E-wholesaling is gaining ground in mutual fund companies but more as a tool to strengthen broker and adviser relationships during this market slump than to cut costs.
As recently as a year ago, fund companies were chiefly interested in the potentially large cost savings available from using Internet and telephone wholesalers rather than the more expensive field wholesalers, said David Haywood, director of research at Boston-based Financial Research Corp.
Now, as fund flows ebb, companies are looking to electronic and virtual wholesaling as an asset-retention tool, as well as a way to deepen relationships with intermediary distributors while mutual fund companies become more commoditized, Mr. Haywood said.
The phenomenon is still defined somewhat loosely, but e-wholesaling generally refers to any contact a fund company has with brokers or advisers that happens exclusively either via the Internet or phone. Traditional field wholesalers work within geographical boundaries and make regular visits to banks, brokers, and advisers that sell their funds.
E-wholesaling by itself "doesn't work unless you already have a relationship," said Tony Fadool, senior vice president and national sales manager at Federated Investors Inc. in Pittsburgh. "It's a good augmentation," though, he said.
Rather than just offering potential cost savings, e-wholesaling is being viewed more by fund companies as at least partially a defensive measure designed to keep brokers and advisers happy, said Mr. Haywood.
William Gillen, a senior vice president at Eaton Vance Corp. in Boston, said that having set up an intricate electronic relationship with an adviser would make the adviser less likely to drop your products.
"I equate it with online banking," Mr. Gillen said. If an adviser has several business relationships, involving several different products and services, he or she would be less likely to end the relationship, he said.
James Stueve, national sales manager at Aim Investment Management in Houston, said that field wholesaling is evolving away from sales and product information and toward supporting the adviser who sells the funds.
"The field wholesaling model at this stage is less of a utility and more of a relationship business," Mr. Stueve said. "E-wholesaling is still more of a utility," he said.
Mr. Haywood agreed, saying that the "role of the external wholesaler is more of the golf-buddy kind." As e-wholesalers take on more responsibility for distributing product information, field wholesalers are freed to work exclusively on improving relationships with brokers and advisers, he said.
Field wholesaling is costly - the average salary, commission, and travel expenses per wholesaler in 2000 was $409,549, according to Financial Research Corp. - and many fund companies still hope that shifting much of the sales support work to internal e-wholesalers will produce at least some cost savings, Mr. Haywood said.
Companies often hire e-wholesalers without dramatically reducing the work of the field wholesalers, however, Mr. Stueve said. "You're adding infrastructure on top of infrastructure," he said.
Some companies say they have achieved cost savings, though.
Gordon Forester, head of marketing at Putnam Investments Inc. in Boston, said that adding e-wholesaling capability had helped wholesalers use their field time much more efficiently. "It enables us to reallocate resources to where there's the most need," he said.
And potential cost savings will gain importance to fund companies if asset levels stay down and distribution costs continue to rise, said Bruce Brewington, an analyst at Putnam Lovell in San Francisco.
Also important is the time saved, said Mr. Fadool. For example, if a fund company's performance changes dramatically, wholesalers can connect with thousands of brokers at once electronically rather than having to call a number of key accounts individually, he said. E-mail updates also have the advantage of letting brokers and advisers view the information at their leisure, he said.
A sign that e-wholesaling is on the rise is the fact that banks and wire houses are slowly warming to the concept after initially dismissing it, Mr. Stueve said. Generally, banks and wire houses did not want external product distributors to have unfettered access to their reps, he said.
As a result, e-wholesaling caught on first with independent advisers. It also helped that independent advisers tend to be widespread, making it difficult for field wholesalers to meet with them regularly.
Now, however, banks and brokers are recognizing the value of the added service, Mr. Stueve said. To further soothe banks' and wire houses' fears, Aim is developing an e-wholesaling platform designed specifically to prevent security lapses at the banks and brokerage houses, Mr. Stueve said. He added that he expects the platform to be available in the first quarter.
Louis A. Holland Jr., managing director of adviser partners at Nuveen Investments Inc. in Chicago, said the depressed markets have hindered firms' investment in e-wholesaling but that this will change soon. "Bear markets have a tendency to put a lot of things on the back burner," he said.
Nuveen has invested heavily in Internet and phone wholesaling, and it makes no distinction between field wholesalers and e-wholesalers, Mr. Holland said. "We don't have separate sales teams," he said. "We're completely integrated."
In fact, Nuveen's wholesalers - whom it calls "adviser partners" - spend far more time communicating with brokers and advisers on the Internet and by phone than in face-to-face meetings. The adviser partners spend roughly 80% of their time in the office, doing sales presentations or sending information over the Internet, Mr. Holland said. Most fund companies spend far more of their resources on field work than on e-wholesaling, he said.
In time, more advisers will feel comfortable with, and even expect as a matter of course, extensive Internet sales support, Mr. Holland said. His goal is to get Nuveen there before the rest of the industry follows.
"It's kind of like Wayne Gretsky saying, 'Be where the puck is going to be,' " Mr. Holland said.
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