It was standing room only at The Money Management Institute
's Back to the Future Conference in New York City. Not only were the halls packed with veterans of the separate account business, but there were newbies as well. This reporter saw familiar faces from both the 401(k) and mutual fund business.
One session in particular was of great value to mutual fund executives: Established Mutual Fund Houses Get in the Game. It was moderated by Robert Dineen, senior vice president and head of managed accounts at Merrill Lynch
. The panelists were Robert Leo, vice-chairman of MFS Investment Services
; Gordon Forrester, director of marketing, Putnam Private Asset Management
; and Russell Wiese, chief marketing officer, Davis Advisors
"Why did we get into this business?" began Leo, referring to managed accounts. "It's simple. In 1999, we started losing some of our best clients and our best reps not to other firms but to separate accounts. This is an important business. In 2001, mutual fund wirehouse sales were at $114 billion, and separately managed accounts sales were at $54 billion. Now, mutual funds are a $4 trillion business. It's not going anywhere. But having separate accounts helps us retain our clients."
Wiese added, "Davis got into the separate account space because separate accounts today are where mutual funds were ten years ago. It is very attractive to be fishing in a pond stocked with dollars."
Leo announced the following figures sure to make mutual fund wholesalers salivate: "With separate accounts, we brought 500 new reps into our system that we have never done any business with before. And now that those reps have started to get comfortable with us, with the MFS brand name, they are starting to sell our other products such as mutual funds. Having the separate account platform has been good for mutual fund sales."
But there are challenges to entering this space, and the panel did not shy away from elucidating them. Chief among them is training. "Training, training, training," expounded Forrester. "The sales team must have a broad range of knowledge. Separate accounts are customized, not pre-packaged. So, the sales team needs to know the product a lot better and needs to know the customer a lot better than in the mutual fund market." He also did not feel that separate account sales were cannibalizing mutual fund sales.
"For firms wanting to get into separate accounts, they have to think about three areas. The first is profitability," continued Leo, "This is an expensive proposition. At MFS, we are moving from 48 employees to 68 employees this year for this service. The second is operations. This is a manual business, not an automated one like mutual funds. And the third is money management. The managers have to be more involved with clients. This is something that will be foreign to those strictly in mutual funds. Now, maybe not the guy who pulls the trigger, but the top lieutenants will have to field calls from reps. It is essential."
Davis outlined the differences between marketing separate accounts versus mutual funds. He described marketing mutual funds as:
- a retail sale -- it is about the story, about the products, about the star ratings;
- something sold to groups, over breakfast or lunch;
- and an area that is heavy with souvenirs like mugs or
Meanwhile, he described separate account marketing as follows:
- an institutional sell -- the advisor has to be treated like an institutional client;
- something sold as a process, one-on-one over dinner;
- and an area that has no souvenirs.
panelists agreed that separate accounts could help mutual funds sales. They
advised attendees not to silo their products and to provide the right kind of
product that is suited to a given client's needs.
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