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Friday, June 27, 2014

Paying Your Wholesalers Too Much?

News summary by MFWire's editors

In this brave new world of discount financial service, it seems that in order to succeed as a fundster you gotta be tighter than Ebenezer Scrooge.

You have to worry about costs, costs, costs, costs, costs: distribution costs (including costs tied to platforms); PM fees; shareholder servicing and operations and whatever other overheard.

So, are you paying your wholesalers too much.

A recently issued study by kasina suggests that costs tied to wholesaling comps says that "since the second quarter of 2011, compensation and benefits as percentage of asset-based fees has grown from 31% to 36%, suggesting the cost to bring in each new dollar has risen."

The report, Aligning Wholesaler Compensation with Firm Goals, sets it sights right on external wholesaling.

The report's author, kasina director Jeffrey Strange, had this to write on the subject:

External wholesaler compensation plans are not healthy, Long-term industry trends argue strongly for asset managers to evolve their plans or risk seeing diminished wholesaling efficiency and firm margins.

The report has garnered the attention of news outlets like Barron's and InvestmentNews, largely articulating what has been driving fundsters nuts over the past few years. It also suggests ways to tweak wholesaling pay.

Firms are already taking action. BlackRock has now shifted its pay system to reward buy-and-hold sales.

Florence, CEO of 361 Capital, refuses to pay for rolodexes, hires moderately-priced talent and trains them ferociously within.

Hennessy Advisors has virtually no wholesaling staff and loves it.

Some say this is one of the reasons why active ETFs have gotten popular. Mutual fund products that can be traded like stocks. Some argue that this product can mean the end of wholesaling.  

Edited by: Tommy Fernandez

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