when an advisor decides to do business with a particular money manager. In other words, when performance is equal, an effective wholesaler can often break the tie.
The Wholesaling Evolution
Today's generation of wholesalers stands in stark contrast to those of us who began our careers in the 1980s — a time when one battled for assets with only a handful of mutual funds based on rankings from the latest Lipper returns. But as the industry grew and competition for shelf space intensified, wholesalers had to focus less on product-oriented presentations and more on helping advisors grow and manage their businesses.
The growing complexity of the advisory business is requiring today's wholesalers to up their game by mastering three tiers of service. First, they must enhance an advisor's ability to compete for, and support, high-quality investors. Second, they must possess a keen understanding of how certain products can fit together to advance clients' retirement goals. And third, wholesalers must deliver expertise in all facets of retirement planning to help enhance the relationships between advisors and their clients. Going forward, the depth of the relationship between the wholesaler and advisor will be the key to the sustainable growth of an asset management firm.
Advisors are setting the terms of this relationship. They demand a single source of contact to provide them with an uninterrupted flow of accurate and timely information. As a result, asset managers must devote considerable resources to synchronizing their entire sales organizations so that they can resolve advisors' issues in an efficient and timely fashion. From a marketing perspective, this effort is well worth the money. Millions of dollars worth of television advertising and splashy product brochures mean very little to an advisor whose time has been wasted.
A good wholesaler has the power to modify advisors' perceptions and influence the amount of future business he does with the firm. According to the MFS survey of advisors, the number of personal contacts between advisors and their wholesalers was cited as the top differentiator of the most highly valued wholesalers.
That doesn't mean that a wholesaler's success is tied to the frequency of his visits: advisors value quality far more than quantity. Wholesalers are using their visits to help advisors expand their practices into new markets by offering comprehensive retirement income plans and wealth management services, among other things. They are sharing their expertise in portfolio construction; particularly regarding how products can fit together to benefit the specific needs of clients' retirement portfolios. And, they are providing valuable insight on a range of other key retirement issues, from the impact of skyrocketing health care costs to the tax consequences of drawing from multiple sources of retirement assets.
In the meantime, asset managers are facing a dramatic shift in their own business, as affluent investors increasingly expect mutual funds to be custom-packaged to meet their specific return needs and risk-sensitivity. The popularity of asset allocation products suggests that advisors and investors are also interested in using alternative investment styles to add more consistency to portfolio returns.
As a result, many asset managers are pursuing new investment strategies, including fund adoptions, to satisfy advisors' demand for innovative non-core portfolios with distinctive investment goals. (In a fund adoption, the asset management firm acquires the funds of another investment management group, and then subadvises these funds to the former money manager.) At the same time, asset managers are building new information systems to respond to the commoditization of another important aspect of their business - portfolio data and analytics. Using these new information systems, asset managers are providing institutional quality data to the research teams at broker/dealers, insurance companies and banks, as well as third-party investment platforms and third-party research organizations. This, in turn, frees up wholesalers, who used to deliver this data themselves.
So that they can, in fact, provide more consultative support, wholesalers are also getting more training and education than ever before. For instance, MFS wholesalers are more highly trained now than at any time in our firm's history. At the start of 2007, more than half of all MFS wholesalers had at least one major professional designation, such as Chartered Financial Analyst (CFA); Certified Financial Planner (CFP); and Certified Investment Management Analysts (CIMA).
The ratio of wholesalers to advisors is also rising, as many asset managers are shrinking sales territories and creating new wholesaler and sales desk positions. In addition, asset managers are providing wholesalers with new tools to help them develop portfolio strategies tailored to individual advisors' needs. For example, state-of-the-art sales tracking systems are creating robust profiles and predictive models designed to help wholesalers analyze an advisor's book of business before he even picks up the phone.
All told, the graying of the advisor's client base is triggering a radical transformation in the wholesaling profession. Today's wholesalers are raising the standards of their own profession and, in doing so, are helping our industry move closer to cracking the code of a comfortable thirty-year retirement.
James Jessee is President of MFS Fund Distributors, Inc., the sales company of MFS Investment Management®.