In the wake of the market crash, mutual fund companies are revamping how they hire, pay and manage their wholesalers to make the best use of their tighter budgets.
Breaking with the old strategy of hiring eager college graduates with little experience, big fund companies such as John Hancock Funds LLC, Legg Mason Inc. and MFS Investment Management are recruiting more-seasoned professionals with investment backgrounds.
“The days of the backslapping, steak-eating wholesaler are gone,” said one industry recruiter, who asked not to be identified. “Firms are being more selective about whom they put out on the field, and they aren't just throwing lots of bodies at the problem anymore.”
To make their offers more attractive, the firms are offering financial incentives, give the wholesalers more freedom to market a wider variety of products and cut down on travel by reducing the number of regions that their sales teams cover.
Fund companies also are vetting prospective wholesaler hires to make sure they have a proven track record in the fund industry and that they have good reputations among financial advisers, said Joe McCabe, vice chairman of the executive search form CTPartners.
“It used to be that hiring companies would want references from candidates' current companies,” he said. “But now they want to talk to advisers who have worked with the wholesalers.”
Not all firms are trying to recruit top professionals from other firms. MFS instead is making a concerted effort to promote candidates internally, said president James A. Jessee.
This allows the firm to train the representatives before sending them out on their own, and also helps cut costs because it is often cheaper than poaching from a competitor, he said.
“With internal promotions, we send them out gradually, not on total commission, but on salary and bonus,” Mr. Jessee said. “That generally means that for the first year, the wholesaler makes half as much, but if they are good, they are being paid at market rate by the third or fourth year.”
MFS has also changed its compensation program for wholesalers. In the past, wholesalers would receive bonuses based on a percentage of the business that they brought in, but now the firm is giving its wholesalers the tools to pitch a wider array of products, Mr. Jessee said.
“I would argue that if you have one client invest $1 million in a fund, and another client invests $700,000 in three funds, the latter client is the better one,” he said, noting that the adviser with several funds is more likely to be a client longer. “I don't want to just have wholesalers that elephant-hunt and go after the biggest adviser.”
Although MFS started this compensation program a couple of years ago, the firm recently adjusted it so that 25% to 30% of wholesalers' pay is now based on selling a broader range of funds to more advisers, up from 5% to 10%, he said.
Likewise, Hancock recently put a portion of its wholesalers' bonus pay into a discretionary pool that is tied to diversification of sales in terms of the number of funds that an adviser purchases, as well as the number of broker-dealers the wholesaler serves.
“The top three funds in their territories can't be more than 50% of their overall sales,” said Keith Hartstein, president of John Hancock Funds. “The paramount lesson that we have learned is that we can never be dependent on one or two hot funds ever again.”
Similarly, wholesalers can't have more than a certain percentage of sales from any specific broker-dealer. Mr. Harstein declined to disclose the exact percentage.
Legg Mason this month introduced a compensation program that focuses more on wholesalers' cross-selling opportunities, said Matthew Schiffman, head of retail Americas. “We have lots of data on buyer preferences that we can use,” Mr. Schiffman said. He declined to elaborate on the compensation structure.
Some advisers, however, have concerns that firms are dangling incentives before wholesalers to get them to sell a greater number of funds.
“I get that they want to diversify and have advisers use more products,” said Rich Zito, a partner at Flynn Zito Capital Management, an independent advisory firm with $250 million under management. “But what I don't like is if they are going to pay a wholesaler more to pitch a crappy fund to me.”
Mr. Hartstein responded that the new programs aren't about selling poor performers but about stronger marketing of their top funds.
“Granted, I have some funds to put in the crappy pool,” Mr. Hartstein said. “But I have 18 four- and five-star funds, and those are the ones I want my wholesalers selling.” He noted that Hancock's wholesaler compensation doesn't depend on which funds the wholesalers sell.
Meanwhile, Mr. Hartstein said, Hancock has pared down its wholesaling force from 80 to 55 over the past 18 months. “The numbers are arbitrary,” Mr. Hartstein said. “What's important is what constitutes a viable market.”
Hancock has switched gears from just adding wholesalers to building out teams that target high-growth markets. For example, the firm has created an eight-person team aimed at selling to registered investment advisers, up from two part-time salesmen in that market a year ago.
Similarly, Legg Mason has instructed its 50 wholesalers to identify and focus on the top 250 advisers in their territories. Wholesalers revisit the list every quarter and replace advisers if necessary, Mr. Schiffman said, noting that the list is adviser-specific, not firm-specific.
The firm came up with the 250 number with the assumption that each wholesaler can have five meaningful meetings a day at 200 days in the field annually. That equals 1,000 hours a year, Mr. Schiffman said.
“We combined that logic with the fact that research says you have to be in front of clients four times a year — four into 1,000 is 250,” he said.
Legg Mason has structured a compensation plan that is based on the amount of business wholesalers do with those 250 advisers, Mr. Schiffman said, declining to elaborate.
“We know from research that the higher frequency you have in front of your top clients, the more segmented your service, the deeper that relationship will be and the more productive it will be,” Mr. Schiffman said.
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
