Wholesaling Still All About Relationships
November 14, 2011
BOSTON-When it comes to mutual fund wholesaling, social media connections are coming to the forefront. Yet this still is very much a next-generation game. Sales and distribution today are still all about in-person connections.
This was the perspective of speakers at Fund Forum USA's Global Fund Distribution Summit here last week.
Nomura Asset Management has worked tirelessly to build key relationships to get its funds and models on brokers' platforms, said Michael Andrews, head of the firm's U.S. retail business.
Getting on the largest broker-dealer platforms was Nomura's first priority, Andrews said, which is why his firm began by concentrating on Merrill Lynch, UBS and Morgan Stanley Smith Barney.
"There is no magic bullet. It is a process. And if you don't follow each brokerage's unique process, you can get blackballed," Andrews said. "Getting on these platforms is no longer easy."
This takes considerable time, and may require checking in three months later, and even three months after that. But it is possible, particularly if an asset manager makes a confident case for its investment approach and starts at the top, he said.
"Identify the key people and who sits on the product review committees. Establish relationships. You have to have people who know their way around the brokerage industry and give them enough leeway to work the system," Andrews said.
Nomura decided to sidestep those brokerages that have their own proprietary or platforms "because we did not want to disintermediate their work," Andrews said. "We make sure that there is room for us to sit alongside a proprietary set of models. We don't want to cannibalize their business."
Never does Nomura bring clients or potential clients anything but its best funds, he continued. "That is our first hook to differentiate us from the masses."
The second attribute Nomura stresses is its international presence and experience. "With the shift of power on a macroeconomic level to Asia, if we promote our Asian and other core international products, that is a story broker-dealers have not heard. It is not the same old story about a large-cap, long-only fund,'' he said.
Broker-dealers are also hungering for help on giving their clients advice in a fee-based model. Fees are usually a percentage of the total portfolio amount. For example, 1.5% per year is a fairly common fee.
However, most registered investment advisors are still not comfortable with the fee model even though it is more lucrative, said Frank McAleer, senior vice president and head of managed and retirement solutions at Janney Montgomery Scott.
At Janney, commission-based trades average $140,000 a transaction and pay 56 basis points, McAleer noted. By comparison, fee-based trades average $240,000 and pay 104 basis points.
"But RIAs don't know how to do it. They are afraid that in making the change, the clients will question why they didn't offer this service previously-and fire them," McAleer said.
As a result, three years ago, Janney created a "Fee Evolution" program to help RIAs make the transition from commission- to fee-based trades. "It has to be a process, with a consistent focus and a follow up for accountability. The difficulty was that some of the financial advisers have 100 different accounts and were managing them 100 different ways."
The program worked, McAleer said. "We have doubled our fee-based business in the past three years," he said.
Cultivating in-person relationships will continue to drive the business for the next few years, as the average age of financial advisers and RIAs is between 53 and 56.
In the future, social media delivered on mobile devices may well drive sales. "Seventy-six percent of advisers use social media. It is where their customers are," said Julia Binder, director of e-business research at Kasina.
Other key statistics:
* 61% of advisers use LinkedIn, up from 49% in 2009
* 21% of advisers use Twitter, up from 13% in 2009
* 53% of advisers use Facebook, up from 42% in 2009, and 15% are fans of a company on Facebook.
* 76% of advisers share online content from asset managers' websites-education materials, news and performance information-up from 68% in 2010
"Social media increases interaction and loyalty. It expands your brand reach and allows you to listen to customers and competitors, expand service options and leverage adviser and investor networks," Binder said.
"If you are not already actively formatting your content for mobile devices you are missing the boat," she said. "It is not a question of if mobile devices will supplant personal computers and social media will become the preferred method of communication, but when. To build a business case and get management to buy in, create a working group that includes marketing, sales, IT and compliance and regulation. Regularly report on return on investment."