As financial advisors abandon their traditional transactional-based business model for something more holistic, one key player has largely failed to keep up: the wholesaler.
As Ray Scalafani, founder of ClientWise, an executive coaching firm for wholesalers and advisors in Tarrytown, N.Y., puts it: “There is a massive need in the industry for the transformation of the wholesaler. Wholesalers, generally speaking as an industry group, haven’t kept up with the changing role of the advisor. Their behaviors simply aren’t changing fast enough.”
Historically, the wholesaler’s product pitch was built, according to one pundit, on “steak, whiskey, golf and an American Express card.” Not to mention the ubiquitous “booth babes,” hired by firms to draw attention to their products at industry conferences. While that model is in decline, wholesalers have been slow to reinvent themselves.
A Wholesaler Top 10In its wholesaler effectiveness survey of February 2007, Horsesmouth/Financial Research Corp. – which jointly operate Advisor Insight – rank 33 firms for high-quality wholesaler interactions with advisors. The top 10 are:
1. DFA2. GE Asset Management3. Russell 4. John Hancock Funds5. Transamerica IDEX 6. Charles Schwab7. Legg Mason8. MainStay Funds9. JPMorgan10. BlackRock Funds/Merrill Lynch
As an example, 10 LPL Financial advisors, meeting as a study group recently, couldn’t stop talking about how they are being pummeled by aggressive, non-helpful wholesalers. One wholesaler actually got in front of the group at an earlier gathering, presenting what amounted to a “worst practices” demonstration.
“Between us, we probably manage a billion dollars and this guy was like a video of what a bad wholesaler does. He just rattled on. He was unprepared. It was all about him, not about us,” notes Tiff Joyce, principal of Joyce Financial Management in Sebastopol, Calif.
“We’re happy to talk to somebody if we’re going to learn something, but please don’t come in and tell me why your growth and income fund is better than their growth and income fund,” Joyce adds. “I have clients with brain tumors. It’s heavy-duty stuff. Unless you have something unique to share, we don’t have time for you.”
Joyce’s remarks put a face on some telling statistics.
The Horsesmouth/FRC Wholesaler Effectiveness Survey of February 2007 also ranks 16 value propositions compelling enough to convince advisors to select one wholesaler’s products over another. The top three: 1) Takes a solution-oriented approach to me and my clients rather than pushing product. 2) Understands how I do business. 3) Offers ideas based on what’s working for other advisors. Interestingly, product itself doesn’t show up until the sixth-ranked item. [See sidebar.]
Clearly, quality wholesalers can wield a lot of influence.
In a related finding, an Advisor Insight survey on marketing effectiveness earlier this year showed that nine out of 10 advisors believe the wholesaler should have some involvement in the delivery of a value-added program. But here’s the challenge, as spelled out in the study’s executive summary: “With such a large percentage of advisors desiring wholesaler participation in the delivery of VAPs, it will present firms with a difficult task of balancing program content that is deemed independent while involving personnel that are normally so closely tied to product and the generation of new assets.”
In this developing landscape, forward-thinking wholesalers are becoming more of a partner or consultant to advisors, according to Craig Kilgallen, vice president of Boston-based Financial Research Corp. and director of its Advisor Insight research surveys. He said some firms are encouraging existing wholesalers to get chartered financial analyst and certified financial planner designations and, as they hire, they are looking for candidates with MBAs. Kilgallen even advocates for banning the term “wholesaler” because of its salesy connotation.
“I’ve always been a big believer that wholesalers do make a difference as long as they are doing the right activities. Today, going out to dinner or golfing do not constitute the right activities,” says Kilgallen, himself a wholesaler for seven years. “The wholesaler must really understand the advisor and what their world looks like. It gives you a huge advantage.”
Among the changes in this new playing field:
For starters, the sale today ideally is an intellectual, client-need-focused sale. Next, the really savvy wholesalers are promoting value-added programs on everything from referrals and target marketing to capturing IRA rollovers and retirement income. There’s also been a rise in prominence of the internal wholesaler or sales desk, supporting in deep ways both the external wholesaler as well as the advisor.
“The whole character of the game has changed. By definition, it has to be more professional. The advisor is looking for tools. It’s no longer a slam-bam sale,” observes Lou Harvey, who heads the Boston consulting firm, Dalbar. “In the not-so-old days, you’d have events with motivational speakers and booth babes. Now, you’re seeing much more technical material presented — white papers, third-party papers. The whole environment is becoming much more serious. We haven’t lost the golf balls yet, but we’re definitely moving away from the wholesaler’s stock and trade to something altogether different.”
What the Advisor WantsThree years ago, the advisors at First Financial Strategies in Denver banned wholesaler meetings.
“In our office, the average tenure is 17 years and we’re kind of beyond the traditional wholesaler-advisor relationship,” notes Phil Lubinski, a certified financial planner. “We as a group said basically we don’t want any more wholesaler meetings. We’d eaten all the doughnuts we could stand and we didn’t need any more golf balls or golf shirts.”
Today, Lubinski looks strictly for technical support from the wholesalers with whom he does business.
“It’s not an advisor’s favorite thing to read the prospectus of 10 different investments. You become dependent on the wholesaler to explain how this new investment works,” he says. “You can’t eliminate your source of information. There’s not enough hours in a day for the advisor to research everything out there and still make a living advising.”
Which is exactly the point.
What do advisors want from wholesalers? Time efficiencies.
As Dan Maurer, senior vice president of marketing and professional development of Curian Capital, frames it: “If we’re successful, we have advisors saying: ‘Wow, they’ve obviously listened and they are addressing this in everything they do. They’re providing me with measurable time I can bring back to the business; I can coach my son’s Little League team; I can spend time with my grandkids. They’ve given me my time back.’”
Not coincidentally, a study last year by Denver-based Curian Capital, which provides fee-based separately managed accounts, found that 89 percent of 850 independent financial advisors surveyed spend less than half of their work time in front of clients and prospects. Curian routinely polls its advisor-clients, tweaking its offering accordingly. Due out this month: a retirement income planning survey.