The investment management distribution landscape is intricate and ever evolving, reflecting the maturity of the industry. Investment managers recognize that there is no one-size-fits-all approach to distribution, leading to the adoption of diverse distribution strategies. In the first two of a series of three articles, we provided an overview of distribution and sales strategy and then covered the current distribution environment regarding intermediaries, competing vehicles, and data analytics in the sales process. In this third, and final, article, we review several additional considerations for fund directors when exercising oversight of the distribution process.

The pursuit of asset growth and profitability is driving many investment managers to pursue inorganic avenues to growth. Mergers and acquisitions offer a path to enhancing scale while also presenting the potential for upgrading technology, product lineup, and distribution coverage. Technology, in all forms, is playing an increasing role in the industry—ranging from front- to middle- to back-office operations—and investment managers are exploring artificial intelligence to improve efficiencies.

Investment product development is a lengthy process for many firms, and M&A can accelerate that process by bringing an experienced investment team, track record, and fund to market. Products such as private credit and crypto assets are two examples of investments many advisers have explored adding to meet investor demand. Finally, M&A is viewed as an approach to transforming distribution, from upgrading talent with specific investment expertise to adding intermediary relationships and experience with new market segments. 

Integrating a merger or acquisition is a complex process, however, and often more challenging than anticipated. Systems and technology can be combined, but it is often the cultural differences and compatibility to a common set of incentives and risk standards that pose the greatest challenge. This is especially pronounced with combined sales teams and other client-facing distribution teams as they represent the brand in the marketplace. Sales leadership needs to apply heightened supervision to ensure consistently applied sales policies and compliance procedures such as investor suitability, anti-money laundering/know your customer (AML/KYC), and compensation, to name a few. 

If transforming sales is an objective of the the merger or acquisition, then thorough due diligence and risk assessment of the combined distribution strategy are paramount. M&A activity results in a significant amount of oversight activity for fund boards, included careful oversight of the distribution strategy. Here are some distribution-related questions.

• What are the perceived distribution strategy risks associated with M&A activities? How is the integration risk being considered in monitoring distribution efforts?
• How is consistency with existing sales policies and standards supervised? Are there any conflicts with incentive and compensation structure with the combined distribution teams?
• Will there be changes to the sales process or the client service model as a result of the merger or acquisition? Are technology or AI changes being introduced to the existing sales strategy?
• How will the fund business be affected during the integration process? Are certain funds and investors vulnerable during integration?
• How are existing distribution agreements impacted?

Sales team input

Navigating the intricate landscape of investment distribution requires a keen understanding of investor segments’ diverse demands, the industry’s embracing of technology in sales processes, and the ongoing innovations in vehicles and wrappers. Crafting an oversight framework requires expertise in governance and a comprehensive view of the industry. A notable trend in the evolving distribution models is the increasing institutionalization of sales. Professional buyers, wielding significant influence, engage in thorough due diligence during the sales process. As a result, the ongoing sales team efforts provide valuable insights crucial for robust governance and oversight by fund boards.

The adviser’s sales teams, alongside portfolio managers, legal, compliance, and operations teams, bring diverse expertise to the table. While each team contributes, it is the client-facing nature of sales teams that offer a frontline perspective on industry trends and the regulatory shifts.

Acting as advocates for clients and investors, sales teams offer unique insights on various topics critical for governance, including the regulatory environment, fee competitiveness, ESG integration, liquidity demands and the overall client experience. Incorporating regular presentations and input from sales teams into board meetings can strengthen fund boards’ oversight. It is all about identifying the risks introduced by the distribution plan: What is being sold, how it is being sold, and to whom it is being sold.

Here are additional inquires for fund board members:

• With the evolving nature of marketing and sales in the industry, is the topic of distribution oversight receiving sufficient and/or regular coverage on the fund board agenda?
• Does the board receive consistent updates and presentations from the sales team? 
• Is comprehensive distribution reporting being provided to the fund board—not only asset flow reporting but analysis that demonstrates how funds are being sold, the investor segments being targeted, and the marketing content utilized? 
• Have the distribution efforts been successful at raising assets, securing the fund complex, and serving investors?
• Considering advisers are likely to implement multiple distribution plans concurrently, is there a central business or distribution head responsible for ensuring the oversight and supervision to compliance and regulatory policies?

While the primary focus of this series was to spotlight governance topics pertinent to fund boards rather than distribution design and management, it is crucial to acknowledge the expansive nature of distribution and the sales landscape. This article, however, delved into several governance considerations, recognizing that distribution involves multiple dimensions and ongoing transformation, emphasizing the necessity for continuous exploration of its complexities. 

John Krieg is an experienced fund director and investment executive with 35 years of experience and professional investor qualifications. He served as an interested trustee on the UBS Asset Management Collective Investment Trust board, overseeing a complex funds across passive, active, money market, multi-asset, and alternative strategies; his oversight and governance experience includes fund launches and closures, the contract renewal process, fair valuation determination, and liquidity events. Krieg’s most recent professional role was as a managing director and head of institutional distribution for North America with UBS Asset Management, where he also served on the UBS Global Client Coverage Management Committee. He holds the CFA and CAIA Charters, the CFA Institute Certificate in ESG Investing, and completed the Certified Investment Fund Director (CIFD) program.