Financial advisors’ willingness to support competing product manufacturers — the effect of quality on loyalty

Quality is one of the principal drivers of Canadian financial advisors being willing to put (and keep) a product supplier on their product shelf.  In fact, overall perceptions of quality are a very strong driver of what we call the advisor’s Willingness to Support (W2S) a supplier.

We’ve learned, from extensive research, that perceptions of overall quality are generally taken to include the combination of:

  1. The quality of the supplier’s performance;
  2. The quality of their marketing efforts;
  3. The quality of the relationships they build; and,
  4. The quality of their ability to execute.

So, “quality” is really a complex construct that captures a number of related dimensions; it is a latent variable that is best measured by assessing a host of tactical factors that matter to advisors.

Consider, for a moment, the measured strength of the relationship between our latent factor, quality, and willingness to support.  This relationship is pictured in Exhibit 1, below.  It is based on multiple assessments from more than 1,000 financial advisors.  These advisors were asked to rate the fund company suppliers they work with against well-established battery of items.  These are items that Credo has been working with in brand measurement exercises for more than a decade.

Exhibit 1. Credo’s 2X2 Map of measured Overall Perceptions of Quality and measured Willingness to Support

This graphical analysis exhibits the logical shape of a relationship where the positive correlation between the two mapped dimensions is a strong r=0.62.  This is to say, those companies that deliver strong perceived quality are those that reside relatively further to the right in the map.  They garner advisors’ willingness to support them and thus we find them higher in the map.  Those that falter with respect to perceived quality, i.e., those that are further to the left in the map, are less likely to have advisors tell us they are willing to support them; they are lower in the map.  We will note that, if only quality mattered in Credo’s demand/support model, we might expect an even higher correlation and that the companies mapped here would align even more closely along the diagonal in this map.  Truth be told, there’s far more to demand that perceptions of quality alone.  As a result, there remains substantial dispersion among the companies presented in this model’s map.

Quality clearly matters in a model of willingness to support suppliers at the industry level.  And, when a company takes aim at the quality of what it offers — when it commits to improving quality — good things generally happen for that company.  Does a concerted effort to address issues of quality have an effect on a company’s brand and the demand for that company’s offering among clients? Short answer… Yes.

Take the case of AGF

AGF’s executive team might not immediately call it a “re-focusing on quality,” but a number of initiatives have contributed to improvement in perceived quality of AGF over the last four years.  Exhibit 2 shows where the brand was in 2014 along with its migratory path through 2018.

Exhibit 2.  AGF’s brand migration between 2014 and 2018 with respect to W2S and Quality

We’ll note immediately that the company once held, but then lost, a strong leadership position in the industry.  That it lost this position is seen in the company’s weak position in 2014.  At that point the company was far below average with respect to advisors being willing to support the company. The perceived quality of what the company offered was substantially below par, too, in 2014.  However, since that time, AGF has regained strong positioning among a well-targeted, committed group of advisor-clients.  These advisor-clients are certainly not the same group that is targeted by many of AGF’s competitors.  But, by establishing a focus on qualities that resonate with a distinct segment of the advisor market, AGF has re-established itself as a key, niche player in the Canadian investment funds industry.

What has AGF done over time to earn its more desirable position?  Consider a few key items:

  • Bringing in new, strong leadership team members who have committed to seeing the company becoming ever more client-centric has been an important initiative.
  • Committing to working resourcefully with those companies that are willing to offer a reciprocal relationship with AGF has produced partnership-like relations with select dealerships.
  • The development and launch of new instruments that fit with the needs expressed by both advisors and investors has sent the message that AGF will not be left far behind the times.
  • The maintenance of an independent position in the marketplace despite intensifying competition has sent a consistent signal to the company’s supportive advisor-clients.

To be sure, the company has many weaknesses in the minds of many advisors. But its relatively client-centric focus has re-positioned the company in a matter of only a few short years as one of the industry’s leaders again.  To the extent that the company steps forward to address its issues, Credo expects AGF to maintain its current, relatively strong position.

These principles are universal

As much as we have elected to show the relationship between quality and W2S (a.k.a. client loyalty) with fund companies, learning from this research may be applied by almost any entity.  If you focus on tailoring the various qualities of what you offer, you will attract and satisfy a corresponding base of clients.  The fun part of the exercise is figuring out what segment of the marketplace can be a lucrative target for an offering that you’re in a position to satisfy… and then tailoring a set of sustainable client experiences with your available resources.  It’s brand management in action.

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