HOLY ALLIANCE!: A BROKER-BUILT BIGGIE TARGETS BANKS, ADVISERS

Judging from its fat sales recently, Alliance Capital Management L.P. can afford to coast for a while. Its load fund sales surged 61% last year to $6.2 billion from $3.8 billion in 1996.

Yet last month, the New York-based firm shook up its ranks for the second time in two years when it hired 28-year Merrill Lynch & Co. veteran David Conine, who as senior director of mutual funds marketing for the nation’s largest brokerage was the closest thing to God in the distribution world. Mr. Conine played a key role in determining which outside funds — including Alliance’s — got coveted shelf space with Merrill’s brokers.

Now Alliance executives are counting on the well-connected Mr. Conine — who was the driving force behind Merrill’s attempt to position its brokers as financial consultants rather than stock jockeys — and a series of initiatives to build sales through distribution channels the company has barely scratched: fee-based advisers and banks. At the same time, it wants to maintain its grip on the broker channel, which accounts for 90% of sales.

With the hiring, Alliance is fine-tuning a reorganization that began in 1996 when it divided fund sales responsibilities by distribution channel, instead of geography.

aiming for the varsity

Alliance needs to make bigger inroads in new markets to meet its goal of becoming the next American Funds or Putnam Investments, the largest players among broker-sold fund companies without their own sales forces.

In that arena, Alliance ranked No. 8 as of Jan. 30, when it had $50.1 billion in fund assets, according to New York consulting firm Strategic Insight. It has 47 open-end and 14 closed-end retail funds.

Overall, Alliance is 19th largest in the mutual fund industry, up from No. 21 in 1990. Sales have taken off, thanks to three years of solid investment performance, an expensive national advertising campaign and international joint ventures.

But the fee-based adviser and bank channels, each accounting for 5% of sales, still have a long way to go.
Indeed, Mr. Conine’s goal for Alliance is to boost the fee-based adviser channel to 50% of sales.

“I have a very good understanding of what is going through the financial planner’s mind and what it takes to be successful,” he says.

To bolster business with advisers, since 1996 Alliance has signed on with a number of mutual fund supermarkets and rolled out load-waived shares and institutional funds with higher minimums and lower expenses geared to financial advisers.

To build its banking business, it decided last month to put the channel under the commission-based distribution umbrella. Banks had been lumped in with fee-based advisers. Richard Saccullo, who previously oversaw sales through broker-dealers, has been named executive vice president of all commission-based fund sales.

Richard Davies, senior vice president, no longer covers banks. Instead, he heads a new consultative sales unit targeting fee-only planners, wrap programs, 401(k) plans, variable annuities, fund supermarkets and high-net-worth individuals.

Alliance, whose majority owner is insurer Equitable Cos. Inc., has $219 billion in assets, up almost 84% from $119.2 billion in 1994. That kind of growth has made the publicly traded limited partnership a darling of Wall Street. It is one of the best-performing money management stocks this year, with its units gaining more than 27%.

“Whether we can sustain that (asset growth) rate might be open to debate, but we want to continue to lead the industry across a broad array of products and clients,” says Michael J. Laughlin, chairman of Alliance Fund Distributors Inc.

“A lot of the commitments we are making in our mutual funds area as well as the increase in our advertising budget are pointed toward stressing the importance of the financial (intermediary) in this whole process,” says Mr. Laughlin. The company is spending $10 million on advertising this year, up from $8 million in 1997, which includes premium spots during the upcoming Academy Awards broadcast.

Bu
t it faces tough challenges in making a name for itself outside the brokerage world. It’s still little known among fee-only advisers.

“They have not popped up on any of my screens,” says Diahann W. Lassus, president of Lassus Wherley & Associates, a fee-only planning firm supervising $100 million in New Providence, N.J.

In addition to combating what it considers a bias in favor of no-load shops, Alliance is competing with other load firms for the growing pool of money controlled by fee-based planners.

good but not great

Its stock funds, while posting respectable returns, haven’t exactly knocked the socks off advisers.

“We are making progress,” says Richard Davies, senior vice president. “We just want to make progress at a faster rate.”

The recent changes come two years after Alliance began to court the fee-only market by introducing “adviser class” shares that have no 12(b)1 fees, but require a minimum investment of $250,000. It would not provide figures on sales by share class.

In addition, last year it rolled out institutionally priced versions of three top-performing funds — Premier Growth Institutional (large-cap stock), Quasar Institutional (small-cap stock) and Real Estate Investment Institutional (a real estate investment trust fund) — and joined such big fund supermarkets as Charles Schwab & Co. and Jack White & Co.

The institutional funds have lower expenses, including no 12b-1 fees, which cover marketing and administrative costs, for fee-based advisers, but require a $2 million minimum investment.

“As successful as they’ve been, they haven’t been a leader in new channels,” says David Kaytes, managing vice president of First Manhattan Consulting Group in New York. “(The new sales strategy) may be a significant move to build that same kind of leadership in other channels.”