Working with Investment Sponsors

Relationships are key. Investment sponsors issue securities and raise investor funds for same. Build great relationships with your sponsors.  Not only do they create and manage the investments you place into your clients’ portfolios (you should have a voice in how those products are structured), but they can be a terrific source of financial support for your marketing efforts. Most investment sponsors set aside a predetermined percentage of your sales of their investment products which is allocated to help support your marketing efforts. We have used these funds to cover food costs at our public seminars, prospective client direct mail campaigns, charity fundraising event donations, and costs related to special client appreciation functions, to name several. Most sponsors are thrilled to help you with your marketing expenses.  You need only ask. Direct investment sponsors (REITs, BDCs, etc.) are perhaps the most well funded, but many insurance and annuity carriers, and even some mutual fund families, are also happy to participate in your marketing budget. You should take advantage of these available funds. Contact your investment sponsor wholesalers for details on their respective policies.

The Cold War

I have made some pretty derogatory remarks about external wholesalers over the years.  Wholesalers are those fine people that investment sponsors hire to get out in the trenches, zigzag the country, meet financial advisors, live out of suitcases, and promote the sale of their investment products. An honest enough proposition. But, I have said things like, “Wholesalers are of the devil.” and “I don’t trust them as far as I can throw them.” I have banned wholesalers from my offices, denied them access to my advisors, and refused their phone calls for years. I personally approve all wholesaler visits to my office, including lunch and dinner invitations for my advisors and staff, and most requests are not approved. I could literally eat an upscale steak lunch or dinner with a wholesaler every week. Mind you, these folks are some of the hardest working, and well paid, people in the industry (if they’re any good).  And, their capacity for hospitality and their thick skin endears them to us all.  But, like the Cold War, working with wholesalers can be a clandestine affair full of misdirection and subterfuge. Cute, cuddly snakes-in-the-grass, they are.

Now, allow me to put some of my somewhat tongue-in-cheek remarks and attitudes into perspective. I consider a number of these people to be my friends. Most of them are decent folks.  But, one must remember that investment sponsor wholesalers are essentially sales people. They are NOT financial planners.  They are paid to raise money for their sponsors’ investment funds, not give advice on your clients’ accounts. Their goals are not necessarily in line with your goals or those of your clients.  I was recently speaking with a wholesaler who was trying to get me to offer more of his various products to my clients. When I said I would offer this one, but not that one, he replied that he was pleased and that my strategy would not “hurt” him since he needed more sales of this rather than that. I was not taken aback because he did not do anything unexpected.  It is his job to raise money for his sponsor’s funds.  But, it is my job to manage my clients’ money. The two responsibilities somewhat overlap, but they are decidedly not directly correlated. Keep wholesalers in the proper perspective and at arms length. And keep your clients’ best interests clearly in focus and close to your heart.

For Straight Talk, Go Straight to the Top

Fact-checking is a must. Never trust a wholesaler when it comes to anything related to risks, performance or anything else under the headings of due diligence or regulatory compliance. Get your facts from the top. If it isn’t in writing and if it doesn’t come from printed and approved sponsor materials, then it has to come from the executives.  I have learned that the clearest picture of an investment’s risks and outlook will come from the top. Executives (Presidents, CEOs, CFOs, COOs, VPs, Fund Managers, etc.) tend to be more concerned with forthrightness and disclosure because their compensation and futures do not rely directly and solely on how fast money is raised for their funds. Wholesalers, on the other hand, are paid exclusively in direct proportion to how much money they raise. This doesn’t mean that executives always tell the truth. In the past few years, financial industry executives have been imprisoned at an alarming rate for their dishonesty with investors, and the trend doesn’t seem to be losing any steam. But, when given the choice between getting your information from wholesalers or executives, choose the latter.  The odds will be in your favor.