State of Wholesaling: Transforming Distribution

The Cerulli Report Release September 2010 This report examines the state of wholesaling at retail asset management firms. It guides firms through a review of their distribution strategies and tactics to ensure they are maximizing the impact of their efforts. Focus is given to home officebased support such as key accounts, sales management, and hybrid wholesalers. The report also includes extensive coverage of the role and activites of today s field wholesalers, including hiring practices, training, and relationship building strategies. INSIDE LOOK: Key Findings: Hybrid wholesalers average approximately 50% of the production of a traditional field-wholesaler for 40% of the cost, but work best as complementary resources. Product providers should take bold actions to assure their wholesalers compensation packages are best aligned with the firm s long-term strategy. Gaining access to advisors has replaced reluctance to change providers as wholesalers greatest challenge in selling to advisors. The most productive wholesalers are continually those who spend the most time with well-targeted advisors. Exclusive data in this report: Broker/dealer opportunity market sizing and addressability Roles and activities of key accounts and sales management Comparison of salesforce compensation to strategic goals Wholesaler segmentation Comparison of advisor stated preferences to wholesaler activities Cerulli Associates Boston Singapore London Productivity of Hybrid and Field Wholesalers (Gross Sales), 2008-2010 (US$ millions) $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Source: Cerulli Associates $457 $333 $252 $186 $124 $159 $165 $82 $95 High 2008 Hybrid $1,293 2009 Hybrid Average 2010 Hybrid Low $18 2010 Traditional $37 REPORT ROADMAP 1. Retail Advisor Market 2. Challenges of Wholesale Distribution 3. Distribution Planning This report helps asset managers and product providers: Identify the most appropriate partners for distribution opportunities Craft a distribution strategy that best complements the firm s strengths Implement or fine-tune a wholesale distribution team Coordinate key accounts and sales teams strategic efforts Maximize resources spent on distribution Purchase includes: Hardcopy Online Access Exhibits in Excel format Key Findings in PDF Analyst Access This report helps broker/dealers and platforms: Understand providers perspective on key distribution relationships Maximize the benefits of provider relationships Understand how advisors can best benefit from wholesaler support Target areas for support from product providers For more information on pricing, please contact: Marketing & Business Development CAmarketing@cerulli.com +1 617-437-0084 Table of contents, exhibit list, user examples, and sample pages are attached 4. Strategy Implementation 5. Key/ National Accounts 6. Sales Management 7. Hybrid Wholesalers 8. Wholesaler Sourcing 9. Building Skills 10. Business Planning 11. Compensation 12. The Outstanding Wholesaler

The Cerulli Report Release September 2010 For more information on how to apply this report to your firm s unique needs, please contact: Marketing & Business Development +1 617-437-0084 CAmarketing@cerulli.com USER EXAMPLES: The following are examples of how this report can be applied to business planning and strategic decision-making: Scenario 1: A small asset manager, with an institutional focus, is looking to ramp up distribution through retail advisors. The Cerulli Report: The answers the following questions: Which channels offer the greatest opportunities for our firm s unique product set now and in the future? Which criteria are most important in constructing a distribution strategy? What type of sales team is needed for a focused distribution strategy? What are advisors really looking for when it comes to product providers and wholesaling support? Scenario 2: A large product manufacturer with a distribution team in place, is experiencing lacklustersales despite top-tier performance. The management team needs to understand best practices as it relates to distribution strategy and make changes accordingly. The Cerulli Report: The State of Wholesaling: Transforming Distribution answers the following questions: How does our firm s strategies compare to those of similar firms? Which strategies will complement our firm s key strengths? How should compensation programs be structured to align with the firm s overall goals? What factors will differentiate our wholesalers? Scenario 3: An international asset management firm needs to understand distribution in the U.S. before it develops products and a full-fledge strategy for entering this marketplace. The Cerulli Report: The State of Wholesaling: Transforming Distribution answers the following questions: What is the best structure for a wholesaling force channelized or dechannelized? What characteristics are most important in an effective wholesaler? How are firms recruiting wholesaling talent? What are the trends in wholesaler compensation? Scenario 4: A CRM provider is trying to increase use by product providers. They need to learn more about the dynamics of wholesaling. The Cerulli Report: The answers the following questions: How are product providers using CRM as it relates to their distribution strategy? How can CRM providers maximize the value they to provide users? How is CRM evolving and what features are most important? Scenario 5: An international asset management firm (without U.S. distribution) wants to understand distribution in the U.S. to apply best practices to its own global strategy. The Cerulli Report: The State of Wholesaling: Transforming Distribution provides the following answers: How are U.S. firms structuring compensation? How areu.s. firms reducing costs? How are home office support personnel best utilized?

EXHIBIT 20: NATIONAL SALES MANAGER: SALESFORCE RESOURCE ALLOCATION BY CHANNEL, 2010-2013E NSMs anticipate reducing their focus on the wirehouses. 60% 49% 50% 40% 37% 30% 26% 20% 20% 15% 11% 10% 7% 5% 7% 8% 2% 3% 2% 1% 2% 2% 2% 1% 0% Wirehouses Independent RIA Investmentonly defined B/D mutual funds B/D Regional Bank trust Subadvised Bank B/D Insurance B/D contribution and variable annuities 2010 2013E Source: Cerulli Associates In Cerulli s 2010 National Sales Manager Survey, we asked how organizations currently allocate their distribution resources, and how firms expect to change this allocation over the coming years. Of greatest note in these projections is a reduced focus on wirehouses, and more attention expected to be focused on the most independent channels (IBD and RIA). These projections are consistent with Cerulli s projected growth of the independent channels, and mark an increasing disposition among sales management to thoroughly consider the entirety of efforts needed to distribute effectively through a particular channel or firm. Getting Focused While product providers may not be accounting for some of the nuanced differences between their available opportunities, in many cases they are simply taking a short cut and ending up at the same place as those firms that take a more analytical approach. This becomes clear when we compare the list of largest B/Ds (in this case by advisor headcount) to those firms cited by NSMs as specifically targeted by their firms sales teams. 47 EXHIBIT 30: KEY ACCOUNT MANAGER TIME ALLOCATION, 2008-2010 Meeting with the professional buyer at B/Ds has become the most time-consuming element of KAM teams. Time Allocation Task 2008 2009 2010 Meeting with the professional buyer at broker/dealers 9% 14% 18% Meeting with broker/dealer home-office sales management 20% 21% 17% Communicating with salesforce 12% 12% 13% Regional meetings at broker/dealers 11% 8% 11% Sales activities in home office 10% 8% 9% Administrative tasks in home office 9% 9% 9% Meeting with other broker/dealer home-office personnel 9% 15% 8% Marketing activities in home office 8% 8% 8% Meeting with broker/dealer field management 7% 5% 7% Source: Cerulli Associates With an increased focus on professional buying teams comes a refinement of the skill sets of a KAM. Though platform placements have always been a responsibility of the role, the process has become much more formalized. In order to maximize placements, KAMs must thoroughly understand the decision criteria being employed by each partner and must be able to position their best available product for each platform. As a result, KAM teams have been increasing the analytical acumen of their teams. KAM is no longer a role for a people person without a strong analytical foundation. While a CFA or CIMA designations may have been nice to have in this role previously, an advanced designation is increasingly becoming prerequisite for these roles. EXHIBIT 31: MOST IMPORTANT ATTRIBUTES IN DEVELOPING PROFESSIONAL BUYER RELATIONSHIPS, 2010 KAM teams must deeply understand each selection process to improve their placement opportunities. Delivering information in a timely fashion 13% The ability to customize products for their platform 6% Offer wide range of vehicles and strategies Understanding their research 6% and selection process 75% Source: Cerulli Associates 69 Chapter 8: Wholesaler Sourcing The first step in examining the role of wholesalers is gaining a better understanding of who they are and where they came from. At its most basic level wholesalers come nearly exclusively from three sources: competitors (49%), internal sales desks (27%), and hybrid sales teams (18%). While some jobs do not offer clear career paths, the one to becoming a wholesaler is pretty clearly identifiable: get a job on an internal sales desk then take advantage of hybrid opportunities, if available. Of course not all internals or hybrids become wholesalers, but only 7% of wholesalers came from other sources in 2010. In previous years, several firms looking to expand their sales teams rapidly, without decimating their internal resources, explored hiring wholesalers from outside the industry. However, most of this interest has faltered recently as providers have found that the experience gleaned from internal sales positions is virtually crucial in developing productive wholesalers. EXHIBIT 46: SOURCES OF NEW WHOLESALER HIRES, 2008-2010 Internals and hybrids are the major sources of new wholesalers. 60% 49% 50% 48% 49% 40% 30% 20% 33% 29% 27% 12% 11% 10% 8% 6% 2% 2% 3% 1% 0% Industry Internal sales desk Other industry Financial advisors competitor E-wholesaler/ sales hybrid team 2008 2009 2010 Source: Cerulli Associates 18% 3% 0% 0% Outside the industry 101 Executed in concert, these skills allow wholesalers to truly engage in consultative selling, which has become the most widespread aspirational goal of sales management. When asked how they define consultative selling, wholesalers almost uniformly mentioned the importance of listening and understanding and advisor s business, but its actual execution varies widely across wholesalers. The below chart lists a verbatim sampling of wholesaler responses to being asked what they consider specific examples of consultative selling. EXHIBIT 55: SPECIFICTIONS WHOLESALERS CONSIDER TO BE CONSULTATIVE SELLING, 2010 Wholesalers take a variety of approaches to creating value to their advisor clients. Alerting an advisor when your product is no longer a competitive option and advising to sell. Improving the efficiencies of a practice be it, portfolios, client service, branding, non-verbal communication Helping to solve a problem, whether it relates to product or not. Second, helping an advisor determine what types of products might address the needs of their clients Product Related When I sit down with an advisor and their clients to discuss our solutions; Going through a brokers book of business to identify opportunities Zephyr analysis showing how one fund complements another. Showing our macro views and sharing ideas that will mirror these views for the market conditions we are in, and where we believe we will be experiencing going forward. Learning reps business, clients, current products, challenges; Offering value-added training to help improve reps business Discovery around the advisors business; Providing actionable ideas/solutions to help provide clients with a better outcome, which will help the advisor grow their business Helping an advisor determine how to make his book of clients more profitable by converting appropriate Practice brokerage clients to fee-based Management Effective interview questions to identify areas in their practice that can be improved for clients. Not only identifying a solution, but showing how to effectively implement it. Discuss FA business, merging into partnership so lets do org chart for partnership; Describe who/what our niche is vs. competition Helping clients hire admin staff, work on marketing strategies together Client Relations/ Marketing Advanced Planning Sources: Cerulli Associates, in partnerships with Advanced Sales Corporation and the Investment Management Consultants Association Clearly, today s wholesalers take a variety of approaches to creating value to their advisor clients. The above table gives examples of wholesalers 114 Creating a referral process and cloning "A" clients Working with the advisors staff to implement client contact strategies, and face-to-face with the advisors clients Roll playing with advisors, and overcoming client objections Advisor looking for reason to make calls, give actionable sales idea fixed income move in 2009 or Roth conversion in 2010. Discover advisor need and provide valid and timely fund option. Guiding an advisor through setting up a trust for estate planning and teaching an advisor about NUA during retirement to decrease taxes Utilizing enhanced DB with GMIB for parent of special needs children and using GMIB as a funding vehicle for LTC or Life policy The Cerulli Report Release September 2010 Included with purchase: Hardcopy of report Online access Exhibits in Excel format Key findings in PDF format Analyst Access To purchase this report, fill out this form and fax to +1 617-437-1268 or visit our website at www.cerulli.com. Name: Firm: Address: Phone: Email: Please contact Marketing & Business Development to learn more about pricing. +1 617-437-0084 CAmarketing@cerulli.com Special Feature: To view thumbnails of the contents of this report, please visit our website at www.cerulli.com. Go to Order/Info and click on view next to the report title. Cerulli Associates 699 Boylston Street Boston MA 02116 Tel: +1 617 437 0084 28 Maxwell Road Singapore 069120 Tel: +65 6327 4045 Page 47 Page 69 Page 101 Page 114 11-15 Betterton Street London WC2H 9BP +44 20 7470 8817 www.cerulli.com File: Eblast

TABLE OF CONTENTS INDEX OF EXHIBITS......................................6 REPORT SCOPE..........................................10 Beneficiaries of This Report...................................10 Report Roadmap............................................11 METHODOLOGY.........................................12 KEY FINDINGS...........................................14 Introduction................................................18 SECTION I: DEFINING THE FIELD.........................27 Chapter 1: The Retail Advisor Market...........................27 Assets and Marketshare...................................31 Chapter 2: Challenges of Wholesale Distribution..................34 Differentiation..........................................35 Expense Pressure........................................37 Diversification..........................................38 Chapter 3: Distribution Planning...............................41 Decision Criteria........................................41 Getting Focused........................................47 Alternate Targets........................................49 Goal Alignment.........................................50 Chapter 4: Strategy Implementation.............................52 Platform Only..........................................53 Field Saturation.........................................54 Channelization..........................................55 Non-Channelized Models.................................60 Key Recommendations...................................61 SECTION II: THE TEAM..................................63 Chapter 5: Key/National Accounts..............................67 Addressing Partners......................................70 Aligning Key Accounts and Sales...........................72 The Knowledge Bridge...................................74 The Evolution of Key Account Management..................77 Chapter 6: Sales Management.................................79 4

Referee...............................................80 Coach.................................................83 Player Coaches.........................................86 Setting Priorities........................................87 Chapter 7: Hybrid Wholesalers................................88 The Numbers...........................................91 Implementation and Mechanics............................93 Key Recommendations...................................98 SECTION III: FIELD WHOLESALERS......................99 Chapter 8: Wholesaler Sourcing................................101 Chapter 9: Building Skills....................................107 Skill Selection..........................................108 Knowledge Development.................................115 Resource Sourcing......................................117 Chapter 10: Business Planning.................................119 Time Management.......................................120 Annual Business Plans...................................124 Segmentation and Profiling................................127 Activity Planning........................................131 Wholesaling Technology..................................136 Chapter 11: Compensation....................................142 Altering the Equation....................................144 Firm Foci..............................................148 Net Sales..............................................149 Diversification..........................................150 Activity and Subjective Measures...........................151 Implementation.........................................153 Chapter 12: The Outstanding Wholesaler........................154 Partner to B/D Management...............................159 Partner to Advisors......................................164 Key Recommendations...................................173 5

INDEX OF EXHIBITS 1. Open-End Mutual Fund Flows by Asset Class vs. Equity Market Performance, 1999-2009...............................................19 2. Advisor-Sold Product Assets and Marketshare, 2007-2009....................20 3. Headcount of Top-25 Broker/Dealers as a Percentage of Industry Headcount, 2004-2009.................................................21 4. Asset Managers Perception of Balance of Power, 2010.....................22 5. Wholesalers vs. Advisors: Reasons Advisors Choose Asset Managers, 201023............................................................. 6. Primary Value Wholesalers Provided to Advisors, 2010.......................25 Section I: Defining The Field Chapter 1: The Retail Advisor Market 7. Historical and Projected Change in Total Advisors by Channel, 2004-2012E.........................................................28 8. Intermediary Matrix, 2010..............................................30 9. Asset Marketshare by Channel, 2008-2012E...............................31 10. Marketshare of Advisors vs. Marketshare of Assets by Channel, 2009..............................................................32 11. Advisor Productivity Index by Channel, 2007-2011E........................33 12. Assets by Product by Channel, 2009.....................................34 Chapter 2: Challenges of Wholesale Distribution 13. National Sales Manager: Greatest Challenges Facing Wholesale Distributors, 2010...................................................35 14. National Sales Manager: Projected Drivers of Firm s Growth in the Next Five Years, 2010.............................................37 15. Persistence of Flows and Assets for Top-10 Broker-Sold Fund Companies, 2006-2009...............................................39 Chapter 3: Distribution Planning 16. Channel Scale and Profitability, 2010....................................42 17. National Sales Manager: Best Description of Current Distribution Philosophy, 2010....................................................42 18. Distribution Opportunity Factors, 2010...................................44 19. Comparison of Key Factors: Wirehouse vs. RIA, 2010......................46 20. National Sales Manager: Salesforce Resource Allocation by Channel, 2010-2013E................................................47 21. Top-20 Broker/Dealers by Advisor Headcount, 2004-2009...................48 22. National Sales Manager: Most Commonly Targeted Distribution Opportunities, 2010..................................................48 6

Chapter 4: Strategy Implementation 23. National Sales Manager: Salesforce Channelization, 2010....................56 24. Example of a Channel-Centric Distribution Organization, 2010...............59 Section II: The Team 25. Change in Support Requests of Key Distribution Partners in the Last 18 Months, 2010................................................64 26. Typical Provider Salesforce Headcount by Functional Role, 2010..............65 27. Actual and Expected Changes in Salesforce Headcount by Functional Role, 2009-2011............................................66 Chapter 5: Key / National Accounts 28. Greatest Challenges for Key/National Account Managers, 2009-2010.........................................................67 29. Group Responsible for Supporting B/D Professional Buying Teams, 2010..............................................................68 30. Key Account Manager Time Allocation, 2008-2010.........................69 31. Most Important Attributes in Developing Professional Buyer Relationships, 2010..................................................69 32. Usefulness of Partnership Activities in Increasing Flows, 2010................72 33. Breakdown of Key Account Manager Compensation, 2010...................73 34. Wholesalers Most Desired Information from Key Accounts Team, 2010..............................................................75 Chapter 6: Sales Management 35. Greatest Challenges Faced by Divisional Sales Managers, 2009...............80 36. Ratio of Wholesalers to Divisional Sales Managers, 2009-2010...............81 37. Divisional Sales Manager Time Allocation, 2008-2010......................83 Chapter 7: Hybrid Wholesalers 38. Implementation of Hybrid/E-Wholesaler Role, 2010........................88 39. Primary Strategy of Hybrid Wholesalers, 2010.............................89 40. Advisor Perception of Importance of In-person Meetings with Wholesalers by Channel, 2010.........................................90 41. Hybrid Wholesaler Compensation, 2010..................................92 42. Makeup of Hybrid Wholesaler Compensation, 2010........................93 43. Productivity of Hybrid and Field Wholesalers (Gross Sales), 2008-2010.........................................................93 44. Hybrid/E-Wholesaler Staffing by Time since Implementation, 2010..............................................................95 45. Hybrid Wholesaler Time Allocation, 2008-2010............................96 7

Section III: Field Wholesalers Chapter 8: Wholesaler Sourcing 46. Sources of New Wholesaler Hires, 2008-2010.............................101 47. Wholesaler Age by Productivity Tier, 2010...............................102 48. Sales Management vs. Salesforce Comparison: Reasons Why Wholesaler Would Leave a Firm, 2010...................................103 49. Wholesaler Experience by Productivity Tier, 2010..........................104 50. Expected Experienced Wholesaler Productivity in First year, 2010.............105 51. Benefits and Risks of Internal and External Wholesaler Hiring, 2010..............................................................106 Chapter 9: Building Skills 52. Wholesaler Interest in Additional Training Topics by Productivity Tier and Age Range, 2010.............................................109 53. Wholesalers Perceived Skill Level and Skill Importance by Productivity Tier, 2010...............................................111 54. Wholesaler Skill Categories, 2010......................................112 55. Specific actions wholesalers consider to be consultative selling, 2010..............................................................114 56. National Sales Managers Ranking of Training Method Effectiveness, 2010..............................................................117 57. Wholesaler Licenses and Designations, 2010..............................118 Chapter 10 Business Planning 58. Major Time Management Issues of Wholesalers, 2010......................120 59. Wholesaler Time Allocation, 2010......................................121 60. Source of Scheduled Appointments, by Wholesaler Tier, 2010................122 61. Ratio of Wholesalers to Internal Sales Desk Representatives, 2008-2011E........................................................123 62. Wholesaler s Opinions on Business Planning by Productivity Tier, 2010..............................................................124 63. Wholesaler Time Spent Completing Annual Business Plan, 2010..............125 64. Advisor Makeup of Wholesaler Territories by Tier, 2010.....................127 65. Advisor Product Use by Advisor Sales Level, 2010.........................128 66. Source of New Advisor Prospects, by Wholesaler Tier, 2010.................128 67. Contacts with Prospect Advisor before Scheduling an In-Person Meeting by Productivity Tier, 2010......................................129 68. Advisor Profiling Topics by Productivity Tier, 2010.........................130 69. Attempted Advisor Contacts by Sales Teams by Advisor Channel, 2010..............................................................132 70. Attempted Advisor Contacts by Sales Teams by Advisor AUM, 2010..............................................................133 8

71. Advisor s Desired Contact from Valuable Wholesalers by Advisor Channel, 2010......................................................134 72. Advisors Desired Contact from Valuable Wholesalers by Advisor AUM, 2010........................................................135 73. Wholesaler Targeted Contacts per Advisor, 2010...........................136 74. Wholesaler Uses of CRM System by Productivity Tier, 2010.................137 75. Wholesaler Satisfaction with Firm s CRM System by Productivity Tier, 2010..........................................................138 Chapter 11 Compensation 76. Productivity of External Wholesalers, 2010...............................142 77. Wholesaler Compensation, 2009-2010...................................144 78. National Sales Manager: Current vs. Ideal Breakdown of Wholesaler Compensation, 2010.................................................145 79. National Sales Manager: Current vs. Ideal Breakdown of Maximum Wholesaler Compensation per Category, 2010.......................................146 80. National Sales Manager: Obstacles to Moving Away from a Gross Sales Focus, 2010...................................................147 81. Activity Metrics Tracked for Wholesalers, 2010............................152 Chapter 12: The Outstanding Wholesaler 82. Wholesalers Greatest Challenges, 2009-2010..............................155 83. Advisor Product Mix, 2009-2Q 2010....................................156 84. Advisors Expected Change in Product Allocation, 2010.....................157 85. Wholesaler Interest in B/D Technology Platforms by Productivity Tier, 2010..........................................................162 86. Advisor Perception of Wholesaler Value, by Advisor Channel, 2010..............................................................165 87. Wholesaler Services Valued by Advisors by Advisor Channel, 2010..............................................................165 88. Verbatims: How Wholesalers Acquired their last Top Producer, 2010..............................................................167 89. Advisors Favored Portfolio Construction Method by Channel, 2010..............................................................169 90. Percentage of Clients Receiving Modular or Comprehensive Planning Advice, 2009-2012E..........................................170 91. National Sales Manager: Most Effective Types of Marketing to Use with Advisors, 2009..............................................172 9

REPORT SCOPE The, the most recent study in The Cerulli Report TM series, examines both the immediate and long-term changes affecting wholesale distribution. The report outlines the current state and outlook for opportunities for product providers and best practices they may employ to maximize the efficiency of their distribution efforts. Beneficiaries of This Report Strategies outlined in this report should help various types of firms operating within the financial services industry: Asset managers and other product manufacturers: firms mutual fund managers, insurance companies and others that distribute their products through the various intermediary channels attempting to address opportunities in a changing industry. Retail distributors: Broker/dealers and RIAs wishing to better evaluate their competitive position within the industry in general, and specifically their appeal as a distribution outlet for major product providers. Third-party service providers: RIA service agents, recruiters and others interested in assessing upcoming opportunities. 10

Report Roadmap The report begins with defining and sizing the realm of retail product distribution opportunity. Each of the main challenges facing product providers are explored as well as the strategies being employed to overcome them. Next, the report focuses on the home-office resources used to support distribution efforts including extensive coverage of key account teams, sales management, and hybrid wholesalers. Finally, the third section is a comprehensive examination of the role of field wholesaling: from their hiring, through their development and management, and ultimately to the techniques they use to build relationships with advisors. 11

METHODOLOGY The following analysis on the recent developments and outlook for wholesale distribution relies on a combination of quantitative and qualitative analyses conducted by Cerulli Associates. Our research draws upon our own market insight and proprietary data, as well as our analysis of third-party information sources. Cerulli National Sales Manager Survey A proprietary survey of U.S. product providers serves as the foundation for measuring trends about the current and future state of wholesale distribution, as well as several of the exhibits contained in the report. Respondents provided Cerulli with insight on their current strategies, staffing levels, compensation programs and trends related to future developments. CA administers all surveys through our proprietary data-gathering engine at www.cerullisurveys.com. Cerulli Wholesaler Survey A proprietary survey of field wholesalers serves as a tool to help understand the specific strategies and tactics being used in the field. As part of this annual research survey, CA asks wholesalers for their opinions on a range of factors including compensation, time allocation, business planning, and their overall relationships with advisors. Cerulli Advisor Survey A proprietary survey of the population of financial advisors in the U.S. serves as the data source for our discussion of advisor preferences and historical actions. In this annual research survey, CA asks financial advisors from all channels and of all practice types for their opinions on a range of factors including product use, client segmentation, and business practices questions. Data obtained from this survey is also used for other research report topics. 12

Qualitative Interviews As part of our ongoing research initiatives, CA analysts regularly interview key executives from distributors and asset management firms, as well as other industry observers. For the purposes of this report, CA analysts conducted a number of qualitative conversations with executives at provider firms of various sizes, focusing on sales managers and related personnel. We also interviewed executives B/D firms to better understand what qualities they are looking for in product providers. In addition, we spoke with wholesalers and financial advisors to more deeply understand the issues they face on a daily basis. All interviews were conducted on a background basis and without attribution. The conversations reinforced the findings of our survey work and provided additional valuable insights reflected in this study. As with all Cerulli Reports TM, additional information in this report was obtained from third-party public and non-confidential sources that Cerulli Associates believes to be reliable, and we have made every reasonable attempt to verify it; however, CA does not guarantee its accuracy or completeness. 13

SAMPLE SECTION from THE CERULLI REPORT: STATE OF WHOLESALING: TRANSFORMING DISTRIBUTION

to serve a firm s broad range of advisors and clients. Under this construct, a key account manger was most often focused on increasing the absolute number of funds available on a B/D firm s platform, while leaving most of the direct sales responsibility in the hands of field wholesalers. With the growing role of fee-based platforms, key account teams have become increasingly focused on gaining prominent placement within a B/D s recommended offerings (a list of preferred products created by the B/D s professional buying and/or portfolio construction teams). EXHIBIT 29: GROUP RESPONSIBLE FOR SUPPORTING B/D PROFESSIONAL BUYING TEAMS, 2010 The majority of firms have tasked key accounts teams with supporting of pro-buyers. 60% 56% 50% 40% 30% 20% 17% 10% 11% 11% 6% 6% 0% Retail sales: Handled by key/national account managers Investment management Standalone department Institutional sales Retail sales: Separate from key/national accounts Retail sales: Separate staff within key/national accounts Source: Cerulli Associates While some (usually larger) providers have created special teams to provide the quantitative support sought by the professional buying teams, as noted in the chart above, this responsibility is most often included in the responsibilities of key account management teams. The importance of this responsibility is reinforced when we review the time allocation of key account managers. We see meeting with professional buying teams has crept past meeting with sales management personnel as the most time-consuming element of KAM activities. 68

EXHIBIT 49: WHOLESALER EXPERIENCE BY PRODUCTIVITY TIER, 2010 83% of Tier 5 wholesalers have changed firms within the last 5 years, compared to 58% of Tier 1. Years Years in Industry All Wholesalers Years as a Field Wholesaler Years at Current Firm <3 0% 21% 35% 3 to 5 10% 28% 37% 6 to 10 27% 29% 16% >10 63% 22% 12% Total 6 years 90% 51% 28% Years Years in Industry Tier 1 Wholesalers Years as a Field Wholesaler Years at Current Firm <3 0% 32% 26% 3 to 5 16% 26% 32% 6 to 10 37% 16% 26% >10 47% 26% 16% Total 6 years 84% 42% 42% Years Years in Industry Tier 5 Wholesalers Years as a Field Wholesaler Years at Current Firm <3 0% 28% 33% 3 to 5 11% 39% 50% 6 to 10 39% 17% 11% >10 50% 17% 6% Total 6 years 89% 33% 17% Sources: Cerulli Associates, in partnerships with Advanced Sales Corporation and the Investment Management Consultant Association In short, sales management needs to make sure they are not just taking someone else s problem. As we can see in the above chart, this is the case more frequently than sales managers would like. The chart above compares wholesaler s lengths of service in the industry, as a wholesaler and at their current firm. The first chart shows the aggregated responses of all wholesalers, the second just those of Tier 1 wholesalers and the final Tier 5 wholesalers. While the overall industry experience is rather consistent across groups, the incidence of Tier 5 (83%) wholesalers having changed firms within the last five years is much higher than Tier 1 (58%). In many cases job-hopping, even by top-producing wholesalers, becomes a concern from the perspective of both advisors and sales management. From the advisors perspective, how many times can they hear that the wholesaler s new firm is best able to serve client needs before the wholesaler s credibility has evaporated? From the provider s perspective, NSMs often end up expressing a preference for wholesalers much like 104