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E-Wholesaling Adoption Rising, Report Says

If it is hard for mutual fund executives to get a handle on the concept of e-wholesaling it may be because everyone has their own way of defining it. A recent joint report from Financial Research Corp. (FRC) and kasina, E-wholesaling: The Distribution Solution, emphasizes that there isn't one e-wholesaling solution. Each firm has to develop its own approach based on its business strategy.

Additionally, introducing e-wholesaling to a firm should not begin in the IT department. "E-wholesaling is about relationships, not technology," the report said. In time, technology will be replaced, but client relationships won't.

Many misconceptions surround e-wholesaling, among which are that e-wholesalers will replace wholesalers, that only large fund families can afford e-wholesaling and that e-wholesaling will enable companies to better reach lower-tier advisers. Not so, said FRC and kasina. "Fund groups will continue to rely heavily on traditional wholesalers," the report said, even as technology increasingly comes to play a key role in wholesaling efforts. E-wholesaling is relatively inexpensive to implement, for the most part, and can be implemented in phases.

Finally, rather than lower-tier advisers it is high-end advisers who can be targeted effectively by e-wholesaling strategies. "These advisers tend to be technically savvy, the products they sell (in many cases managed accounts) demand heavy use of technology and they deserve the added level of service that technology can provide," the report said.

"The real bread and butter is the top producer," said Lee Kowarski, consultant at kasina a New York based consultancy and one of the authors of the report. "They're the people you want to coddle and develop." Developing solutions to reach them will lead to success because those technologies can easily be adapted to the rest of the advisers.

Ultimately, e-wholesaling will be generally available. "If firms are going to successful and get the most out of their investment, they're going to need to offer the technology they've developed to as wide a population as possible," Kowarski said.

Another misconception Kowarski has found is that mutual fund companies have a choice of whether or not to do e-wholesaling. "Every asset management firm is doing e-wholesaling today. The majority of them will not admit that or aren't aware of it," he said.

Some fund company executives seem to assume that only e-wholesalers can do e-wholesaling, and that "you need to form this group of techno-geek e-wholesalers who are not going to anything except sit in front of a computer all day and sell your funds," Kowarski added. Clearly, this is not the case. "The fact is that technology is a great enabler and will help wholesalers do their job better, and e-wholesaling will help all wholesalers," Kowarski said.

To develop an effective e-wholesaling strategy, the report outlined the steps an asset manager should follow:

* Identify the e-business vision

* Evaluate technology position

* Identify customer needs and desires

* Create an action plan

* Build support

* Train users

* Measure success

Cultural Shift Needed

To ensure the success of an e-wholesaling strategy, fund companies must also change how they look at technology. Firms must move "from a view of technology as simply tools that certain people use for certain tasks to a more holistic approach where everyone has access to technologies that work in conjunction with each other," Kowarski explained. "That's a cultural shift that most firms haven't gone through and even firms that are furthest along are struggling to get everyone on the same page," he added.

Fundamental to developing an effective e-wholesaling strategy is basing it on the firm's distribution objectives. "E-wholesaling initiatives are not independent from the rest of the organization. They should, rather, reflect the firm's overall objectives and translate them into the online world," the report said.

Catch-up should not be the basis of e-wholesaling either. "Just because Fidelity or AIM has launched a certain feature does not mean that your firm should launch that feature," he added.

"It's not the technology that's going to drive the strategy," Kowarski said. "It's the overall goals and objectives of the firm that's going to determine how technology is going to be used, if the firm is going to succeed."