Taming The Beast

September 24, 2001, 1:00 a.m. EDT 2 Min Read

By adding extra services, besides solid investment products, mutual fund companies that have wholesale distribution arms are trying desperately to attract more assets through the independent adviser market. The strategy seems to be working -- sort of.

According to a Cerulli Associates report, nontraditional sales channels for mutual fund companies -- which includes registered investment advisers, mutual fund wrap programs and 401(k) programs -- account for 32% of fund assets, up from 22% in 1995. In addition, companies that traditionally only used broker-sold products, last year nontraditional sales channels accounted for 18% of total assets, compared with 12% in 1995.

The fund companies are starting to offer investment analysts to increase fund credibility, practice management resources and just greater accessibility by providing junior wholesalers as well, advisers are starting to come around to wholesaling efforts by mutual fund companies. "Most mutual funds are finally realizing registered investment advisers dont want to be sold to," said Matt McGinness, a Cerulli consultant. "Its taking a long time for firms to come around to that perspective."

The report also said that of the 157 wholesale mutual fund companies, the top 10 control nearly 75% of the wholesale market. In terms of assets under management the top 10 are:

"A good wholesaler is also usable when you need something in a hurry, when you have a problem, [or] specific question," said Dennis Gurtz of American Express Financial Advisors in Bethesda, Md.

McGinness added that advisers appreciate more accessible individuals who are qualified to talk about funds and fund managers, when the actual manager is unavailable. But "anybody who knows the RIA marketplace knows that these people like to do their own research and for the most part already know the manager they would like to work with," McGinness said.

Fund companies may be stepping up their efforts to provide more service, but the bottom line is that the fund better be a good performer and effective wholesalers should be able to tell quickly why their fund is advantageous. "Recently weve been seeing some [wholesalers] from hedge fund and separate account managers," said Peter Wheeler, a planner in San Diego. "The question I always ask is what do you have that is different from the 10 other funds [we use]?"

"Making a decision to move to another fund or to add another fund is a major decision so theres got to be a compelling reason to make the change," Wheeler said.