One of the most challenging tasks for any “Head of Distribution” is to have the inevitable uncomfortable conversation with a portfolio manager about why they aren’t selling enough of their products…after all, PMs ultimately get paid based on AUM. Unfortunately, most Heads of Distribution do not know how to handle these conversations, and the burden ultimately lands in the wholesaler’s lap. For the most part, managers do not share with the PM how other strategies are more sellable…which is how wholesalers tend to get paid. A very smart wholesaler once told me, “I don’t tell them (FAs) what they need; they tell me what they want.” This was a rebuttal when I asked him why he was selling so much of a specific product.
After having the conversation with the PM, the Heads of Distribution immediately go into “optics” mode – let’s look like we are rallying behind a non-sellable strategy. They would feature the PM on the weekly calls, call-in favors so wholesalers would travel with the PM, have some FA webinars with the PM, etc. The optics were that the sales team is trying, but in reality, it was all a show in an attempt to appease the PM. They rarely see a spike in sales from these campaigns, and it ultimately has a detrimental effect on wholesaler morale and activities. After all, you don’t get paid to “take one for the team.” The stupidity of this exercise (which I am formally guilty of) is we ask wholesalers to go through the motions to appease the PM, yet we continue to rank sales folks based on daily, weekly, monthly sales. It seems counterintuitive, right? Whether it’s right or wrong, salespeople get recognized for the total sales, not “appeasement” sales. Something I have never read on a wholesaler’s resume: Sold less of our top selling product to focus on out-of-favor funds due to Management’s orders.
Years ago, I sat in on a presentation where someone highlighted the best way to drive
activity is through compensation. While I thought this was a “no shit, Sherlock” moment, it now makes me realize how current Management has taken this to heart. From a compliance standpoint, it is very difficult (if not impossible) for firms to have a ‘campaign” that pays more on a specific product in an effort to increase sales. So how does Management drive activity through compensation – enter the DISCRETIONARY BONUS. Yes, let’s create a compensation model where they get to dictate activity and focus. While I have always been a fan of discretionary bonuses in an effort to ensure teamwork, collaboration, new producers, etc., they have recently morphed into a tool to control desired activities and Management’s priorities. Coincidentally, the discretionary bonus is the fastest-growing component of wholesaler compensation, and it is not additive. Given Management “reverse engineers” compensation based on targets, they are simply making the discretionary portion a larger slice of the pie – given they want more control over your activities.
While I believe that wholesalers ultimately want diversified sales, they do not have the luxury to pick and choose what FAs want. They can have intellectual conversations about what FAs might need, but that comes at an opportunity cost of not selling something that is more sellable. Perhaps, intellectually, you want to pursue this battle, but your W-2 would disagree with this proposition. Our DNA is to maximize results. Obviously, we do this ethically and with transparency, but we are not in this business for charitable purposes; we want to get paid for our activities. The beauty of this business is sale’s people get a daily report card, and as long as Management focuses on these rankings, they should also learn how to manage PM expectations.