Looking for a new back-office administrator for your mutual funds?

Don't be surprised to see strategic and highly tailored distribution services served up as an a la carte menu item. Offering mutual fund advisors assistance in identifying, targeting and implementing distribution strategies is the hottest new service being offered by veteran fund administrators that have long tackled more mundane tasks such as fund accounting, recordkeeping and answering investors' inquiries.

Last year, both BISYS Fund Services of Columbus, Ohio, and PFPC of Wilmington, Del., added a suite of core consulting and distribution services to their arsenals, formally helping investment firms do everything from running their internal wholesaler desks to devising tactical marketing programs. The standalone services are available to existing clients as well as non-client firms.

Among mutual fund advisors, two major trends have emerged, noted George Evans, executive vice president of business development for BISYS. Investment advisors are turning to outside firms and asking for help with all of the imbedded issues inherent in the new legal and compliance requirements, and as well as for help in growing their assets, he said. BISYS is now providing distribution advice and services to clients numbering in the "upper teens," he noted. In fact, the firm created a new business line, BISYS Distribution Solutions, dedicated to that effort.

While the largest fund companies have the resources and talent to build out sales and marketing functions and navigate a successful distribution plan, it is small firms and those with up to $30 billion to $40 billion in assets that are typically seeking help, Evans said.

Likewise, PFPC executives note that they have seen the most interest from investment management firms with $35 billion or less in assets. They are also seeing a trend in clients asking for bundled services, where distribution is routinely offered alongside more traditional back-office services.

The three-year bear market caused companies to realize that they cannot be all things to all people, and that despite the asset tsunami in the late 1990s, today, asset gathering must be more strategic, said Bob Kennedy, senior vice president of the new BISYS distribution unit. "They are saying, Help us get a better sense of who we are and apply our resources prudently,'" he said.

Most Profitable Niches

Unlike the highflying 90s, fund sponsors aren't looking to expand distribution platforms and have a presence in each and every distribution channel. Today, firms are looking to pare their preferred-partners list and stay with only the most profitable distribution partners, Kennedy added. "We help them decide where to go and why, and then help them implement a plan," he said.

Fund companies that have merged complexes or taken stock of competencies are now deciding where to direct their previously divergent distribution efforts, while they keep close tabs on shrinking profit margins and the deployment of resources. In addition, banks and insurance companies that once relied entirely on internal distribution channels are now hoping to grow their businesses beyond their captive sales force into other non-proprietary sales channels, explained James W. Nolan, senior vice president of business development at PFPC. With many facing slashed marketing budgets, "they don't have money to play with," he said.

Current considerations have become much more tactical, confirmed Eileen Storz-Salino, vice president and senior director of PFPC Distribution Services. With M&As on the rise, lots of blended fund families are "realizing there are too many relationships to manage and they have lots of pressure on their business. They are looking for ways to allow them to grow," she said. Among other things, PFPC counsels its fund clients on which distribution networks makes sense to sell through, which funds are best for distribution, how to tell the story about a particular fund, and how to integrate a firm's marketing and sales functions into the distribution mix.

The Armada Funds, managed by National City Investment Management Co. of Cleveland, signed on for PFPC's distribution services several months ago. The firm had been building out its own internal and external non-proprietary sales force, which now includes 11 wholesalers. But in the process, the firm's executives realized two things. First, that they needed help understanding and navigating this unfamiliar sales channel and establishing a solid distribution plan. And second, they needed to tap into experience and talent that wasn't necessarily residing in Cleveland, said Kathleen Barr, senior vice president and managing director of the Armada Funds. "We need a talented team to help grow this business. But we can't find every piece of that in Cleveland," she said.

As a result, PFPC hired someone to serve as an outside national sales manager to the fund group, who understands external distribution and how to incorporate all of the product, sales and marketing components, Barr said. That PFPC employee now spends a couple of days a week in the Armada offices, which suits Barr just fine. "We honestly believe that our service providers need to be on the same team, not just providing a component, but involved in the strategy process and understanding the goals and objectives we've identified."

But servicers are finding there is a downside to providing consultative/strategic distribution services to fund firms. In many cases, fund advisors intent on leaving no room for error, are negotiating performance-based contracts for distribution services, said BISYS' Evans. Fees for services may be adjusted downward if there is no concrete evidence of success, he added.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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