elevating their investment manager research function and leveling the playing field for asset managers looking to penetrate their fund platforms and advisor network. To work with these gatekeepers, asset managers have to have the right information on hand and appropriate support structures in place -- and they have to be ready to respond, promptly and thoroughly, when a manager-research team poses a question or makes a request.

As one research-team member told the FRC: "A lack of responsiveness can actually impair a manager's ability to get on -- or stay on -- our platform. If we can't get to the information we need to make decisions, it can kill their opportunity with us."

This core insight came to the FRC through its examination of sell-side manager-selection processes. The FRC engaged a team of due-diligence professionals to access premier manager-research gatekeepers. Their findings from 10 of the industry's largest distribution firms became an FRC report called The New Gatekeepers: Navigating the Investment Manager Research Process at Distributors.

The study reviews these firms' approaches to manager selection, provides overviews on their qualitative and quantitative criteria, and looks at how successful investment manufacturers position and support their products through the entire evaluation process.

The report also suggests that distribution-side research teams are growing. Right now the biggest ones have on average 18.5 dedicated staffers -- 29 on average at the wirehouses.

The FRC report also highlights the growing importance of models-based products. Nine out of the 10 distribution firms scrutinized produce mutual-fund and or SMA models, and these firms indicating that these models are capturing the majority of flows. Among the investment mandates most sought by manager-research teams are income-producing strategies and flexible or blended mandates for multiple discipline accounts -- which provide different security styles of the same asset class in a single registered account.

The New Gatekeepers costs $12,500. -FWR

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