Those in financial services like to call mutual funds commodities, because there are more than 8,000. And many liken those who market them to shoe salesmen or door-to-door encyclopedia salesmen.
But nobody ever made $400,000 a year hawking shoes or encyclopedias. As mutual fund companies trip over each other to reach the growing numbers of independent financial advisers, they are driving up their sales staffs' pay.
Commonly called wholesalers, people who sell mutual funds to advisers are seeing their salaries jump 15% to 20% over last year, with top talent commanding $300,000 to $400,000, say headhunters and mutual fund sales executives. Greenhorns tend to rake in $100,000, give or take a few pennies. At least one firm, Phoenix Investment Partners of Hartford, even offers equity to keep top talent seen as vulnerable to the increased raiding in the industry.
"It's getting kind of crazy," says John F. Sharry, executive vice president overseeing marketing at Phoenix.
All this at a time when financial advisers have been griping that the industry uses distribution costs as one excuse for what many believe are excessively high expenses. But lots of reasons are driving up the costs, says Joel C. Millonzi, senior managing director at Johnson Smith & Knisely, an executive recruiting firm in New York.
The chief one, as writer Flannery O'Connor might have put it, is that a good salesman is hard to find. And, as Mr. Millonzi notes, many more mutual fund companies are looking as they want to reach the growing numbers of financial advisers.
Goldman Sachs Asset Management and Prudential Investments, the asset management arm of Prudential Insurance Co. of America, are among the latest to start divisions to go after independent financial adviser business. Furthermore, no-load mutual funds, which are increasingly winning acceptance in brokerage houses that provide fee-based advice, are relying on wholesalers to gain notice from brokers who once shunned them.
"There's no question the trend for wholesaler compensation has gone
up as mutual fund firms try to get shelf space," says Mr. Millonzi. "There are too many jobs chasing too few people."
Of course, for several years the stock market has been the wholesaler's best friend. Most get a base salary plus commissions, usually with a minimum level, or draw, guaranteed. But most earn far more than the draw, say wholesalers. The more the market goes up, the more funds their broker clients sell. And that means more money for them.
Mutual fund companies believe wholesaler salaries are the cost of doing business, and that expense ratios are not affected by their hiring. Spending $300,000 on a salesperson that brings in a few hundred million dollars is worth it, they say.
"I suppose I could pay a salary and (no commissions) and get someone mediocre," says Bruce Bent, creator of the money market mutual fund and manager of the Reserve Fund in New York.
Wholesalers spend their lives attending conferences for financial advisers, taking advisers out to swank restaurants, criss-crossing the country to give presentations to advisory firms or to help an adviser give a seminar on investing to prospects.
"Most of these people leave their families on Monday morning and come back Thursday and Friday afternoon and work two weekends a month attending training meetings, seminars -- a lot of people don't like that kind of life," says Robert Leo, senior vice president, broker-dealer division, of Massachusetts Financial Services in Boston. "It's tough on a family. There aren't a deluge of really high-quality people. So obviously there's a premium for them."
One 40-year-old wholesaler says his job caused a divorce. "You're getting paid to stay away from home," says the man, who asked for anonymity. "I'd love to take my three-year-old to the park this afternoon, but I'm jumping on a plane."
lifestyle takes a toll
Furthermore, this wholesaler says the top fund firms are just as quick to take that compensation away when the market turns as they are to give it to you when they want to break into a new market. "I can remember a day when wholesalers were making $1 million to $1.5 million."
Also driving up the price is mutual fund firms' belief that advisers want more than mere peddlers of products. Prudential Investments, for instance, has started a division to help independent advisers market themselves to wealthy clients. Alliance Capital Management of New York helps advisers better understand their balance sheets. Phoenix offers similar programs.
Another concern advisers have is that the increasing salaries might cause turnover in the wholesalers they work with, denying them a familiar face at a fund firm they like.
Wholesaler turnover "is very disconcerting," says Tom Miltenberger head of mutual fund marketing at Edward D. Jones & Co. in St. Louis, "because we rely on them to carry the Jones philosophy to our brokers."