It wasn't the devil, but the bear, that made them do it.

Amidst grim market conditions and widespread layoffs, mutual fund giants have been forced to push wholesaler salary levels down nearly 20%, according to DGL Consultants. In its 2001-2002 Annual Sales Compensation Survey & Analysis, one of the most detailed reports available on investment compensation, the Richford, Vt., research and consulting firm notes that "depressed financial markets combined with the cost associated with keeping wholesalers in the field have caused companies to fine-tune compensation plans to cut costs."

At the same time, DGL says, fund companies have done what they can "to support the intermediary relationship."

Wholesalers of investment products and services, including annuities, managed money, mutual funds and retirement services, saw their total cash compensation drop an average of 18.6% in 2001.

National sales managers also experienced a drop in their total cash payout, their weighted averages dropping from $456,500 in 2000 to $398,000 a year later, a 12.8% decline. Further breakdowns of wholesaler compensation by product - managed money and mutual funds - showed a fairly steady decline for managed money salaries, dropping almost 11% from 1999.

Million-Dollar Man

"In this volatile financial market, the salary levels tend toward the median," said Don Lariviere, president of DGL Consultants. In the financial service industry, salary ranges can be quite high; DGL data shows that wholesalers can earn anywhere between $40,000 and $500,000 or more. In the New York metro market, certainly, there are a number of brokers earning well over $1 million.

From 1999 onward, the weighted average salary for mutual fund wholesalers, however, seemed to stay fairly constant at the $60,000 mark.

Despite the decline in managed money wholesaler salaries, the survey also noted higher average salaries for managed money versus mutual funds. Lariviere equated this trend to two general factors, one being the "smaller universe of managed money wholesalers," begetting a higher barrier to entry, and the presence of more senior managed money wholesalers. "Managers with fewer assets under management generally must pay more to attract and retain talent," he said.

Moreover, the study also indicated the fact that not enough "draw only" data was reported for managed money compensation, the draw component of the base pay being the loan against anticipated future earnings. Lariviere maintained that draws do exist but on a much more limited basis versus salary only, "the implication [being] that companies have a difficult time attracting talent with a draw only' base component.

"Typically, draw only' is an indication of a company wanting to control and/or limit expense. It's not usually an issue in good markets, but [an issue] in out-of-favor, down markets. More productive wholesalers will leave for more assured compensation."

In terms of mutual funds, wholesaler base compensation has seemed to stay fairly constant. Yet, one interesting trend is an increase in the incentive element of base pay as the size of companies increased.

Bigger is Really Better

"Generally, the top-tier mutual fund companies get the lion's share of sales production," Lariviere said. "The key factors include the most effective and efficient use of the sales force, and overall solid investment performance."

National sales managers have also taken a hit in base pay. The component of their pay that has suffered the most is incentives, which have fallen 17% from $294,900 in 2000 to $244,800 in 2001. Base, on the other hand, fell only 5.2%.

The numbers also seemed to support the fact that incentives offered by "growth" companies, as opposed to those that have reached "maturity," were much larger in comparison to those offered by companies in other phases of market development. "Growth companies generally get the most sales production," Lariviere said. "Base, typically a salary, is generally established by external market competition for talent and the experience level of the individual. Incentive is tied to performance," and in the difficult market of the past three years, few have stood out here.

In terms of company size, however, salaries for national sales managers do not fluctuate a great deal. Interestingly, there were notable deviations in the $25 billion to $75 billion range, where there was a marked increase in incentive pay and thus total cash payments.

"Some companies best known for their fixed versus equity investment products suddenly found themselves in a growth phase of market development," Lariviere explained. "The result created a windfall' compensation for sales management. The implication is that these comp plans will probably be revised to reign in future windfall." The lesson here? Those lucky managers should get it while it's still good.

Finally, phases of market development affect the salaries of national sales managers more than wholesalers, while company size affects wholesaler salaries more than those of national sales managers.

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