From the April 2010 issue of Research Magazine • Subscribe!

April 1, 2010

The Accidental Wholesaler

People skills, product knowledge, reliability and trustworthiness. That's how Jerry Padilla took his territory from the bottom decile to No. 1.

No one dreams of becoming a wholesaler one day. Not even Jerry Padilla, who happens to be a very good one. Grueling, humbling, sometimes thankless -- not exactly attributes that propel one to a job. "It was very accidental," says Padilla, whose specialty involves -- what else? -- one of the industry's most challenging products: the variable annuity.

Yet this accidental wholesaler in just over a decade has forged a career path that looks as though it were precisely planned. Today, as an annuity planning specialist for Morgan Stanley Smith Barney, Padilla is the gatekeeper to 1,700 advisors in 11 states, including California where he lives. If an external wholesaler wants to call on an advisor, it's probably best to contact Padilla first.

What makes the 37-year-old Padilla such a force? As variable annuity expert Moshe Milevsky puts it: "Ultimately the annuity business is about people, not products. Jerry is a great people person. He listens, he cares and if he doesn't know the answer, he doesn't [pretend he does]."

Morgan Stanley Smith Barney advisor Elaine Habif, thanks to Padilla a convert to annuities, calls him skillful and informative. "He's not in your face," adds Habif, who has a practice in Los Angeles. "He narrows it down and makes it understandable. And he's completely and totally accessible. From a financial advisor's point of view, you can't ask for more than that."

And Cynthia Newman, the firm's Beverly Hills North complex manager, observes: "You have to show up. You have to be there. Advisors have to trust you and they have to believe the information you are providing them is accurate. The only way you get there is by [spending] time. With Jerry, it's never about the sale. It's never about the close. It's about what's best for the client."

Since joining Morgan Stanley in 2006, Padilla has had a measurable impact. During his first year as district sales manager covering 31 offices in central and southern California, the firm honored him with its inaugural Specialist of the Year award. During his tenure, he took his territory to No. 1 in total annuity and insurance sales -- up from the bottom 10 percent.

Consider this small snapshot: The Pasadena, Calif., branch in 2006 was the 30th largest Morgan Stanley branch in overall revenues but it ranked only 140th in terms of insurance revenues. By last year, it was ninth in insurance revenues.

"Jerry was the spark that went off," notes David Richman, who took over as Pasadena branch manager four years ago. "We were really bottom of the barrel as far as insurance, strictly because nobody had come along and put a plan together. Jerry was the quarterback of all of this unbelievable education. And this is an area where education is more important than anything."

Last fall, as part of a restructuring triggered by the Morgan Stanley Smith Barney joint venture, Padilla was recruited to support the annuity business as the firm's inside wholesaler in 11 states. Southwest Airlines and Hertz are now his constant companions. Still, he will log at least 15,000 miles in his own car this year, calling on local advisors during the weekdays he isn't traveling. Sometimes, instead of flying, Padilla drives the three hours from Los Angeles to Las Vegas just to catch up on phone calls. "Windshield time," he calls it. Practically the only time he spends in his own office, the Morgan Stanley Smith Barney branch in Santa Monica, is late at night when he pops in to use the copier or to do research. Advisors say they can tell he's been there because of the signature trail of candy wrappers and carton of milk Padilla typically leaves behind.

"With this new territory, it's been tough for me. You're back to zero, you're no longer known by everyone. It's funny I still get three to four calls a day from my old territory. Even from the tough advisors, I can hear it: 'Jerry, we miss you.' It's killing me but I have continued to extend myself, whether it's attending an advisor's wife's 40th birthday or helping them vet competitors," says Padilla. "At this point, I'm reinventing my business. It's like John Wooden says: 'It's what you learn after you know it all that counts.' Hopefully, I'm at that point now where I'm above water."

The Path Ahead

Get to know Jerry Padilla even a little bit and it seems just right that John Wooden, the inspirational basketball coach, should play front and center in his thinking. Padilla himself was a student athlete, lettering in four varsity sports in high school. A former personal trainer, he coached basketball at Malibu (Calif.) High School in the late 1990s. Nights when he's home, it's not unusual to see Padilla playing Ultimate Frisbee with buddies on the beach.

There's more. While studying international relations in Malibu on an academic scholarship at Pepperdine University, Padilla became involved with Best Buddies, which pairs students with local residents who are developmentally disabled. Today, he is deeply involved in Westside Special Olympics, where he volunteer-coaches basketball, track and field, and bowling.

It is his association with Special Olympics that gives Padilla balance and perspective.

"My mom taught me that at the end of our lives, all we have left is what you give away. I've always tried to live by that. It's easy, especially in our industry, to become jaded. These kids take nothing for granted. You realize how blessed all of us are. Without it, I don't think I could continue doing what I do," he says. "I do it selfishly. These guys are helping me. It makes me feel good. It makes you realize how insignificant a lot of things we complain about really are."

Padilla grew up in Santa Fe, N.M. His father owns a small vending company there; his mother is a semi-retired real estate agent. After graduating from college, Padilla moved back to Santa Fe, where he got a job as an internal wholesaler with Davis Selected Advisors. "When you go to school, you don't think about going into wholesaling," he says. "I just needed a job."

While he was pushing the Davis mutual funds, Padilla kept hearing about something that intrigued him: annuities. In what would become a defining moment, Padilla moved back to southern California to work for SunAmerica, where he was named both Rookie of the Year and Employee of the Year. By the time Morgan Stanley recruited him, Padilla was SunAmerica's western divisional manager, overseeing 12 wholesalers and responsible for all business development and channel marketing of annuities.

"The annuity is very complicated. Because it's so complicated, people tend not to look at it," says Padilla. "My job now is to talk about what it does -- rather than what it is." Padilla works with a dozen insurance companies -- covering about 95 percent of all variable annuities sold. After vetting them, he will often accompany the carriers' external wholesalers to their meetings with advisors. "I have no stake in the game for any one carrier; that's where I love my role," he says. "Maybe we present two carriers, and then the advisor decides." But the advisor needs to trust Padilla first. "I need that credibility -- that 'Wow, this guy knows every single product. Wow, he knows what he's doing.' I stay on top of things. I make suggestions," he adds. "I'm able to be much more transparent than the externals. I want to make sure what they are saying is right. The best part is I'm in a role where I can help provide maximum solutions in the best interest of the client."

Last year was tough for the annuities business. With the solvency of insurance carriers called into question, advisors and clients alike began to look at the variable annuity with renewed scrutiny.

But Padilla sees better days ahead.

"It's really forced all companies to look closely at the products they are providing instead of getting into a product war. It's made them much more tactical and more client-focused," he says. "Whether we stay flat or if there's a little bit of a correction, the need for a personal pension plan is going to be greater than ever."

Meanwhile, Padilla continues to convert advisors who have historically viewed the variable annuity with skepticism.

One advisor once told Padilla: "There's not a chance in a million I would do this product." After Padilla talked to him about product allocation, among other things, the advisor changed his mind. His group now does $3 million to $5 million in variable annuity premiums a year.

"Now I have advocates in that office. People look around and say: 'If you got these guys to do it, there's some merit in this.' Now it's a component of their business. It's contagious that way," says Padilla. "And I get to know that there are clients out there who now have a personal pension they might not have otherwise had. People smile or say thank you. And I know they're thinking 'This kid is not trying to sell me something.' That drives me. In the end, everyone wins."

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Trends in Wholesaling

In the wake of significant market-driven layoffs of external wholesalers, the role of the internal wholesaler has become more prominent. Yet internals appear to be undervalued in terms of career path and rewards for heightened sales and service responsibilities.

In a new report, "Excellence in Distribution: Internal Wholesaling 2009," the consulting firm kasina says asset management firms need to do a better job of empowering internals by giving them visibility and outlets for personal growth.

"Progressive managers need to get creative. Professional designations, skill building, project management, team leadership -- these are ways you can empower people without just paying them more or promoting them," notes Eric Daugherty, kasina's research director.

Also in play: an advisory community that is becoming increasingly receptive to remote contact through e-mail, telephone or videoconferencing. "It feels like the playing field is leveling out a bit. Remote means of communication are supplanting face to face," he adds. "That represents a huge opportunity for firms to use internals and hybrids as well."

The hybrid wholesaler is the other big headline, according to Financial Research Corp.'s "Wholesaler Effectiveness" survey, released in February. According to the report, 25 percent of asset management firms now have hybrids: essentially internal wholesalers who do some travel.

"The definition varies widely. In some cases, the internal will be on the road one day a week, in others three to four days. The distinguishing mark is that the follow up is going to be by phone or e-mail," observes Larry Petrone, senior vice president and director of research. "Externals spend so much time on the road, and there's only so much ground they can cover. The advantage of the internal, or hybrid, is they can cover a larger number of advisors and larger geographic area."

Meanwhile, in the no-surprise category, advisors told FRC that trust, even more than product knowledge, is the foremost characteristic they look for in a wholesaler.

"Some of the things advisors said were: Do they follow up on what they promise? Do they understand my business? And if they know my clients and my business, can they add value? Because of what happened in 2008 and 2009, service has become more and more important," said Petrone. "It's a business partnership. Not that it wasn't before, but it's been heightened. These are two years that tested the bounds."

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