Evolution Or Extinction: The Future Of Mutual Fund Wholesalers

March 29, 2016

by Jeff Briskin

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.

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Evolution Or Extinction: The Future Of Mutual Fund Wholesalers

Mutual Fund Wholesalers