Hanging on to existing business may prove to be more important to money managers than bringing in new clients. As defined benefit assets dwindle, so do the prospects for institutional dollars — yet money managers still spend more than twice as much on sales as they do on client servicing.
"Firms need to look at the balance and narrow that gap in spending if they want to retain a significant portion of their existing assets," said Rodger Smith, consultant with Greenwich Associates, Greenwich, Conn.
According to a Greenwich survey of 58 asset managers, firms dedicate an average of 8.4% of their operating expenses to sales and another 5.4% to marketing. Client service only registers as 4% of overall expenses.
That could explain why some respondents also reported a significant increase in outflows. On average, money managers said they experienced institutional outflows of 12.9% of assets in 2003, increasing to 18.7% the next year. During the same period, institutional inflows increased from 16.8% to 19.8%.
"Outflows have been impressively large," said Mr. Smith. "And in a period of low growth for stocks and bonds, many firms have been relying on inflows for growth. Their growth could have been even more significant if they had a better client service component to help stem the outflows."