Adding value key to building relationships

Today’s advisors, like the clients they serve, are better informed and more demanding. And with increased expectations have come increases in the number of wholesalers. Indeed, during the past four years the number of wholesalers in the non-bank-owned mutual fund companies has more than doubled, according to an annual survey conducted by Environics Research Group Ltd.

In 1997, there were 192 wholesalers at Canadian load-fund companies. By June 2000, that number had swelled to 352, and during the past year it has surpassed 400. That does not include inside wholesalers and administrative support. Eric Lauzon, vice president of Environics in Toronto, estimates the entire group has increased 2.5 times since 1997.

Building relationships remains key, but wholesalers also have to provide added value to financial advisors. “It’s a ripple effect,” Lauzon says. “Clients are better informed, which means advisors need to be better informed, which, in turn, means wholesalers need to be better informed.”

Adding value often means providing advice to advisors on building their businesses. That’s especially the case as investment products have become increasingly complex, with more than 3,000 mutual funds currently in the Canadian market.

For fund companies, the changing market has meant having to invest heavily in the wholesale machine. Toronto-based CI Mutual Funds Inc. almost doubled its number of wholesalers, to 37 from 21, between 1998 and July 2001.

“The business hasn’t changed but expectations have,” says Peter Anderson, president of CI Mutual Funds and executive vice president of parent C.I. Fund Management Inc.

One reason to fatten up on wholesalers is because advisors prefer one-on-one meetings, says Anderson. Another is simply that the growth of wholesalers has paralleled the growth of advisors. “There are brokers, insurers, bankers and financial planners,” Anderson says. “The number of advisors has tripled in the past couple of years.”

Competition is the catalyst transforming the wholesale business. “Aisles have shrunk and shelves are more crowded,” says Lauzon. “Contact through the mail doesn’t work. It’s harder and harder to get people out to road shows. And advertising on television only does a little bit, so the last option is wholesalers. They are the only effective way to penetrate the marketplace.”

Technology has also changed the job of the wholesaler. Lauzon says it has changed advisors’ perception of service. It used to be acceptable for a wholesaler to get back to an advisor in a couple of days. Now, with wireless Web gadgets, such as Research in Motion Ltd.‘s Blackberry, advisors expect answers in minutes. “In the beginning, it was about the product; now it’s about the process,” says Peter Hodgson, managing director of Investco Asset Management Inc. in Singapore, who ranked first in the Environics wholesaler survey in 1999 when he was with Investco subsidiary AIM Fund Management Inc.

(In the survey, wholesalers are ranked by advisors on the basis of their presentations, contact frequency, calibre of relationships with advisors and overall quality. For the 2000 survey, which will be released in September, wholesalers were also rated on the “added value” they provide.)

“You used to get away with just having a relationship,” says Hodgson. “Now, you need practice-management and insight into the industry.”

Part of the process is a longer sales cycle, says Lauzon. In the good old days, once an advisor purchased his first ticket it was a short time before he was a strong supporter of a firm’s funds. Now, Lauzon points to a five-step process before companies can expect core support from advisors (between 9% and 39% of his or her gross sales).

The first step is to make the advisor aware of the firm and its products. The second is to get the advisor monitoring the funds, and the third is to buy the first ticket. The fourth tier is minor support (less than 9%). The fifth step is all-out support itself.

This cycle can take anywhere from six months to 2.5 years, depending on the company’s reputation, says Lauzon. The longer process means wholesalers are spending more time with one advisor, which partly accounts for the wholesaler surge.

Hodgson believes the increase in the number of wholesalers has peaked and will level off; Lauzon and Anderson agree. Part of the rapid expansion can be attributed to the fact that fund companies need wholesalers in every region of the country. Lauzon says the next step in the evolution is to make experts out of wholesalers.

Even mid-sized companies, such as Toronto-based Dynamic Mutual Funds Ltd., have added wholesalers. Dynamic now has 20. Chris Nickerson, Dynamic’s vice president of sales for Central Canada, agrees the business has evolved.

“In the past five years, wholesalers have been purveyors of information, but everyone is looking for added value,” he says. “Walking credit cards are a dime a dozen. Wholesalers really need to be business experts who can help with prospecting.”

But Nickerson says that while everyone uses the term “added value,” few know what it means. “We have to become partners with people, not only on a corporate level but on a national level as well,” he says. “That’s why we are so heavily involved with organizations such as the Canadian Association of Insurance and Financial Advisors and the Canadian Association of Financial Planners conferences. “

In the Environics survey, 77% of respondents said wholesalers can differentiate themselves by providing ideas to help build advisors’ businesses. But 40% of those polled also said not a single idea for business building had come from a wholesaler, while a mere 26% said only one element of their business had been implemented on advice from wholesalers.

If ideas do come forward, implementing them may prove difficult. One solution Lauzon sees is for marketing departments to provide content. “Good luck to companies who try to find 40 experts. They should let the wholesalers be their mouthpieces. Fund companies need to hire professional, intelligent, resourceful people and then lend them the expertise,” he says.

Another problem Lauzon cites is segmentation. Companies’ efforts to build their sales teams were supposed to allow outside wholesalers to focus on the 20% of advisors who do 80% of their business; inside wholesalers were supposed to deal with the rest. But, Lauzon says, this has not happened: everyone is serving everyone else.

In a slowing economy, Lauzon believes wholesaler numbers may decline – but only slightly. “They’re the engine of the market,” he says. IE

Wholesalers as of July 2001
AIM/Trimark	40
Mackenzie/Maxxum	40
CI	37
Fidelity	39
AGF/Global Strategy	29
Templeton	32
Dynamic	20
Spectrum	24
Talvest	18
AIC	28
Synergy	14
Guardian	14
Elliott & Page/Manulife	17
StrategicNova	16
 
Source: Companies Investment executive chart

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