Twenty years ago, wholesaling to financial institutions meant marketing government bond funds. Today, as investors focus on equities investing, wholesalers must offer a menu of products and services to meet banks' needs.

Still, two facts will not change. First, the wholesaler's products must meet performance expectations. Second, there must be solid relationships among the wholesaler, financial institution, and customer. The greatest return for the least risk is the customer's ideal, but the "best" investment product differs with the individual investor and the economy. During the early 1980s, the inverted yield curve favored short-term, high-yield CDs over long-term holdings, such as stocks and long-term bonds.

Now the pendulum has swung to the other extreme.

Lower interest and inflation rates make it a boom time for equities. Wholesalers and producers must constantly monitor market changes and adapt their products to meet customers' needs and performance expectations.

At South Trust Securities Inc., a product selection group meets twice a year to review relationships with mutual fund families and evaluate new families. "Our 'due diligence' process addresses performance, coverage, and sales over the last 12 months," says Jim Nonnengard, senior vice president and director of sales.

Surveying bank representatives and tracking sales also identify preferred companies (and wholesalers).

In addition, the results of Dalbar surveys figure heavily in the selection process.

Dalbar, an independent company, evaluates fund companies' service and performance by surveying bank representatives.

At Chase Manhattan Bank, quantitative analysis of fund performance is definitely the first step in the due diligence process, emphasizes Peter Wall, a senior vice president. Only then does Chase move on to evaluate the wholesaling force. Terri Powell, program manager at Wachovia Investments, agrees. "To be chosen as a Tier One provider, you need name recognition, upper quartile performance, and financial depth," she says. Once these criteria are met, other factors narrow the selection.

"Wholesalers must know our bank and what we want to see in our program," Ms. Powell says. Wholesaling is a relationship business. Wholesalers must be true partners concerned about their producers' long-term business.

There are several ways wholesalers can bring value to the partnership:

Product knowledge

In selecting a fund company, Chase evaluates the caliber of the wholesaling force. Product knowledge - qualitative vs. quantitative - is crucial, says Mr. Wall. "The wholesaler must have a good command of the subject matter."


"Mutual fund companies finally got the message less is more," says Mr. Nonnengard. Working in smaller territories, wholesalers now talk to representatives two to three times a quarter instead of once or twice a year. More frequent contact improves relationships and sales.


Mr. Wall tracks how quickly wholesalers respond to "requests from our sales people for materials, presentations to an internal audience, or an audience of customers and prospects." The number and frequency of meetings and follow-up calls is also weighed.

Sales force development

"Banks are transitioning to a sales culture," says Ms. Powell. "We consider wholesalers an extension of our sales force - not just a vendor." Wholesalers do branch training and discuss product presentation with individual investment counselors. They focus on developing the bank's knowledge base and sales skills, not pushing products.


Chase establishes rules and procedures for wholesalers. "To conduct business within our system, wholesalers must abide by this basic code of conduct," Mr. Wall emphasizes.

Best practices

Recommending ideas and approaches is crucial. Suggesting a campaign idea and sharing what works for other programs are "things we consider most when asking whether we continue this relationship," notes Ms. Powell. Promotional support includes developing client seminars targeting women in investing, mutual fund basics, asset allocation, equity investing, and client appreciation events. Occasionally, Ms. Powell interviews wholesalers to ensure that they will work within Wachovia's program.

Seamless support

"The best wholesalers have the best internal wholesalers," states Mr. Nonnengard. Exceptional internal wholesalers are crucial because banks speak with them 90% of the time.

Internal wholesalers resolve routine problems, run hypothetical illustrations, and send literature and marketing materials. They make certain that producers have what they need to do business that day.

Product ideas

Today, asserts Mr. Nonnengard, banks are driving the mutual fund business. Under the financial modernization law, banks enjoy increased opportunities to exert influence over the brokerage business. Wholesalers must adapt by becoming "an inch wide and a mile deep." They need to target producers, specializing in what those banks and brokers want. Financial institutions, meanwhile, must select wholesalers that can help them meet diverse customer needs.

Increasingly, bank access to middle-income and small investors will lead to market segmentation. Additional wholesalers and counselors - each targeting a specific income group - will open doors that demand new products. Mr. Wall already sees "customers at all economic levels" moving into mutual funds. Since many banks cannot afford to develop elaborate brokerage operations, they need third-party wholesalers to provide investments and investment advice. "Investment counselors expect wholesalers to bring a particular product or fund family to their attention," agrees Ms. Powell.

In short, today, wholesaler effectiveness goes beyond sales. The key questions are: "How well do you understand your client, and how well do they understand your capabilities?" During the next decade, banks will exert enormous influence over customers and relationships.

To succeed in this environment, fund companies must offer a broad array of products, deliver consistent performance, and still fit the individual bank culture. To accomplish this, companies need strong relationships with financial institutions.

And for that, they need knowledgeable wholesalers. Mr. Cunningham is senior vice president for financial institutions at Delaware Distributors LP, the distribution company of Delaware Investments in Philadelphia.

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