How broker-dealers can help with mutual fund sales

by Mark Peterson

Before 2004, investors were looking for the proverbial suitable mutual fundone with double-digit returns, low expenses and little risk. Today the story is much different and more challenging for financial services professionals.

While returns, expenses and risk remain important, with memories of the bear market fading, investors have gotten bolder and are asking for high-flying sector and international funds. And with some mutual fund companies getting splashed on the front page by New York Attorney General Eliot Spitzer, both clients and representatives are looking more closely at fund sponsors and their operations. Representatives and their customers are looking for more information about fund companies and reassurances that their fund wont be the next one to be accused of improprieties.

Today, financial services professionals need:

–The ability to take a complex product and explain it in common language.

–Product training so they can better serve todays more educated consumers.

–Case-development workassistance from specialists in the recommendation and to accompany the advisor on a joint sales call.

–Knowledge to recommend funds confidently. If a client comes to you with $100,000 to invest, which funds will you have the confidence to recommend?

–Topnotch back office service.

–Continuing sales ideas and sales training.

In all of these areas, the broker-dealer must provide vital assistance. Especially during the first few years of their career, representatives need intensive ongoing help and mentoring, and the broker-dealer is best positioned to provide it. As reps progress, they need more advanced support.

Helping clients navigate complex fund choices

Without a professional to guide them, most investors actually do buy high and sell lowjumping in when the market is hot and bailing out when it plummets. Today, more than ever, they need a trusted professional to remind them to stay the course when the market falters and soars. Asset allocation shouldnt blow with the winds of Wall Street.

What about sector funds and international fundsparticularly the more exotic types that invest in emerging markets like China and India? These more-volatile funds can boost returns, but like spice in food, they have to be used judiciously and in moderation. Its the goal of the broker-dealer to both provide such fundsafter careful vettingand also help representatives educate their clients about their proper use.

Delivering fund knowledge and support to diverse reps in 2005

Broker-dealersparticularly those that serve securities-licensed insurance agentsserve a very diverse group of representatives. My company, for instance, has individuals ranging from newly minted reps who have spent their careers selling auto and home insurance, to those with several years of experience, to experienced, sophisticated individuals whose knowledge is top flight. Firms need to provide both training and products that can accommodate the rookie, the financial wizard and the majority who are between the extremes.

Today, a broker-dealer must have a platform that can use a multi-pronged approach combining both online and in-person training. Weve found training new reps is most effective online. When we shifted from in-person sessions to a Webinar, we found that the average rep wrote his or her first ticket 17 days sooner.

But individual mentoring is also crucial, with varying levels of support, from internal wholesalers who can answer reps questions on the phone, to wholesalers who give group presentations on marketing ideas, to senior wholesalers who go out with agents on sales calls.

Wholesalers can talk all day about making effective presentations, but seeing and participating are the most effective ways to learn. The best method takes three appointments, or three joint sales calls. On the first call, the wholesaler handles the presentation and the representative simply watches. On the next call, the wholesaler and representative present the solution to the client together. On the last call, the representative handles the entire presentation while the wholesaler watches and offers a critique afterward.

This three-pronged approach has proved to be very powerfula consistent winner. As the old saying goes, once you teach someone how to fish, hell never go hungry.

Case development is another valuable technique. Here, the wholesaler will sit down with an agent and discuss an actual customers portfolio. For instance, the customer is a 50-year-old professional who wants to retire in 10 years. How would you allocate his or her $200,000? Which funds would you use? This exercise builds the reps confidence and skills.

Fund companies can handle asset allocation for the advisor and rep. Some companies provide passive asset-allocation services. Based on the clients risk tolerance and time horizon, the fund company will offer an appropriate mix of domestic and international stock funds, bond funds, and money market funds. After the initial allocation, its up to the representative and client to meet periodically and rebalance the portfolio.

A few fund companies provide active asset-allocation services that periodically rebalance the clients holdings. The fees tend to be higher but can be well worth it because both the representative and client can feel comfortable letting the investment program go on autopilot. A solid active asset-allocation program can be a boon for busy representatives with many clients. The broker-dealer also should perform ongoing due diligence on all fund companies it works with and remove any that dont observe high standards of ethics.

Clients hot buttons change with market conditions, but the principles of solid investment strategy do not. Representatives need to help their clients find both what they want and what they need. By partnering with a broker-dealer that provides training, hands-on mentoring, information and quality control over fund providers, representatives will both do good for their clients and do well for themselves in 2005.

Mark Peterson is vice president, marketing and sales, with Farmers Financial Solutions, LLC in Simi Valley, Calif., the broker-dealer serving securities-licensed Farmers Insurance agents. He can be reached at mark_peterson@farmers.com.


Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.