Hancock, MFS change pay for wholesalers

John Hancock Funds LLC and MFS Investment Management separately have made changes to their compensation programs to encourage wholesalers to diversify the funds that they sell and the financial advisers to whom they sell them.

Driving the changes, officials at both firms said, was the need to diversify their fund revenue streams, particularly after the market downturn of 2008.

“The paramount lesson that we have learned is that we can never be dependent on one or two hot funds ever again,” said Keith Hartstein, president of John Hancock Funds.

For example, up until last year, almost two-thirds of the company’s sales came from its Classic Value Fund (PZFVX) and U.S. Global Leaders Growth Fund (USGLX), both of which underperformed in 2008.

Starting this year, John Hancock Funds has put a portion of its wholesalers’ bonus pay into a discretionary pool that is tied to diversification of sales in terms of the number of funds that an adviser owns as well as the number of broker-dealers the wholesaler serves.

“The top three funds in their territories can’t be more than 50% of their overall sales,” Mr. Hartstein said.

Similarly, wholesalers can’t have more than a certain percentage of sales from any specific broker-dealer.

MFS has also changed its compensation program for wholesalers. In the past, wholesalers would get 0.1% on business that they brought in, but now the firm is directing wholesalers to work with more advisers and buy a greater breadth of products, said James A. Jessee, its president.

“I would argue that if you have one client invest $1 million in a fund, and another client invests $700,000 in three funds, the latter client is the better one,” he said, noting that the adviser with several funds is more likely to be a client longer. “I don’t want to just have wholesalers that elephant-hunt and go after the biggest adviser.”

MFS started this compensation program a couple of years ago but recently accelerated it so that it makes up 25% to 30% of wholesalers’ compensation, up from 5% to 10%, Mr. Jessee said.

E-mail Jessica Toonkel Marquez at [email protected].