AIM Investment Management's decision to fold its bank wholesaler division into its brokerage sales force has nearly ended the era of dedicated bank wholesalers in the mutual fund industry, but industry officials say that dedicated bank salespeople remain important to insurance companies.
Houston-based AIM folded its bank wholesaling division, which had existed since 1993, into a new wholesaling unit on Jan. 1 that calls upon both banks and brokerages, said Gene Needles, the unit's head. The move's purpose was to trim overlaps, which sometimes occurred when two wholesalers would call on a bank and its subsidiary brokerage, Needles said.
No wholesalers were laid off, he said.
AIM is merely the most recent fund company to do this, and it is among the last. In recent years many fund companies with successful bank sales practices - including Zurich Scudder, Franklin Resources Inc., MFS Investment Management Inc., and OppenheimerFunds Inc. - have combined their banking and brokerage sales forces.
Combinations of bank and brokerage sales forces - or, in some cases, bank and independent adviser sales forces - reflect the many instances of banks' buying brokerages, Needles said.
"It doesn't make sense to have separate channels when the industry is consolidating," he said.
In addition to reducing overlap, Needles said, AIM's move was intended to preserve the continuity of relationships that wholesalers have with the bank and brokerage reps who sell AIM funds in the retail marketplace. With financial conglomerates forming and, occasionally, splitting apart, a rep could see several different wholesalers over a few years, Needles said. "We want to preserve the relationships," he said.
Kenneth Kehrer, president of the research and consulting firm Kenneth Kehrer Associates in Princeton, N.J., said that many mutual fund companies' decisions to consolidate the bank and brokerage channels might also have something to do with the slowing of sales through banks in tandem with the past year's down market. "One motivation may be to stop the bleeding" from lower fund sales, he said.
Insurance and annuity salespeople "aren't facing the same sort of cost pressures" as fund companies in the bank channel, Kehrer said, so they may still be able to justify having a dedicated bank sales force.
Matt Riebel, president of Financial Institution Distributors Agency Inc., a unit of the Columbus, Ohio, insurer Nationwide Financial Services Inc. that sells through banks, said that "the environment is different" at banks. In contrast to wire house brokers or even full-service bank brokers, bank platform reps often need sales training.
If the platform reps "are not confident they're not going to refer [the customer] to a broker," Riebel said. Platform reps account for about 10% to 15% of Nationwide's sales, he said.
Also, combining channels would spread the insurance wholesalers too thin, Riebel said. "It's tough to have someone cover three or four channels with their different cultures and different mentalities," he said. Nationwide has 44 wholesalers who sell exclusively through banks, he added.
Another insurer, Hartford Financial Services Group Inc., has a dedicated bank channel through which it still sells mutual funds, as well as retirement products and fixed and variable annuities, said Bruce Ferris, vice president of sales and marketing. In fact, the longstanding relationships that Hartford's bank wholesalers have with bank brokers and platform reps actually helped its mutual fund sales to rise 20% last year, he said.
Most other mutual fund companies have seen fund sales fall in the past year, he said, which may have prompted some to consolidate their bank channels.
"There has been a fair amount of retrenchment; people are looking to contain expenses," Ferris said.
Kehrer said a cultural reason explains why insurance wholesalers still call on banks in a way that most fund wholesalers no longer do. Platform reps, by contrast with full-service brokers, are often uncomfortable with the "whiz-bang sales presentations" of mutual fund wholesalers, he said.
Nonetheless, as platform reps become more sophisticated and adept at selling mutual funds, fund companies may bring back dedicated bank wholesalers. For that to happen, platform reps would have to start selling funds other than their banks' own proprietary products, which is largely what they do now, Kehrer said.
Some experts think there are good reasons to preserve dedicated bank channels in the mutual fund industry. Matthew McGinness, a consultant at the Boston research company Cerulli Associates, said that bank brokers remain different enough from their wire house peers to merit specific attention.
However, bank reps tend to be spread geographically more than wire house brokers, which makes calling upon them more time-consuming, particularly considering that bank reps in general sell far fewer fund products than stockbrokers do, McGinness said.
Dedicated bank wholesalers are essentially a "luxury" that is best afforded by fund companies that anticipate significant sales in the bank marketplace, he said.
"Channel segmentation is like a Jaguar," McGinness said. "It's great if you can afford it."