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Advisers Won't Admit They're Sold on Wholesalers' Help


WASHINGTON-What financial advisers say they look for when picking products-and what they actually need-are often two different things, according to speakers at the Money Management Institute's 10th Annual Convention held here last week.

And that is when smart wholesalers can make all the difference for investment companies.

"Performance can drive [product] growth, but for that growth to be sustainable, sales and marketing are critical," Joe Babiec, a principal with Market Metrics told the crowd of roughly 400.

Babiec's Quincy, Mass.-based firm interviewed thousands of advisers, asking them what is the most important factor driving their decisions to select investment products. Whether those products were separately managed accounts or mutual funds, 79% of advisers agreed that to get on the platform, products must stay true to their style, while 66% said they seek strong performance. By comparison, only 15% of respondents acknowledged that marketing makes a difference.

But an examination of what happens when markets take a turn shows that when it comes to getting advisers to stick with those products, marketing matters-a lot.

Market Metrics looked at the adoption of one top-performing fund that had below-average marketing support. Between 2000 and 2003, the category-killer gained traction, expanding its reach from inclusion among the top 2% of major advisers to about 10%. Between 2004 and 2006, when the market shifted again and performance dipped, all those gains were lost, and the fund suffered significant redemptions.

Meanwhile, a peer with less stellar performance but an excellent sales team fared far better, Babiec said. While the fund's market saturation went from 5% to 25% between 2000 and 2003, during the three years after, sales dipped with performance, but recovered quickly.

What's more, 71% of advisers who received six or more telephone calls over the course of a year from wholesalers of funds with excellent performance said they would likely increase the amount of business they did with the manufacturer's firm. When the number of contacts with the wholesaler excellent funds dipped to between one and five per year, only 53% said they expected to increase business, according to Market Metrics.

Compare that to a mediocre fund with unspectacular performance, but an excellent marketing effort. Despite what financial advisers said about paying attention to performance first, 53% said that they expected to increase the amount of business they did with the parent company of the not-so-stellar product.

In short, advisers were as likely to buy more from a company that didn't deliver strong results, but worked hard at building relationships, as they were to invest with a company that delivered results consistently.

"Without sales and marketing, strong performance leaves money on the table," Babiec said.

That is where wholesalers can make a difference, said Steven Miyao, chief executive of New York-based consulting firm kasina.

"If assets are not coming in because of the wholesaler, it means you really don't understand the potential of a wholesaler," Miyao said.

To be sure, the role of the wholesaler has changed.

Assets at many broker/dealer firms are no longer controlled by salespeople, but by the research teams behind them, he said. To be effective, wholesalers must adapt to serve them. Adapting may require reconsidering how territories are divided, and reevaluating where resources are best applied.

Rather than simply knowing the product, wholesalers should help guide their clients through the due diligence process, and they must be ready to answer those questions in the first phone call, said Lawrence Sinsimer, a managing director with Eaton Vance in Boston.

For Mainstay Investments, formerly part of New York Life Investment Management, that means equipping wholesalers with marketing tools advisers can use in turn, said Mike Coffey, a managing director with that company.

Those tools can help advisers talk to investors about their spouses' assets and the possibility of a product such as long-term care insurance, estate planning or even a unified managed household account.

"Wholesalers become the brand," said Bruce Johnston, chief executive of Old Mutual Investment Partners in Kansas City, Mo. Advisers want to be able to turn to a single contact who can help with all of the tools they need, he said.

For investment companies, it is critical that they examine exactly which wholesalers are selling what products to whom, and-more importantly-how long before those advisers turn around and dump them from clients' portfolios. After all, it takes as much as 3.8 years for an investment company to begin making money off of SMAs, Sinsimer said. Moreover, the average SMA has less than $300,000 in assets.

Likewise, companies must remain sensitive to market trends, such as a run on mid-cap value stock, and equip their wholesalers to respond. "If you don't have someone out there explaining the story, explaining the business, assets will move out as fast as they come in," Sinsimer said.

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