WEST CONSHOHOCKEN, Pa.-- Money managers are offering more long-term incentives to staff than they did in the past, according to the latest Competitive Challenges survey of U.S. money managers.
"They are being forced to do this to keep people, and often it's a combination of incentives," said Paul Schaeffer, a partner at Investment Counseling Inc., which issues the report annually.
The 1997 data provided by 106 participating investment management firms revealed several trends:
* 27% of the firms offered stock awards to staff in 1997, compared with 16% in 1996. Partnership units also are gaining in popularity, being offered by 14% of firms, compared with 9% in 1996. Deferred cash compensation was offered in 1997 by 25% of the firms, compared with 18% in 1996.
* Client services staff grew to 15% of total firm head count, compared with 10% in 1996, marking its first proportionate increase, according to the report. Marketing and sales grew only about 1%, to 18%; management also grew 1%, to 9% of total headcount. Finance and administration staff shot up to 11% from 7%, generally at the larger firms, due to the need for professional staff to grapple with increasingly complex financial records, Mr. Schaeffer said. Investment managers continue to comprise more than 35% of the head count.
* Although managers are spending more on their Web sites, it's probably not enough, Mr. Schaeffer said. Too many sites are dominated by marketing, get-the-name-out-there types of promotions and lack the interaction of links, bulletin boards and chat rooms, he said.
"This is a source of global distribution. Everyone will be a mouse click away.
"A pension fund in France can now find you. Why don't you put the portfolio manager in front of the institutional clients?" Mr. Schaeffer said.
Median spending on Web sites was $14 million in 1997, compared with $10 million in 1996.
* Managers pushed into more new markets in 1997 than they had in the past. About 16% of the managers surveyed were in a single market in 1997, but 41% were in a single market in 1996.
"Even in the pension fund market, they are seeing a need to build brand identity. You can't just coin success as assets under management any more," Mr. Schaeffer said.
Managers in the study relied more on consultants to gather new assets and less on direct selling in 1997. Overall, 42% of managers used direct sales to gather new assets in 1997, compared with 50% in 1996. About 36% of managers used consultants in 1997, compared with 30% in 1996.
"Firms with dedicated personnel are considerably better at raising new assets than those without," Mr. Schaeffer said. "We are becoming convinced that it is more important to develop intimate relationships with a few large consultants than to have broad coverage. As consultants widen their reach across other segments, these relationships become even more valuable."
Still, some managers continue to have bad luck courting consultants.
"This can lead to the mistaken conclusion that this is an exclusive club with secret initiation rites," he said. "Upon closer examination, the less effective managers usually have no consultant-specific marketing strategy, have disjointed contact with them and lack dedicated professionals in this area."
About 51% of managers had a person dedicated to calling on consultants. Information for 1996 was unavailable.
Median promotional expense per million dollars of new assets was $153 million in 1997.
Firms pushed ahead in many other ways as well. Median revenue was up 12% to $19.5 million in 1997.
Median expenses were up 20% to $12.6 million compared with 1996. Median operating profitability was up 12%, to $5.5 million; profitability was determined based on earnings before interest, depreciation, amortization and taxes.
Profit margins were 29.6% in 1997 for the managers in the IC universe, compared with 29.3% in 1996.
IC added a "new institutional" category to its listing of major market pools, along with traditional institutional. New institutional refers to defined contribution plan assets and variable annuities, which require different distribution and packaging than traditional institutional segments.
For the report, IC collected 1997 financial and management data from 106 investment managers of varying sizes, then brought the group together in September to share the findings. The group compared compensation costs, profitability and client satisfaction issues, among other things. Twenty-eight of the managers had less than $2 billion in total assets, 19 managers had $2 billion to $5 billion, 20 had $5 billion to $15 billion, another 20 had $15 billion to $50 billion, 11 had $50 billion to $75 billion, and seven had more than $75 billion under management.
Forty-four percent of the managers were independent, employee-owned firms, 21% were bank or trust company affiliates, 18% were insurance company affiliates, 12% were holding company affiliates and 5% were broker/investment bank affiliates.
This is IC's eighth year to conduct this survey. The 1996 survey involved many of the same firms, although three fewer managers responded.
