Iam intimately familiar with the concept of consultative selling. Back when I was peddling a large-cap core manager as a wholesaler, I tried to fashion myself into just such a person, a consultant, a real go-to guy. Alas, the world is a much messier place than the dogma handed down by the financial institutions would have you believe.
And at the risk of further annoying this magazine's advertisers, keep this in mind the next time you are meeting with your favorite mutual fund (or managed account) wholesaler. Herewith, Things Your Wholesaler Will Never Tell You.
Don't ask me what's going on in our portfolios. I haven't spoken to the portfolio manager, much less a firm analyst, in weeks. This is really the dirty little secret your wholesaler is keeping from you. I remember speaking to a group of blue haired ladies in a tiny Virginia town a couple of years ago. I thought it was going to be a cakewalk, you know, where you have to explain the S&P 500. But these women started peppering me with questions, mostly about technology companies. “Why do you own IBM when everybody knows it is managing its net income?” “Why do you still own Cisco when analysts have been lowering their earnings estimates?” And, this one killed me: “I noticed that your manager sold Merrill and bought AIG? Why?” Gawd, I thought to myself, “He did? I haven't even looked at a current portfolio since the end of last quarter.”
The truth is, the wholesaler is not the most popular fella back at the office. In a small firm, the portfolio managers and analysts often view the marketer as a pain, someone to be avoided because he takes too much time away from managing the portfolio and schmoozing clients with real money — institutions. Managers like the money wholesalers bring in, but they don't have time to keep the marketing folks apprised of every change.
Our stock picking process isn't nearly as scientific as it appears. Actually, this isn't so bad. But it's one thing to keep in mind should something go wrong. All wholesalers describe with pride the management process. A manager I worked for would rank every stock in his universe on a set of quantitative measures, from most attractive to least. There was just one thing: Some of the ranking inputs were actually highly qualitative. It made for inconsistent stock rankings: Why we owned stocks with super-high P/Es in certain sectors and shied away from them in others, I never could explain because it was literally a case-by-case decision (about which I was often not told). But then, that's what you want as a financial advisor, a real human who is capable of making tough decisions — and not some data-mining automaton.
Don't take my advice on other portfolio managers. This is where the consultative theory comes unhinged. Yes, a salesman tends to know his competition. I could have told you how my manager's process kept him more in the “growth-at-a-reasonable-price” camp than our competitors, who, because they didn't own transport stocks or utilities, were skewed way over the line into the growth box. And anyway, a salesman's job is to keep you focused on his products, not the stuff in the other guy's sample case.
I know nothing about the back office and compliance procedures. Wholesalers are by definition in their cars, in airports and planes, in conference rooms and broker offices. They are, in fact, working anywhere but the trading room of their mutual fund or managed account company. If you really want to know what happens back at headquarters and how you can make sure you are getting good service, ask your wholesaler to put you in touch with somebody there who actually knows.
I have no reason for dropping in on you today, other than I need to make my weekly meetings quota. I used to know a fund and portfolio analyst at a large Midwestern RIA who had a group of wholesalers whom she jokingly called her “boyfriends,” that is, wholesalers she liked, that she would let visit — but only on the grounds that they get her out of the office, to play golf or to go to dinner. And I am not embarrassed to have counted myself among her “boyfriends.” I sometimes needed the “meeting” with her to hit my weekly quota. And she wanted to show her employers that she was meeting tons of portfolio managers.
Aldo Blackthorn is the pen name of a New York-based writer.