PRUDENTIAL TO SELL DIRECTLY TO INDY ADVISERS: PIECE OF ROCK FALLING ON ITS REPS

Prudential Insurance Co. of America is quietly launching a unit that will soon begin courting independent financial advisers, a strategy that could alienate its 6,000 brokerage sales hands.

Newark, N.J-based Prudential, the nation’s largest insurer, has charged its subsidiary Prudential Investments with spending millions — $25 million in the first year alone — to persuade planners to sell their customers Pru’s mutual funds, wrap accounts and insurance policies, according to sources close to the program.

“It’s a calculated gamble,” says Burton Greenwald, a brokerage consultant in Philadelphia, after being told of the Prudential effort by InvestmentNews. “They could conceivably lose some of their better producers.”

The project, expected to be rolled out in the fall, was originally slated to be launched around Memorial Day. Sources say Pru is struggling with how to present the program to the public as well as to its own reps, especially since it is believed to be the first wirehouse to target the independent adviser market.

Called Prudential Investments Advisory Group, the program is waving minimum compensation of $300,000 to lure top wholesalers, sales executives who will market to some 14,000 targeted advisers across the country. These firms oversee as much as $6 trillion, according to National Regulatory Services in Lakeville, Conn., a compliance consulting firm.

A Prudential spokesman says “the majority of brokers recognize that the company has to make a move to strengthen its brand.” Officials wouldn’t give further details.

The program will help independent advisers market to

Pru dropping piece of rock on stockbrokers

wealthy clients. Pru will organize periodic seminars for advisers and one-on-one sessions with Prudential wholesalers. They won’t pitch Pru so much as help advisers market their services. The hope is that advisers in turn reward Prudential by choosing its offerings.

Many observers say the move is necessary if Prudential wants to boost its asset management business — $370 billion worldwide, nearly $82 billion of it in mutual funds — to compete against the nation’s largest financial services firms.

Prudential also is betting that past scandals involving sales practices for limited partnerships, annuities and straight life insurance policies have lost their sting — at least among the financial adviser market.

Prudential’s goal for revenue growth is unclear, but one source says the firm has “bandied about” the idea that a third or a half of Prudential Investments’ revenues could eventually come from independent advisers.

Pru brokers contacted for this story were unaware of the program, but say they aren’t surprised to hear of it. More and more are selling the best-performing mutual funds and other products regardless of where they originate, they say.

Prudential has allowed its brokers to sell mutual funds from other houses and for a year now, other houses have been offering Prudential funds, too.

hopping aboard trend train

Pru’s effort comes as independent advisers are rapidly moving towards charging fees instead of commissions.

“They (Prudential) are following a trend,” explains Marty Jensen, a consultant in Newport Beach, Calif. “There are a lot of organizations who are recognizing a growing demand for fee-based asset management and consulting services. And therefore there are a lot of vendors creating platforms to meet those needs.”

Indeed, officials at one independent broker-dealer, LPL Financial Services Inc. in Boston, expect more traditional brokerages to start promoting their products to independent advisers.

“People view independent firms as a great long-term source of assets because it’s a relationship business,” says Jim Putnam, managing director of national sales. Mr. Putnam says his firm already has a selling agreement with Prudential and that Prudential is being far more proactive in marketing to independent financial advisers than its peers.

Pru is targeting LPL, Lockwood Financial Services Inc. of Malvern, Pa., and other broker-dealers that cater to these advisers. It also has hired an array of consultants and executive headhunters to help out.

It’s tapped strategies promulgated by Stephen Gresham, a consultant in Madison, Conn., and Russ Alan Prince, an author and consultant in Shelton, Conn., to recruit and train wholesalers. Mr. Prince has come up with nearly a dozen classifications of wealthy clients.

Neither consultant would comment.

Pru plans to coach planners on how to explain asset allocation, estate planning and charitable trust services to wealthy clients. Prudential is betting that by offering these kinds of support services planners will keep an open mind and forgive it for its previous transgressions.

“When I first heard of this I said ‘Yeah, right, don’t you have a clue how much baggage Prudential has? Plus, you’re a little late,’ ” says one consultant familiar with the program. “But they seem willing to pay up for shelf space and to try to get into the game.”

as long as it’s a new unit…

One adviser says as long as the program is coming out of Prudential Investments and not the securities unit, which he doesn’t trust because of past limited partnership problems, he’s intrigued.

“Prudential, I guess, is getting on the bandwagon,” says James R. Shelton an adviser in Austin, Texas, who oversees $20 million for LPL. “I’d be interested to see what they’re doing if it’s generic and clean.”

Prudential’s strategy may be a first for wirehouses, but it’s hardly unique. Mutual fund firms are upgrading their sales strategies — handing out golf clubs in exchange for assets doesn’t work anymore.

Phoenix Investment Partners Ltd. of Hartford, Conn., for the past year has been offering a program that has helped 12,000 reps better understand the needs of affluent families, providing demographic research and even courses that offer continuing education credits.

“We try to help advisers get better at their craft, and if we do that they are more likely to let us manage their clients’ money,” says John F. Sharry, executive vice president of the firm’s retail division.

Alliance Capital Management, a fund firm in New York, is taking a similar tack. It’s hired consultant Mark Tibergian of Moss Adams LLP in Seattle to help advisers manage their own balance sheets. Alliance has hired other consultants to help advisers shift from charging commissions to fees. Others are teaching banks that distribute Alliance funds how to recruit sales reps.

Mutual fund firms are changing their methods to meet the demands of advisers, says Richard Davies, managing director/investment management services group at Alliance.”We had one bank say to us recently — it was almost refreshing — ‘we’ve analyzed your funds, you’ve passed. We don’t even want to talk investments. What we want you do is help us grow our business.’ ”

Whether Pru can sell the idea in a brand-new arena — while maintaining its traditional brokerage arena — remains to be seen.