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Some Fund Firms Reinvent Wholesaler Roles

The tradition of separating internal marketing support desks and external rainmaker sales groups has come to an end at a handful of influential mutual fund companies, and some experts say they are on the cusp of revolutionizing investment sales to third-party intermediaries, like financial advisers and brokerage firms.

According to a forthcoming study by the New York-based consulting firm kasina, OppenheimerFunds, Alliance Capital Management and Nuveen Investments boosted asset inflows up to 30% after replacing conventional two-tiered sales groups of internal and external wholesalers with regional systems that incorporate tertiary "virtual marketers" who work with a more dynamic inside staff.

"Most firms have a one-to-one structure, and the internal supports the external," said kasina CEO Steven Miyao. "The revelation now is that you can sell to a certain segment without having to travel."

In the new three-tiered wholesaling model practiced by 15% of the 60 firms surveyed in kasina's study, internal marketing desks and a newly crafted intermediary group work with their external wholesalers to serve institutional customers. An additional 15% of the survey respondents reported an interest in moving to such a three-tiered system, or a hybrid variant in which internal sales groups within a two-tiered system take on a greater marketing role.

Preliminary results from the survey, which is scheduled for release next month, indicate a 30% return on the expense of hiring intermediate marketers, who typically spend up to one-third of their time in the field. At some firms that have attempted a three-tiered sales system, each marketing group now participates in a single compensation scheme that offers rewards for stronger sales. Despite the fact that revenues under this model are divided among a larger sales force, external marketers' generous six-figure incomes typically remained intact last year because overall inflows were significantly higher, Miyao said. External wholesalers in a two-tiered hybrid model covered by one compensation system also maintained their incomes during the past two years, he added.

OppenheimerFunds, for example, transitioned into a three-tiered marketing system one year ago by converting its intermediate sales desk into an e-wholesaling group that specializes in contacting smaller adviser businesses and customers domiciled in remote territories, such as Montana and Wyoming. This division of labor allows seasoned external wholesalers to concentrate on larger accounts. "The idea is that you have a third person whose job it is to spend all day scheduling appointments in the far-out regions," said William Hortz, a senior vice president at OppenheimerFunds. "With e-wholesaling, we're covering second-tier firms and other producers who may not fall into the key account areas.'

Despite the rosy promise of an economic miracle gained by reorganizing mutual fund companies' wholesaling desks, the new sales structures still have a few bugs to work out. For example, Hortz notes that the rise of e-wholesaling desks creates the problem of developing metrics for untested marketing positions, i.e. exactly how many Web-based presentations are needed to justify the existence of a virtual marketer? OppenheimerFunds recommends at least five per day. In setting up its e-wholesaling team, OppenheimerFunds executives asked themselves what they expected of their new e-wholesalers and how many meetings they wanted them to hold, Hortz said.

New Way of Thinking

Certainly, e-mail and Web-based Power Point presentations are tools that work well in these new hybrid two-tier and three-tier sales structures. Among the firms that reported using Web conferencing technology, 80% rely on an application provided by a vendor known as Brainshark, and the remainder utilize a similar application distributed through a competitor called Fugent.

However, such virtual marketing technology is not the sole catalyst for reorganizing fund companies' marketing desks, Miyao said. In fact, while technology may be a part of the reason, what's really driving the trend is an entirely new approach to managing that technology so that internal salespeople can tap their full potential, he said. For example, advanced telephone and customer service applications now enable internal marketers to make outbound telephone calls instead of passively waiting for orders from the field, Miyao said.

Jack Van Dyke, director of business development at The Academy of Financial Services Studies, a Milwaukee-based consulting group, also notices a trend in which internal wholesaling desks are increasingly taking on prospecting responsibilities and more firms are entertaining the notion of intermediate wholesalers. But Van Dyke also offers the cautionary note that innovations within the mutual fund industry are historically pegged to rising markets. The recent successive quarters of strong asset inflows have lubricated marketing directors' imaginations with fresh cash. Only if the market continues to do well, he predicts, will these new sales structures take off.