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Fund Firms Need to Bolster Wholesalers: More Salespeople, With More Experience, Boost Assets

WASHINGTON - Trying to edge out your competition for market share? Building a bigger wholesaling force that understands the critical need for one-on-one face time and can provide the perfect "value-added" services may be just the ticket to winning over the business of registered financial advisers, financial consultants and brokerage reps.

That is according to a panel of industry executives that spoke at the Investment Company Institute's General Membership Meeting held here last month. Five executives - three from major brokerage firms, one from a mid-sized mutual fund complex and one from an asset management market research firm - discussed ways to create value through effective partnerships with distributors. The challenge lies in executing those strategies, panelists said.

Having a strong stable of responsive wholesalers is one of the most critical attributes distributors look for when deciding whether to do business with one company over another, said Stephen DeLano, president of Market Metrics, a market research firm in Qunicy, Mass.

"Adding wholesalers can be useful. The more bodies in the field to get the message out is valuable," DeLano said. "The challenge is to find the resources to have more wholesalers."

"Field wholesaling is a challenge because it's an expensive proposition," said Brand Meyer, president of Wachovia Securities' investment services business. Most firms will find that the majority of their revenues will come from a narrow section of markets, suggesting that they focus energies on profitable markets and provide e-wholesaling to the rest, he said.

Wholesaling by the Numbers

From a monetary standpoint, the wholesaling model needs to be given a great deal of thought, Meyer said. The conventional practice of hiring less-experienced wholesalers because they cause less of a monetary strain is "not particularly valuable," he noted. Fund firms will likely get more real value from more seasoned professionals, he added.

Despite budgetary challenges, firms have generally been increasing their wholesaler ranks. Although the tech bubble debacle of 2000 and subsequent bear market saw fund firms pruning their wholesaler networks, firms have decidedly been bolstering their sales forces more recently, with somewhat smaller firms leading the hiring spree.

According to Market Metrics data, tier-one mutual fund companies, which include the top 12 companies in terms of gross sales of products, employed an average of 64 wholesalers in 2002. But that number rose to an average of 68 wholesalers per firm in 2005. Likewise, the rate of growth among tier-two companies has risen even more dramatically, rising from an average of 38 wholesalers per firm in 2002 to 48 in 2005.

Wooing Wholesalers

Even small firms are recognizing the distribution power that wholesalers pack.

Integrity Mutual Funds of Minot, N.D., now employs 12 field wholesalers, up from only five wholesalers one year ago. "We are actively signing up wholesalers in core territories," said Bob Walstad, chairman and chief executive officer of the firm, which serves as the advisor to 16 mutual funds with a collective $395 million under management. "We've found that wholesaled assets tend to be stickier," he said.

Two months ago, Integrity also began employing a pair of internal wholesalers, each of whom now works with two external wholesalers, he noted.

After having a disappointing experience with an outsider who had been managing the fund group's wholesaling force, last year, the firm internalized the management of its wholesalers and has added wholesalers in key territories including areas in which its funds' sub-advisers are well known.

Integrity has relied on some job advertising as well as word-of-mouth referrals and opportunities that present themselves, including waves of wholesalers leaving competitors' firms, Walstad added.

The most difficult challenge is recognizing that wholesalers will come and go, he explained. "We understand that there is turnover in this line of business," Walstad said. "Great wholesalers are in demand so they might move on for a better proposition. Others may never work out and hit their sales target."

But executives cautioned that while casting a wide web of wholesalers is important, the skill set of those wholesalers as well as the value-added services they can provide are vital ingredients for distribution success. Moreover, the real key potentially lies in wholesalers' consistency in meeting with advisers and reps.

Personal Touch

How often a wholesaler goes out to meet with a client is a critical component of successful distribution, DeLano said.

His firm's research shows that within the past year, just over one-third of wirehouse reps reported meeting with an individual firm's wholesaler four or more times, and among advisers at regional broker/dealers, less than one-third had four of more meetings. Bank reps saw their wholesaler considerably less often, and among financial planners, fund wholesalers were a virtual scarcity, with almost half reporting no contact within the past 12 months.

The skill set of wholesalers today has shifted and now focuses more on being a partner with and training advisers and helping them with their business, Meyer said.

"Wholesalers need to be broadly skilled," said Mark Harper, divisional sales director for 21 states at Smith Barney. And everyone has to keep in mind that it takes relationships some time to build, he added. "We don't have enough patience," he chided.

Another challenge is that fund firms are struggling to provide the perfect set of value-added services through wholesalers to their distributors. Value-added services not only build loyalty to the fund brand but act as the "circuit breaker" when there are periods of underperformance, said Michael Bitterly, managing director and head of the global proprietary business at Merrill Lynch Investment Managers.

"No one has cracked the code on [value-addeds] yet," Meyer said. "Throwing conferences and helping us defray costs is nice, but really isn't a value-added," he noted.

For funds to be able to differentiate themselves from the pack, value-addeds should take the form of practice management services that help advisers improve the quality of their practice, Harper said.

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