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Thursday, April 03, 2003

Managers Cutting Sales Costs

Reported by Sean Hanna, Editor in Chief

Asset managers selling into the separately managed account (SMA) industry are focusing their spending on people rather than other marketing and sales executives, according to Financial Research Corporation. While the typical asset manager trimmed wholesaler compensation by 4.6 percent last year, it cut spending on other marketing and sales expenses far more, Kevin Keefe, a senior consultant with the researcher, told attendees at the Money Management Institute annual conference in New York City.

Keefe said the largest cuts came in spending on promotional items and advertising. Managers cut spending on promotional items 89 percent from 2001 levels in 2002, he said. Those items are given away to investors and investment advisors to build the manager's brand.

Meanwhile, spending on ads also fell off a cliff, dropping some 73 percent from 2001 to 2002. Firms also cut back on spending on their Web sites (spending there fell 42 percent) and on exhibiting at conferences and events. The budget for events fell 21 percent on average, according to the FRC numbers.

The cuts came as firms focused on building wholesaler teams to cover the SMA channel. "They are spending more on people," confirmed Keefe.

On average, firms now dedicate some 15 wholesalers to the SMA channel, said Keefe. And, he sees that number increasing. "Eighty percent of managers told us they are planning to either keep their territories the same size or make them smaller," confided Keefe. Roughly half of those firms, or 40 percent of the entire group, plan to make sales territories smaller. That implies firms will be seeking to add wholesalers.

Keefe also pointed to average workload of SMA-dedicated wholesalers as more proof that the numbers in their ranks will be expanding. "Mutual fund companies ask wholesalers to cover roughly 1,200 advisors," he noted. Yet SMA wholesalers are now assigned an average of 1,800 advisors.

Still, even with increasing demand for wholesalers in the SMA channel, average pay has dipped. In 2001 the median compensation for SMA wholesalers was $260,731, including base pay of $103,000, commissions of $145,000 and bonus of $12,000. In 2002 total pay fell 4.6 percent on average to $248,600. That breaks down into a base of $97,000, commissions of $146,000 and a bonus of $5,000.

Top tier wholesalers can do much better though. The best of the group earned $409,000 in 2002, according to FRC's research. That is up 3 percent from $397,000 in 2001.

Keefe said that FRC is releasing this research as part of a white paper within the next week.  

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