Right-Sized and Customized

Boston is a Mecca of the money management industry, serving as headquarters for a fair number of mutual funds, broker-dealers and fund managers. This being the third Lunch with Research to be based in Boston over the past four months, I no longer need advice on Beantown’s culinary specialties. I promptly settle for the catch of the day, especially since we’re having lunch at a place called Kingfish Hall, part of the city’s historic Faneuil Hall complex.

Kevin Rowell, hired to head the U.S. sales effort at Pioneer Investments a little over a year ago, is no stranger to Boston either. Early in his career, he spent a decade working for another local firm, Putnam Investments, which included a stint in Milan, Italy.

It so happens that Pioneer, one of the oldest U.S. mutual fund companies, has been owned by Milan-based UniCredito Italiano since 2000. But in Rowell’s case it is merely happenstance. First-hand knowledge of Italy may help him get on with his top management, but his mandate is to bolster the company’s sales in the U.S. market.

Rowell points out that UniCredito adopted the Pioneer brand for its global mutual funds operations. Indeed, boosted by the Italian bank’s recent acquisitions in Europe, Pioneer has become a global powerhouse, one of the world’s top 50 money managers, with assets under management surpassing $350 billion. But less than one-fifth of this amount is managed in the United States.

At home, too, Pioneer has been growing through acquisitions in recent years, buying Safeco Mutual Funds (where Rowell was once president), AmSouth Bancorp’s mutual fund business and Vanderbilt Capital Advisors. An alleged attempt last year to snare Putnam, another of Rowell’s past employers, was unsuccessful.

Rowell skirts this subject. He is more interested in talking about organic growth. Nevertheless, before launching into the description of his marketing strategy, he gets one unpleasant subject out of the way. Until last year, Pioneer was suffering net redemptions in the U.S. market. Rowell attributes this to the fact that Pioneer has one of the largest portfolios of high-yield investments in the industry, “but many people just moved out of the high-yield asset class.” But it is also the reality that in a bull market interest in actively managed funds has diminished.

A Scientific Approach

In 2006, Pioneer did experience a strong turnaround in its U.S. operations. Rowell points out that last year was the firm’s best in its hallowed 78-year history in terms of sales. Net redemptions in 2005 turned to net sales of over $5 billion last year.

Favorable market conditions obviously played a role in this, but Rowell wants to talk about initiatives he is putting in place to lay the groundwork for success in the future. All are based on Rowell’s view on how the financial planning marketplace is evolving — and how a mutual fund company should respond to industry changes.

“Advisors spend much less time making investment decisions,” he says. They are outsourcing them to investment selection units at their broker-dealer, focusing instead on gathering assets and spending time with clients.”

With so much of investment advice now provided on a fee-based basis, advisors are spending more and more time taking care of their clients, learning about their lifestyles and other, non-financial problems they face and offering “life-coaching” advice in a variety of unpredictable situations. They have their hands full concentrating on this aspect of their job.

Decisions are now made by units of 18 to 25 analysts who are selecting investments and portfolios based on their organization’s investment platforms. Rowell estimates that fully 45 percent of investment flows pass through such teams, and this proportion is growing.

In response to this change, Pioneer is developing a platform research group, consisting of CFA-level professionals, who will focus specifically on fund selection units at wirehouses, broker-dealers and in some cases, major banks. They will speak the language, think like analysts and understand their investment strategy.

To get financial analysts face to face with their colleagues, people whose judgment they respect, seems like a sound sales strategy. “If people on those fund selection units want to know, for instance, what our buy and sell criteria are, it is much better if we have another analyst, not a salesperson, answer their questions,” says Rowell.

Rowell’s ambition is to customize Pioneer’s approach to most large financial planning organizations: “The needs at each major firm are different. We want literally to reverse-engineer their investment platforms.”

For example, he says, if a company wants to replace a mutual fund in a 10-fund portfolio, it is useful for Pioneer to know not only what fund they will be dropping and why, but what the other nine funds are. In effect, says Rowell, Pioneer sales professionals get about an hour to make their case to decision-makers, and he wants to ensure that the discussion is conducted as efficiently as possible.