John Hancock Funds LLC and MFS Investment Management have separately made changes to their compensation programs to encourage wholesalers to diversify the funds they sell and the advisers to whom they sell them.
John Hancock Funds LLC and MFS Investment Management have separately made changes to their compensation programs to encourage wholesalers to diversify the funds they sell and the advisers to whom they sell them.
Driving the changes, said officials at both firms, 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 Ticker:(PZFVX) and its U.S. Global Leaders Growth Fund Ticker:(USGLX), both of which underperformed in 2008.
Starting this year, John Hancock Funds has taken a portion of its wholesalers' bonus pay and put into a discretionary pool that is tied to diversification of sales in terms of number of funds an adviser owns as well as 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 form any specific broker-dealer. Mr. Hartstein declined to comment on what percentage of wholesalers' bonus compensation is going into this discretionary pool.
MFS has also changed its compensation program for wholesalers. In the past, wholesalers would get 0.1% on business they brought in, but now they are directing wholesalers to work with more advisers and buy a greater breadth of products, said president James A. Jessee.
“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,” Mr. Jessee 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 25-30% of wholesalers' compensation, up from 5-10%, Mr. Jessee said.
