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Broker/Dealer Sales Said to be Shifting

BOSTON - While fund companies have traditionally sold differently to the broker/dealer and registered investment advisor channels, fund companies' wholesalers should begin selling to broker/dealers in the same manner as they do to registered investment advisors, said fund executives.

Rather than giving lunches and sleeves of golf balls, fund wholesalers should try to become consultants to broker/dealers, said Fred Gifford, vice president of Sequoia System International of Naperville, Ill., a firm that trains wholesalers in the financial services industry. Fund wholesalers have traditionally approached broker/dealers using a transactional sales model in which fund performance drives the sale, he said.

"That approach is still alive and kicking hard," said Gifford. "And it works just fine, if you are always the hot dot [com], or your funds are very unique." Abbreviated, superficial meetings that do not explore the brokers' needs characterize the traditional approach to broker/dealers, he said. By using that approach, many broker/dealers critically view fund wholesalers as "lousy product pushers," he said.

Gifford made his comments at a conference here last week on fund distribution sponsored by the Institute for International Research of New York.

While broker/dealers and registered investment advisors differ in many ways, both share a need for information and strategies that will help them sell funds, said Lee Martin, vice president of AXA Rosenberg of Orinda, Calif. By providing the necessary information, wholesalers can differentiate themselves from their competition in the broker/dealer channel, he said.

Registered investment advisors have traditionally wanted white papers and other research and, contrary to popular belief, may not be willing to overlook flagging short-term performance, said Chip Roame, a principal with Tiburon Strategic Advisors of Tiburon, Calif.

"I think they definitely look at one-year performance figures," he said.

While strong performance is important to both channels, broker/dealers are perceived to be more influenced in their decisions to purchase funds by strong performance than are registered investment advisors, said Martin.

"Loyalty is limited," he said. "When you're hot you're hot and you're not, you're out."

But by having a strong understanding of a broker's business, wholesalers can develop relationships that can motivate a broker/dealer to wait before dropping a fund because of recent performance problems, Gifford said.

"Knowing a consultant's business will define your success more than anything else," he said.

While offering top-performing funds helps wholesalers sell to brokers, it is important that funds offer programs that reach a variety of market segments including high-net-worth individuals, women and charitable programs, said T. Neil Bathon, president of Financial Research Corp. of Boston.

By having a strong knowledge of various products, wholesalers can be viewed by broker/dealers as consultants and not "product pushers," Gifford said. It is vital that wholesalers have a strong understanding of their client's business and the type of clients they serve as well as being well-versed in market trends, portfolio theory and asset allocation, he said.

"The strongest position comes from being thought of as an expert," he said.