While the Internet has made it easier for fund companies to communicate with advisors, it has also caused an information overload that, ironically, is making it more difficult for wholesalers to deliver value to advisors. Wholesalers, who once saw their mission as delivering a polished pitchbook and touting fund performance, are losing ground to those who are able to craft a message based on an intimate understanding of the needs of advisors and their clients. This transition is having its greatest impact on those that don’t work for the most highly recommend fund companies, which is the majority of wholesalers.
Consider Stephen Barnes, a Certified Financial Planner and co-founder of Phoenix-based Barnes Investment Advisory, Inc. He told me that every week he gets “bombarded” with email marketing messages and phone calls from mutual fund wholesalers. He ignores almost all of them.
“The number of contacts has gotten overwhelming and we just don’t have the bandwidth to respond to companies whose funds we don’t already use. Even the few wholesalers I work with know that they have to offer me something of value if they want my attention,” he said.
Once a primary source of fund information and sales ideas, the profession has become increasingly supplanted by the Internet. According to a reader survey Advisor Perspectives conducted in December 2015, only 39% of advisors rely on wholesalers. Compare that to 63% who use third-party research sites like Morningstar as their primary resource for fund-related research and 32% who use fund company websites.
The decline in the importance of wholesalers comes at a time when firm-level restrictions that once limited their access to advisors have largely gone away.
A new breed of gatekeepers
Until the last decade or so, the key target audience for fund companies was advisors at wirehouses and larger broker/dealers. Fund companies had to pay for their funds to be offered on brokerage platforms. These fees, often amounting to hundreds of thousands of dollars per fund, were out of reach for all but the largest asset managers. These arrangements gave wholesalers the freedom to “walk the trading floors,” armed with pitchbooks that often focused as much on the commissions advisors could earn as on products themselves.
While the pay-to-play system still exists with wirehouses and some larger regional broker/dealers, the growing decentralization of the industry is leveling the playing field. With thousands of wirehouse advisors joining smaller, independent firms every year, fund companies of all sizes now have greater access to advisors than ever before.
Unfortunately, many fund companies and wholesalers have taken advantage of this accessibility to inundate advisors with emails and phone calls. As a result, many advisors ignore or opt-out of these contacts. Other firms have designated gatekeepers, either within or outside the company, to provide a more systematic approach for evaluating and recommending funds that advisors should use with their clients. Wholesalers whose funds are not on approved “watch lists” are often blocked from communicating with advisors.
The increasing prevalence of gatekeepers is forcing wholesalers at all but the most highly regarded firms to change their marketing and sales approaches, according to Matt Lynch, a managing partner and consultant with Strategy & Resources, LLC.
“Advisors can conduct most of their fund-related research online or get this information from their firm’s CIO and analysts. Firms that outsource investment management rely on analysts at their TAMPs and custodians for this research. Wholesalers who want any chance of adding their funds to advisors’ recommended lineups need to start at the top of the due-diligence chain,” he said.
Background research at the forefront
The days of “one-size-fits-all” sales approaches are over. Wholesalers who want to get past gatekeepers need to know what kind of information is likely to open the door. TAMPs have different requirements than custodians. CIOs at firms serving wealthy investors require fund companies to provide a higher level of performance analysis and attribution and access to the current thinking of portfolio managers.
Even if wholesalers make it past the gatekeeper, the natural resistance of advisors creates a formidable obstacle. To overcome this resistance, wholesalers need to approach each firm – and its advisory team – with an understanding of its service model, clients and culture.
“It’s no longer enough to cast a wide net and hope one advisor takes the bait. Advisors are only interested in products that either align with their portfolio-construction strategies or offer a differentiated and proven approach that aligns with their clients’ needs,” Lynch said.
Effective wholesalers conduct background research to answer basic questions about each advisor’s client demographics and investment preferences. What percentage of clients are high-net worth versus mass-affluent investors? How many are wealth accumulators versus retirees? Do they prefer active over passive management? Are they open to non-traditional investment strategies such as smart beta or liquid alternatives? What criteria do they consider most important when recommending funds to their clients? This background market research is intensive and time consuming, but it is more likely to bear positive results and avoid wasted efforts.
Improving the quality of advisor interactions
But even when wholesalers have identified advisors likely to be interested in their products, they need to maximize the value of each interaction, according to Richard Sincere, founder of CEO of Sincere & Co, a firm that helps money managers market to RIA firms.
“Advisors have become immune to sales pitches. What they really want is access to asset managers’ intellectual capital: the portfolio managers’ views of the market and the asset classes they manage, the rationale for the decisions and the detailed attribution data that provide the proof behind the performance,” Sincere said.
This new breed of wholesalers acts as proxies for portfolio managers who don’t have the time to interact directly with advisors. They should be able to articulate – not just parrot – portfolio managers’ current thinking and themes, answer tough questions and get quick responses from the home office to questions they can’t immediately answer.
Advisors also appreciate wholesalers who offer value-added insights and education. They’re more likely to respond to email messages offering research white papers and strategies for improving financial planning and client acquisition efforts. And they’re far more willing to meet with wholesalers who can help them meet their continuing education requirements. A 2015 Quest CE research study found that 85% of advisors would be willing to attend a meeting with a wholesaler who offered continuing education and 60% felt that wholesalers who offered such programs were more knowledgeable than those that did not.[1]
Adapt – or become obsolete
This evolution of the wholesaler’s primary function from salesperson to value-added relationship manager may be the only way it can survive in the information age, says Sincere.
“Wholesalers who go the extra mile to understand each advisor, deliver value-added information, respond to special requests and respect the communications boundaries advisors are far more likely to succeed than those who stick with the outdated ‘pitch and PowerPoint’ approach. It’s a patient form of client cultivation that doesn’t always deliver quick results in terms of new inflows, but it helps position the wholesaler as the primary resource should the advisor be weighing a decision to replace a fund or offer a new strategy,” he said.
Jeff Briskin is the director of marketing for Advisor Perspectives.
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