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Rating:Finding Real Value in Fund Companies' Email Routing List Email & Route  Print Print
Wednesday, January 23, 2002

Finding Real Value in Fund Companies' "Value Added" Services
Guest Column by: Dan Sondhelm

While good mutual fund performance may be scarce these says, there's certainly no shortage of so-called "value added services" being offered by mutual fund companies.

Once upon a time, mutual fund companies' full repertoire of value added services included some glitzy historical return charts, a few marketing brochures, a smattering of one-size-fits-all sales ideas, and a visit from a wholesaler eager to tout the fund-of-the-month, hand out logo-emblazoned golf balls, and offer a pep talk. But times have definitely changed.

Fierce competition among fund groups keen on attracting assets initially forced internal mutual fund creative teams to get serious in deciding exactly what value added services they could and should offer. It also compelled them to pinpoint which sectors of the growing -- but stratified -- world of financial intermediaries to build which services for.

If They Build it, Will Planners Flock?

In many cases, the process of creating value added programs was a hit-and-miss proposition, with some well-meaning fund advisers initially building programs designed to be all things to all intermediaries. Fund sponsors had tried in vain to shift the bulk of their off-the-shelf value added services -- originally crafted to woo and wow more traditional brokers -- into the comprehensive financial planner channel. But the majority of those met with disastrous results.

Planners were highly insulted and protested loudly, complaining that gimmicky programs with bells and whistles were simply a waste of time and money. Planners explained that the needs of their financial planning clients, not the fancy footwork of fund folk, was what would determine where their clients' money was invested. Save the flash, just give me the facts, they said.

While there are a few exceptions, it is only within the past several years that fund companies have increasingly recognized the fundamental importance and "stickiness" of the independent and fee-based financial planner audience, the sheer power they wield and the money they influence. Fund groups have made real strides to get their arms around the unique desires of financial planners, and craft novel value added programs to address those needs head on.

Savvy fund groups now offer a full range of these so-called value-added services, all developed to provide an extra layer of care and servicing to the financial consultants that either distribute or recommend their funds to clients. Hungry fund advisers have also paid close attention to ways in which these financial consultants could ultimately benefit, by filtering down to the end investor myriad consumer-friendly offerings and educational materials.

The goal, of course, is for the fund group to help the financial adviser better educate and satisfy customers, attract new clients, retain existing ones and better manage and grow their business. And in the process, most fund group executives readily admit that they hope to win the hearts and assets of both financial intermediaries and their clients.

Full Smorgasbord of Value Addeds

The result is that mutual fund groups now offer a broad spectrum of value added services. Individual fund groups rely on their assortment of useful programs and services as a way to help them develop deeper relationships with intermediaries and distinguish themselves from their competitors.

Of course which ones fit the their individual needs will depend largely on the size and type of their business, as well as the sophistication and commitment level of their clients.

Some programs are squarely targeted to the classic brokerage firm registered rep. Some hone in on the commission-adverse fee-only planner, and many are served up for any of the financial consultants that reside somewhere between these two polar caps. A wirehouse broker facing his first bear market and shell-shocked clients will have needs that differ substantially from those of a veteran comprehensive financial planner whose number one concern is effectively managing the growth of her business and the increasing number of clients seeking her financial advice. But some programs offer value to different intermediaries.

In 1995 MFS of Boston pioneered with its breakthrough Heritage Planning Program which includes overtly generic client-targeted information packets that address real life events, such as how to cope with a parent suffering with Alzheimer's or financial tips for enduring a divorce. Packets include information, guidance and even worksheets. Dozens of topics are now available both in paper and CD-ROM format as well as via the MFS web site. MFS has committed to building new modules as needs arise. A corporate stock ownership component was added last year in response to a growing population of investors needing help on what to do with stock options and grants.

Evergreen Investments of Charlotte, N.C., the asset management division of First Union Bank, debuted its value added Evergreen Wealth Plan two years ago, originally to help bank platform reps expand their businesses. But the toolkit has broader appeal.

An easy-to-read Evergreen Wealth Plan Toolkit explains key market trends, helps reps understand the ins and outs of "money in motion" (including sudden inheritances), 401(k) distributions, and divorce settlements; it maps out practical tips and sequential steps reps can take to help customers build their client base. The toolkit includes informational sheets that clearly explain financial options to clients, and worksheets to help them do the math with their consultants.

Realizing in May 2001 that many brokers and intermediaries were getting mauled in experiencing what for some was their first true bear market, John Hancock Funds of Boston began mailing a cleverly designed Bear Market Survival Kit to its active brokers. The bright yellow kit combines a dose of hefty humor with voluminous sales tips and ideas, all carrying the bear theme, along with some stress-reducing novelty items tossed in. The kit's goal was to provide practical tips and motivational messages designed to help intermediaries better communicate with clients and work together through a severe decline in the market.

But Hancock hasn't just focused on brokers. The firm has also developed a special quarterly online seminar and speaker program that independent financial planners and certified public accountants can tap into and earn Continuing Education Credits for. Hancock hosts the website event on a variety of topics, and asks an expert to be a key speaker -- such as an estate lawyer if the topic is charitable trusts.

Dreyfus Corporation of New York has built a dedicated staff that provides data mining services to financial planners. Based upon vast demographic information, Dreyfus' data mining assistance shows planners how to essentially clone their best clients and find potential customers with similar profiles in their very own backyards.

Other fund groups offer value added programs, including turnkey client seminars usually targeted to a specific topic or specific demographic group. Still others, including AIM Management, Phoenix Investment Partners, and Pioneer Management have seen the handwriting on the wall and have built in-depth programs to teach intermediaries how to transition from a transaction-based business to a more consultative, fee-based business.

The Right "Stuff"

I continue to see the needs of financial planners falling into two broad categories: investment insight and practice management.

Since many financial planners are independent and lack a huge internal research or analytical staff to call upon, planners often soak up timely and relevant asset allocation and/or economic information like a sponge. They want facts, and they want figures. They also want to know exactly what sectors a specific portfolio manager is investing in or what industries the manager sees potential in.

Moreover, they want easy access to a particular fund manager and the ability to ask questions of that manager without hitting a bureaucratic wall. And they want an honest dialogue -- not a canned response.

"The most important thing to me is access to their critical thinkers. I want to hear an analyst or a money manager speak to help me better understand what's going on," said Ray Ferrara, president and ceo of ProVise Management Group, a financial planning firm in Tampa Bay, Florida. "But if that analyst or money manager is a wholesaler in disguise (trying to pitch a fund to me) I never listen to them again."

"One of the most disappointing experiences I've had was when I called (a large fund group) and asked if their disappointing fund performance was due to their experiencing an inordinate number of bankruptcies on a bond fund," said Morris Armstrong, CFP, and principal of Armstrong Financial Strategies in New Milford, Connecticut. "They said, 'We're not going to tell you.' That was a slap in the face."

Being independent entrepreneurs, many financial planners are busy juggling the needs of their clients with the very real needs of marketing their services and building their own businesses. Effective practice management is a huge part of everyday life for planners. Any program that can honestly help with their task as the spiritual leader of a staff of a thriving business is welcomed. But not all planners will need the same help. Smart mutual fund companies have learned to individually counsel with financial planners and learn what it is they really need.

"You've got to hit me with something I can use," said Tom Grzymala, CFP, President of Alexandria Financial Associates in Alexandria, Virginia. "I don't need cutesy new software to get through only to find out that I can already do this function. Save your money. But if a mutual fund could find a way to let me to create my own sliced and diced benchmarks that could then be incorporated into my Centerpiece data management software program, that would be very valuable."

"I now have 34 people on staff. If they (fund groups) can help me with my less experienced junior staff members, and can share the ideas I needed to hear 20 years ago, that will help me build my people and there's nothing more important to me," said Ferrara of ProVise Management.

The Good, the Bad, and the Ugly

So which fund companies' value added programs and services really add value for the independent financial planner, and which are just great -- but perfectly useless?

Undiscovered Managers Funds of Dallas wins kudos among the planner community as being on the cutting edge with in-depth and often thought provoking reports on the state of the registered investment advisory industry and other related topics. The fund group built a special division just to tackle its research and consulting functions to planners. The fund group undertakes topics for research at the suggestion of planners and will often help them with personal business consulting needs, free of charge.

But while planners appreciate Undiscovered Managers' research, not all planners are moved to action. "The studies are great, but that's not going to make me buy their funds," said Sameer Shah, CFP, and Founder of Shah & Associates in Tampa, Florida.

Dimensional Fund Advisors (DFA) of Santa Monica, California. wins praise for its hard core index fund philosophy that allows planners that are index fans to access DFA's vast proprietary research and modeling. DFA also brings high-profile economic experts, such as Eugene Fama, to two-day regional seminars with planners. "They teach at my level and you get to interact with these guys," said Matthew Reading, CFA and Chief Investment Officer with Austin Asset Management Co. in Austin, Tex. "It's like getting backstage at a rock concert."

Various fund groups that openly offer to share both proprietary research and specialized expertise with planners also win respect, say financial planners. But research that comes with a hidden agenda is a waste of time. "I find academic-oriented research that helps us design better asset allocation strategies and tax smart investment strategies to be useful. But if such papers are fund specific, I feel like I'm being sold another product," said Brent Bodeski, CFP, Partner of Savant Capital Management in Rockford, Illinois. "If the paper is truly academic, I believe it likewise enhances the reputation of the fund firm, and naturally increases the odds that we might use the firm's funds."

Dan Sondhelm is a partner and vice president of SunStar, a public relations, marketing and consulting firm located in Alexandria, Virginia. He is also the editor of iFinancialMarketing.com, the innovative Web site designed to help financial marketers better communicate with shareholders, grow assets, and achieve a strong and successful public profile. He can be reached at (703) 299-8390 or emailed at DSondhelm@iSunStar.com. 





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