With 12,000 mutual funds on the market today--a figure that exceeds the number of stocks on the New York Stock Exchange--brokers have a lot to pick from.
"Competition is absolutely fierce," says John Rhoades, senior vice president and director of broker/dealer mutual funds for MFS. "It's forced us to invest a lot of resources and capital into building a program to partner with reps."
With that in mind, Registered Representative put together a list of seven of the hottest topics and ideas that mutual fund wholesalers are pitching to brokers.
1) Stock Options This is by far the No. 1 topic. "In my 13 years in this industry, I can't ever recall a response like the one we've had with stock options," says Scott Tatum, a vice president and wholesaler at Oppenheimer Funds. "The appetite for this topic is simply enormous."
And that appetite is growing by the minute. In 1997, 45 billion dollars worth of options were granted to senior executives at the largest 2,000 companies. That's nearly six times more than in 1994. So, under a three-year vesting schedule, those 1997 options will be exercised this year.
"The reason it's so hot is because it's so complicated," Tatum says. "We're spending most of the time on the tax implications of exercising the options."
The tax implications of nonqualified stock options (NQSOs) versus incentive stock options (ISOs) are completely different. People with ISOs, for instance, need to be concerned about alternative minimum taxes, Tatum says (see "Know Your Options," Page 72). Meanwhile, "people with NQSOs," he says, "wonder if they can do a stock swap and what they can do to avoid a big tax hit when they exercise the options."
2) The Internet There's really no reason for brokers to view the Internet as the enemy. Instead, they should use it to build business, according to Bill Gillian, national sales manager of mutual funds at Eaton Vance.
"We've developed a series of training modules that teach brokers how to use specific Internet sites to gain referrals and develop new relationships," Gillian claims.
One example of a site Eaton Vance shares with reps lists companies that are downsizing, enabling brokers to capitalize on pension distributions. Gillian also says the firm shows reps how to use portals such as Yahoo and MSN to grow business.
3) International Investing There is a huge financial opportunity in international markets that many brokers are missing, according to several wholesalers. They say performance overseas is extraordinary. According to Morgan Stanley Capital International data, 31 foreign countries outperformed the U.S. S&P companies for the nine months through September 1999.
"The international market is really heating up, so it's a component we're talking about a lot," says Dan Geraci, executive vice president of distribution of Fidelity Investment Institutional Services Co.
"The point we're making to brokers is that the performance is incredible, yet when you look at most portfolios, there isn't much there internationally," Geraci says. "So we're educating brokers on selling the concept of international investing."
4) Affluent Clients This is a no-brainer. The average affluent client represents 20 times the revenue and less than 10 times the expense compared with investors who have less than 500,000 dollars in investable assets, according to Fidelity Investments research.
The booming affluent market convinced MFS to create a client profiles program that has become a hot issue among brokers.
"Our program helps brokers find a match from the type of people they like to do business with, then we drill down deep and help them replicate people like that for their book," Rhoades says.
"We're able to produce a list of, say, heavy equipment manufacturers in Southern California with net sales of 500 million dollars or more. We then educate brokers on what's important to these people, what industry groups they belong to, what their traits are and what magazines they read. This way the broker becomes an expert in the niche market."
5) 401(k) and IRA Rollovers Seminars about retirement plans continue to get more popular. "It's definitely a major focus with most national sales managers, wholesalers and brokers," Geraci says.
Why? Because every year there are about one million rollovers occurring in the 401(k) and IRA markets, according to mutual fund experts. By 2005, annual rollovers are expected to surpass the two million mark.
The 401(k) program is the ultimate retirement vehicle for a huge percentage of the population, according to Bob Geppner, Franklin Templeton's national sales manager of the wirehouse/ regional division. And since human resource directors are among the key decision makers about 401(k) programs, Geppner's division developed a program to tutor reps on understanding HR people.
"The way to prospect that segment of the market is by putting yourself in the HR manager's shoes," Geppner says. "They don't care if they have the very best plan. What concerns them most is how to educate their employees on the fact that they need to contribute to their 401(k), and that they need to maximize their contributions to get the benefit of the match the company offers."
6) CPA Partnering For many years, brokers have had trouble getting references from CPAs and tax lawyers. "Typically, the referrals flowed one way--from the broker to the CPA," Geraci says.
Fidelity has a program to help brokers identify two or three up-and-coming CPAs in the community. The rep then books an hour of the CPA's time. When he walks into the accountant's office, he pays for that hour up front.
"By doing that, you're positioning yourself as a prospect as opposed to someone who's looking for something," Geraci says. "You paid for the time, and the CPA is going to listen to you."
The first 15 minutes are spent on the purpose of the visit and your background. The next quarter-hour is spent on your firm and the services you have available. The discussion during the next 15 minutes is about how you manage client relationships. Finally, you ask the CPA to talk about himself and his business.
"Right off the bat, you tell the CPA that you have a lot of high-net-worth prospects who occasionally need CPA services but don't want to spend the time or money [other than at tax time]," Geraci says. "So you propose to keep the CPA on retainer by buying 10 one-hour blocks of time and giving those hours out to clients as you deem necessary."
The intended result is to provide a service to clients, help the CPA increase his client base, and increase referrals from the accountant.
7) Client Contact Amid enormous industry change, it's more important than ever to solidify relationships with clients. With that in mind, Franklin Templeton offers a program that encourages brokers to "build a wall around" their best clients that is so strong, they will never consider leaving for the Internet and will actually wind up delivering referrals.
"The average broker has 500 clients, 500 relationships," Geppner says. "At the top of the list are what we call advocates. They're your best clients, the ones who think you walk on water. Our program is designed to help you build your entire book to the advocacy level and position yourself in the advice business."
Geppner's program encourages you to find out everything you possibly can about your clients, their families, their work and their hobbies. This brings you closer to them as people, not just closer to their money. A series of mailings and meetings make this possible.
Wholesalers are teaching brokers about how to do client reviews, how to make sure they're touching clients often and how to differentiate themselves from the competition. Ironically, those lessons aren't too different than what the wholesalers themselves are doing when they offer brokers--their clients--sales ideas.
