Janus wholesale shift: Drops RIA-only policy

Salespeople who pitch products only to independent registered investment advisers may soon become a thing of the past.

At least that’s what some analysts and advisers are saying after learning that over the past few months, Janus Capital Group Inc. in Denver has done away with a small sales team that included at least two wholesalers dedicated to selling to RIAs.

Janus is building a new sales force – currently, there are nine external wholesalers, but that is expected to increase to 18 by yearend – that will sell to both independent advisers and brokers, says Richard Garland, managing director of Janus’ global adviser business and chief executive of Janus International.

Critics say the move is a sign that Janus is abandoning independent advisers.

“The independent advisers are going to be an afterthought,” says one source familiar with the restructuring. “The independent adviser will not be called upon at all anymore.”

The reason: 18 external wholesalers aren’t enough to cover the wirehouses, let alone spend time calling on the RIAs, according to some industry experts.

Janus appears to be taking a path other fund companies have taken, some analysts say.

“I think, in general, a lot more fund companies have focused more on transaction-based advisers,” says Rachel Barnard, an analyst at Morningstar Inc. in Chicago.

In 2001, Janus’ crosstown rival, INVESCO Funds Group Inc., announced that it was exiting the direct-sold business. Its domestic funds are now distributed through its sister company, Houston-based AIM Management Group Inc. Both are subsidiaries of AMVESCAP PLC in London.

Strong Capital Management Inc. of Menomonee Falls, Wis., and American Century Investments of Kansas City, Mo., also have turned away from the no-load sales channel in recent years.

Mr. Garland, however, says Janus is not following in the footsteps of those companies.

“The independent adviser is still a very important segment of the business for us,” he says. “There is no way I’m going to let that fade away. My goal is to grow the business, but in a more focused way.”

That means focusing on probably 100 or 200 large RIAs, Mr. Garland says.

Those advisers will receive better service from Janus’ new sales force because the larger force will be able to provide them with “broader and deeper coverage,” he argues.

Smaller RIAs will still be served by Janus via information passed through fund sales platforms offered by Charles Schwab & Co. Inc. in San Francisco, TD Waterhouse Group Inc. in New York and Fidelity Investments in Boston, Mr. Garland says.

Many analysts and RIAs say Janus’ move makes sense, especially since there may be little benefit to dedicating a sales force to independent advisers.

“The independent channel is a very difficult channel to serve be- cause it’s very fragmented,” says Mark Lane, a research analyst with William Blair & Co. LLC in Chicago. “A lot of companies have struggled with how best to handle it because you are not dealing with big pots of money.”

RIAs say they don’t rely on salespeople. “The mutual fund wholesalers, they provide very little added benefit, as far as I’m concerned,” says Stephen Gorman, president of Gorman Financial Management Inc. in Hingham, Mass.

“It doesn’t bother me if Janus is rolling the RIA [sales]people into the broker-dealer people,” says Mr. Gorman, whose firm has $100 million under management.

Lou Stanasolovich, president of Legend Financial Advisors Inc. in Pittsburgh, which manages $150 million, says selling financial products to RIAs is “like herding cats.”

“They’re going to do their own research and pick funds based on their own research,” he says. “They’re not going to buy a fund because of a salesperson.”

At least one analyst, however, thinks Janus should tread carefully in the brokerage world.

Matthew Snowling, senior analyst at Friedman Billings Ramsey & Co. Inc. in Arlington, Va., agrees that Janus needs to reach out to other distribution channels. But the brokerage channel can be tough, he says, especially for a fund group that has suffered as much as Janus.

Mark Whiston, chief executive at Janus, said in a conference call last month that Janus was still seeing redemptions from its growth funds, but the withdrawals were “focused and concentrated” in the $12.1 billion Janus Worldwide Fund and the $2.8 billion Janus Overseas Fund.

Janus acknowledges, however, that its growth-oriented products overall had $2.2 billion in net outflows during the second quarter, offsetting much of the new money entering its other types of long-term funds, such as quantitative and fixed-income offerings.

Analysts say such outflows are due to weak performance. As a result, Janus may have to pay extra to get brokers to sell its funds.

“I suspect moving to get the brokers to sell their funds, it’s likely they’re going to have to pay up for that distribution,” Mr. Snowling says.

A sales force selling to brokers will have their work cut out for them if they are to convince brokers to sell Janus funds, he says.

Janus took a step in assembling a top-notch sales force, however, when on July 31 it named Erich Gerth national sales director of Janus’ global adviser business unit. Mr. Gerth previously was the national sales director for the third-party broker-dealer business at Goldman Sachs Asset Management in New York.