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Funds Testing Hybrid Wholesaling' Model


To cut down on distribution costs, more fund companies may hire "hybrid wholesalers"-salespeople who can perform both internal and external wholesaling duties.

Nonetheless, the hybrid model is still developing and there aren't any clear industry-wide standards yet, according to a report on internal wholesaler practices by Dalbar of Boston, based on research at 18 large mutual fund and annuity providers.

Out of this pool, only four firms, or less than a quarter, are currently using the hybrid approach. At these companies, hybrid wholesalers make up 9% to 46% of the wholesaling team and spend 35% to 50% of their time in the field.

While the numbers are currently small, more firms will move to the hybrid model in the coming years, predicted Kathleen Whalen, managing director and author of the report. It depends on each firm's situation and organization, but ultimately it is more cost effective, she said.

The hybrid model would especially benefit and be effective for smaller and mid-size firms, and they are likely to adopt the approach before larger firms, experts said. External wholesalers are very expensive, as they have very competitive salaries, plus commissions and travel and entertainment expenses. A smaller company with a few wholesalers will be able to keep costs down by having their sales force perform both internal and external sales functions, said Dan Sondhelm, a partner and vice president with SunStar of Alexandria, Va.

At the same time the hybrid model is beginning to evolve, internal wholesalers are taking on more responsibilities. An internal wholesaler used to support the external wholesaler by scheduling meetings, performing administrative work and cold calling financial advisers. Now, the internal wholesaler's role has become more sophisticated, and their duties include more responsibility and in-depth work.

Increasingly, internal wholesalers are being trained to understand the need to attract and retain adviser relationships, Whalen said. The goal for forward-looking internal wholesalers is to originate new relationships with financial advisers, improve asset retention and solicit feedback on financial advisers from wholesalers' in-person meetings with them in the field.

To develop these skills, firms train new hires an average of four weeks, with a minimum of two weeks and a maximum of nine.

They are also devoting one to four hours a week to ongoing training, teaching internal wholesalers about their products and services so that they are able to suggest appropriate choices to advisers, Whalen said. This training also includes sales and public speaking skills.

The training methods vary by firm, but computer-based training, material handouts, manager mentoring and internal workshops, are some techniques firms employ. Firms also have internal wholesalers listen in on calls and get one-on-one coaching from a manager and/or peer group reviews. In addition, external wholesalers and the investment team give them presentations.

Because internal wholesalers are also calling on advisers in the field, they have been coming up with better quality leads, Whalen said.

As their responsibilities have increased, so has their pay. Internal wholesalers' compensation has increased 15% from three years ago, from an average base salary of $39,100 to $44,000 this year. The higher end pays $65,000, plus bonus and commission.

Firms are making sure to monitor and evaluate their internal wholesalers' progress, with 16 out of 17 firms saying they monitor these employees to some degree. The industry standard is to conduct a formal review each month, which can add to a wholesaler's compensation, and possibly be a basis for promotion.

Six out of the 17 firms evaluate their internal wholesalers based on the number of new leads and contacts they generate for external wholesalers, although the majority of firms do not tie this directly to compensation. Thirteen out of 17 firms evaluate their internal wholesalers on the number of relationships they establish and on how well they are covering their entire territory, and the majority of firms tie this directly to compensation.

Additional evaluation methods include ratio of staff to call volume and consistent outbound calls made.

The study found that internal and external wholesalers have the same target audience, but several firms reported different focuses based on geography and production. Nine out of 17 firms have internal wholesalers handle lower-tier producers. The majority of firms requires an internal wholesaler to introduce an adviser to the external wholesaler and turn over business via a conference call or e-mail.

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