Insurer sees big room for growth in fund world; relocating, bulking up sales force
Despite throwing in the towel on several of its operations, executives at The Hartford Financial Services Group Inc. think the carrier can increase its mutual fund assets by double digits annually. And that's a big part of the reason why the insurer is holding on to the business. “Our product offerings and distribution footprint really positions us to be able to grow at a fairly aggressive pace,” said Martin Swanson, chief marketing officer.
In a surprise last week, The Hartford stunned some advisers when it announced that it is exiting the annuity business. Moreover, management at the embattled company stated that the carrier plans to sell off both its life insurance business and its independent broker-dealer, Woodbury Financial Services Inc.
But to help bulk up its mutual fund business, The Hartford is expanding its reach to financial advisers. The firm will add about 50 salespeople to its 100-person sales force this spring. The new hires will be mainly internal wholesalers as the company tries to get to a 1-to-1 ratio between internals and externals. Currently it's at a 2-to-1 ratio. “It will help us get our story out to advisers more effectively and efficiently,” Mr Swanson said.
A portion of the new hires will also be focused on advisers who work with defined-contribution plans as The Hartford looks to expand its DC investment business. “It's a small portion of our business, compared to our retail assets, so there's room for it to grow,” Mr. Swanson said.
In addition to broadening the sales team, The Hartford is relocating its mutual fund headquarters from Simsbury, Conn., to Radnor, Pa. That shift will move the operation closer to Wellington Management Co. LP, which is headquartered in Boston but has offices in Radnor.
Wellington currently subadvises 45 of the Hartford's 77 mutual funds, including all of the equity funds. But The Hartford is in the process of moving all of its funds to Wellington, pending approval from the remaining funds' board of directors. “We're really trying to make it the investment engine for all of our investment products,” Mr. Swanson said.
Having a subadviser for all of the mutual funds also should help keep investors' minds off the dramatic events at The Hartford, said Katie Reichart, an analyst at Morningstar Inc. “Since Wellington is managing the assets, the actual strategies are removed from all the noise that is going on at the parent level,” she said. “There was some uncertainty around the funds when it looked like they could be sold, but at least now they have a clear plan they've laid out.”
The final piece of the plan to increase The Hartford's mutual fund assets will begin in earnest once Wellington takes over the carrier's fixed-income mutual funds. Right now, those are run in-house. “We feel we've been underrepresented on the fixed-income side," Mr. Swanson said. "There's a good deal of opportunity there.”
Hartford's fixed-income funds have lagged the overall industry in terms of flows. Fixed-income funds had net inflows of $130 billion in 2011, but at The Hartford, the fixed-income funds actually had money pulled out by investors to the tune of $1.1 billion.
“The fixed-income funds didn't always have the best performance,” Ms. Reichart said. “Wellington's a very respected manager, though, so the change could be good for shareholders,” she said.
Still, Ms. Reichart said she feels uneasy when a firm targets a specific asset class for sales growth. “It's always concerning to hear fund companies say they are targeting asset growth in certain areas; it's not always the best for shareholders,” she said. “We like to see marketing plans that make a lot of sense, not ones that are just based on gathering assets.”
It's a particular concern in fixed income. Investors have poured more than $680 billion into fixed-income mutual funds since the end of 2008, according to Morningstar. With interest rates starting to inch upward, Ms. Reichart warned that investors could be in for a “rude awakening” when interest rates really start to rise.
