Dinosaurs Roaming the Earth

If you thought you had it bad calls unreturned, prospective clients canceling meetings pity the mutual fund wholesaler. First, many more are out of work than just a few years ago and, on average, they are earning less. Their jobs have also gotten substantially harder. During the roaring bull market, the wholesaler was a guy (or gal) you loved to see. It meant a hearty lunch, a steak dinner, perhaps

If you thought you had it bad — calls unreturned, prospective clients canceling meetings — pity the mutual fund wholesaler. First, many more are out of work than just a few years ago and, on average, they are earning less. Their jobs have also gotten substantially harder. During the roaring bull market, the wholesaler was a guy (or gal) you loved to see. It meant a hearty lunch, a steak dinner, perhaps a round of golf for you and the other top producers in your branch.

Not that it's illegal for wholesalers to entertain — but you can be forgiven for thinking otherwise, what with the memos reminding you about NASD Rule 3060 concerning excessive entertainment. Still, the days of a wholesaler coming in, talking about performance and making light banter are mostly over. In fact, some asset managers are rethinking how the wholesaling process should look, from the ground up. And the word dinosaur is being used in describing the current approach.

“The old wholesaling model is fundamentally broken,” says Jim FitzGerald, managing director of Munder Capital Management's retail marketing group and former wholesaler who still keeps his ear to the rail. “They're dinosaurs roaming the earth. The ice age is upon them but they don't know what to do.” FitzGerald ought to know: He was recruited to overhaul Munder's sales model to master this new landscape.

The $100 Limit

Burdened by new compliance requirements and struggling to build more sophisticated wealth-management practices, advisors have little time for socializing. Even if they had the time, the mutual fund scandals have sharply limited the amount of tchotchkes and entertaining a wholesaler can offer advisors. And broker/dealers are also reminding advisors of the rules — no gifts worth more than $100, no appearance of quid pro quo in accepting entertainment and the like.

With the advent of institutional-strength asset manager research on advisors' desktops, wholesalers have been hard pressed to make themselves useful. “Wholesalers have become a commodity and are less able to influence advisors,” says Mary Anne Doggett, managing partner of Interactive Communications, a sales consulting firm in New York. “They need to earn access.”

Few of the estimated 9,000 men and women who market mutual funds and money managers to registered reps and other financial advisors would dispute that. Just ask Dave Kuzia, a veteran wholesaler for Oppenheimer Funds Distributor out of Denver: “The wholesaler role has changed from being product and entertainment focused to helping clients succeed with their business,” he says.

Wholesalers surveyed all agree: To win the ear of advisors now, wholesalers are scrambling to come up with all sorts of what they call “value-added” strategies to offer advisors, such as providing training on investment strategies and coaching advisors on how to cultivate relationships with wealthy clients. Wholesalers are also being trained to help advisors with time management, referrals, asset allocation and even technology. It's hoped that after all that help, the advisor might look at a wholesaler's fund when the circumstances warrant.

Today's salesmen are trying to help reps build portfolios that adjust the level of risk for a particular client, researching new asset classes like ETFs and SMAs, explaining how their funds react in different market climates, talking to reps about the impact of a changing interest rate environment and helping brainstorm for downside protection solutions for their clients. The new model demands that wholesalers understand the whole economic picture and the key market trends that are emerging, whether it's baby boomer retirement, wealth transfer or what's happening on Capitol Hill with 529 college savings plans.

The Climate Change

Much as dinosaurs were wiped out by a climate change, so too has the job of wholesaler changed to reflect the climate of the branch office. The financial-advice business has undergone a major overhaul in recent years, morphing from a product-driven, transactional model to one that is more relationship-oriented and fee-based.

The Securities Industry Association estimates that roughly 33 percent of financial advisors employ a fee-based business model, up from 20.1 percent in 2000. In a fee-based outfit, advisors tend to narrow their books of business and focus more on how each portfolio is constructed and managed rather than slinging hot funds at their clients. This represents both challenge and opportunity for fund marketers. Supporting a fee-based business means drilling down into the advisors' portfolio strategy and boning up on the type of clients they serve.

So the evolution of the investment wholesaler is very much a work in progress. “Most of them aren't worth their salt,” says one Merrill Lynch advisor with $1.2 billion in assets under management. “But a few provide decent sales ideas and alert you to new managers in their stable.” In other words, when a wholesaler gives a head's up on a new portfolio manager coming on board or let's you know that the firm has gained exposure to a certain investment style through an acquisition, that's when this rep pays attention.

Michael Durant, a financial planner and founding principal of Belmont Financial, an advisory firm in Nova Scotia, says that after years of “unpleasant” experiences he no longer meets with wholesalers. “Just because he took me to lunch, he thought he was building a relationship,” he says, recalling one particular wholesaler.

As the role of the wholesaler changes, compensation is stalling, according to DGL Consultants, a Richford, Vt., recruiting firm. DGL estimates that average wholesaler compensation is “leveling off,” after rising 3.3 percent in 2004 and experiencing a 5.9 percent spike in 2003. “It's a sluggish job market right now,” says Mark Elzweig, an industry recruiter based in New York. “There's not enough asset flows to pay a field marketing force.” Some experienced fund marketers with good track records are out of work while others are just happy to hang onto a good territory, Elzweig adds. It's still good work if you can get it, though. A wholesaler with five years experience can earn up to $250,000 a year.

So what can wholesalers do to win back the welcome mat? “Help me solve my problems,” says David Caruso, a financial planner with Coastal Capital Group in Boston. “How do I get more wealth management clients? Can you assist me with software issues? How can I can spend more time with clients?” Others are looking for wholesalers to help land their wealthiest prospects. “We want closers — wholesalers who can help make the pitch to big-ticket clients,” says Michael Finer, president of Major League Investments, a financial-planning firm in Salem, Mass., that caters to professional athletes.

But while wholesalers have not fully recognized all the opportunities out there, neither have advisors. Some advisors only perpetuate the product-first approach by opening with “Whattaya got?” in effect, sending the message that wholesalers need to come up with a product pitch, Doggett says. Like a junkie who needs a fix, some advisors reinforce the old model by asking for another fund like the last one. As for wholesalers, she says, they need to take control of the conversation as opposed to answering 20 questions about a particular product. And with face time being so precious, wholesalers would be better served by cutting down on the socializing and nonbusiness-related conversation to make the most of the meetings.

Munder's FitzGerald boasts that he has figured out a way to cut distribution costs and provide the handholding reps want. Since coming on board from MFS Investments in September 2004, FitzGerald has slashed Munder's distribution costs by 53 percent, he says. But it's not just about cost-cutting, it's about transforming the sales approach from a push model to a pull model. He has also pared expenses by eliminating wholesalers based in pricey areas like New York and Boston. “Stay lean and right-sized all the time,” is his mantra. Instead of having a myriad of wholesalers in small territories knocking on doors all the time, Birmingham, Mich.-based Munder chooses to spend its money on fewer advisors that will yield more favorable results in the long run. In short, Munder doesn't waste resources supporting advisors who don't want its help.

He revamped the wholesaling force by reducing the number of external wholesalers from eight to three and replacing internals with hybrid wholesalers — salesmen who travel quarterly and upon the request of reps and who spend a majority of their time in the office providing support over the phone. (IXIS and Russell have also adopted the hybrid model.)

“We're about delivering the highest level of customer service when they want it,” FitzGerald says. “And we'll work off that for referrals.”

Ultimately, the wholesalers who recognize their antiquated way of life and adapt to the new selling environment will avoid going the way of those terrible lizards.

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