NEW YORK — Wholesalers seeking an adviser’s good graces should forget the freebies and concentrate on developing solution-oriented consultative relationships.
That’s the recommendation of “Advisor Insight Wholesaler Effectiveness,” a survey released recently by Financial Research Corp. of Boston and Horsesmouth LLC, a financial research company in New York.
“Any benefits to the wholesaler and firm gained from treating advisers to trips, expensive dinners or even paying for seminars are weak and fleeting,” William T. Nicklin, chief executive of Horsesmouth, wrote in an e-mail.
“On the other hand, helping advisers with strategies for growing their business helps build the kind of long-term partnerships most firms are looking for,” he said.
Specifically, advisers are looking for
market trend information — they want to know what their peers are doing when they shop for mutual funds.
Access to fund managers, notification of any product changes and well-written white papers are also prized bits of information, advisers said. Unfortunately, many product company representatives haven’t received the message.
“I haven’t been impressed with most wholesalers,” said Craig DuVarney, a certified financial planner in Concord, Mass.
“Most of them want to buy me a cup of coffee and tell me how to run my business,” he said.
“The wholesalers I like are people who are analytical, smart and who have been planners in the past.”
In response to greater regulatory focus on fiduciary duty, some firms have cut back on adviser promotions.
“We haven’t given away free pens for a couple of years,” said Maura Griffin, a spokeswoman for
American Funds Distributors Inc. of Los Angeles. “We only bring them in if we have a table at an adviser forum.”
While a free pen or a sandwich are not likely to lure millions of dollars in assets, the issue of incentives shows just how potentially conflicted the wholesaler-adviser relationship can be, noted Dan Candura, a governor of the Denver-
based Certified Financial Planner Board of Standards Inc. and a founder of The Candura Group LLC in Braintree, Mass.
This May, the CFP Board updated its standards of professional conduct, requiring certified financial planners to “place the interest of the client ahead of his or her own” at all times.
“When clients are fully informed, they know the adviser’s compensation arrangements, and that’s in their best interest,” said Mr. Candura.
“We can’t monitor this at all times, but if anyone tries to fool consumers, it would run afoul of our code of ethics and can call for discipline.”
Punishment for ethical violations can range from a private or public letter of censure to the loss of the CFP title.
No influence
The CFP Board doesn’t have specific rules about incentives, but advisers have already calculated their own standards for making sure that wholesalers have no influence on client relations.
“If a wholesaler wants to meet [for] a cup of coffee or a lunch, I make it quite clear that just because we’re meeting doesn’t mean that their funds will show up at my business,” said Samuel A. Braun, a certified financial planner and a director of investments at Financial Strategy Network LLC in Chicago.
“Clients pay us retainers, and we won’t jeopardize their
trust by using a mutual fund just because someone introduced us to that idea,” he said.
In the end, advisers who properly manage their wholesalers end up with a business colleague who has insight into the product world, and with clients who benefit from the expert’s knowledge.
A consultative relationship “builds the credibility and stature of the wholesaler,” said Mr. Nicklin. “And, yes, it makes the regulators happy, because building better advisers benefits the investing public.”
