Fund firms profile behavior of advisers

Law enforcement uses behavioral profiling to identify terrorists, and now mutual fund companies are starting to apply the methodology to financial advisers to target sales and marketing efforts more effectively.

They are looking at which advisers — regardless of their channel — focus on investors in the accumulation phase of investing and which focus on the distribution phase, according to industry watchers.

Fund companies are studying which advisers use exchange-traded funds, which ones use separately managed accounts and which ones use alternative investments.

“They are looking at how an adviser actually does business,” said Howard Schneider, president of the consulting firm Practical Perspectives.

Some fund companies are even looking at more-personal information.

“If someone is a successful rep, guess what? They will look like a successful consumer,” said Jack Wallace, solutions leader at Acxiom Corp., a marketing services consultant.

Not all fund companies, however, are taking such a close look at the business and private lives of their adviser customers.

Many are still wedded to focusing simply on whether an adviser falls into a particular category — such as wirehouse, independent broker-dealer or independent registered investment adviser, Mr. Schneider said.

But a growing number of fund companies are looking more closely at individual adviser practices.

“UNDER THE HOOD’

T. Rowe Price Group Inc. began such an effort about two years ago, said Bill Weker, its vice president of marketing/web strategy and development in third-party distribution.

“We're trying to get under the hood of what's driving adviser behavior,” he said.

The Vanguard Group Inc. is also looking past traditional channels to get a better feel for who an adviser really is, said Melissa Nassar, its head of sales.

“It's a big deal for us,” she said.

Vanguard sales teams meet monthly to talk about “critical trends across channels,” Ms. Nassar said.

The Dreyfus Corp., a unit of The Bank of New York Mellon Corp., also is looking beyond traditional wholesaling channels, according to comments Jon Baum, its chairman and chief executive, made at the beginning of the year. He was unavailable for additional comment.

And Fidelity Investments “does a very good job” profiling advisers, said a marketing professional, who asked not to be identified.

Fidelity declined to make anyone available for comment.

Others firms are starting to look into behavioral profiling, Mr. Wallace said. “I have talked to 10 or 11 companies about this,” he said.

Of course, there are different levels of behavioral profiling.

For example, Mr. Wallace talks about looking at where advisers live and what they drive to help create a profile that can be used by fund companies.

By looking at such factors, he claims, Acxiom can accurately predict which wirehouse reps may leave to become RIAs.

Such information can be vital to fund firms, especially at a time when there is an unusual amount of movement by advisers, experts said.

Mr. Schneider, however, is less convinced of the merits of such an approach.

If fund companies really want to increase sales, the best way to do that is to get a good understanding of an adviser's businesses, not his or her spending habits, he said.

Looking at how an adviser actually does business, rather than lumping together all RIAs or all wirehouse reps, makes sense, said Nicholas Spagnoletti, a partner in Macro Consulting Group LLC, which oversees $360 million in assets.

“I can't say how many wholesalers call us up pushing a fund that has nothing to do with what we do,” he said.

But Christopher Cordaro, chief investment officer of RegentAtlantic Capital LLC, isn't convinced that a sales focus that cuts across channels is such a good idea.

“To me, selling by channel sort of makes sense, because that's how people invest,” said Mr. Cordaro, whose advisory firm has $1.7 billion under management. “[Wholesalers] know not to talk to us about commissions and the latest fund.”

An understanding of the individual adviser that goes beyond what channel they are in, however, means they will spend less time dealing with fund wholesalers pushing products that may not be right for them, said Bing Waldert, a director at Cerulli Associates Inc., an industry consulting firm.

“If asset managers are smarter about who they approach with what products, the adviser in theory is getting a more targeted message,” he said. “If you're a high-net-worth adviser, you don't want to hear about asset allocation funds.”

To some extent, the best wholesalers already engage in behavioral profiling, Mr. Schneider said.

“The challenge for firms is to make that more institutional,” he said.

That is an action that few firms have taken, Mr. Schneider said.

But times are changing.

“I think more of them will be doing it in the future just because I think we're beyond the easy days of overall growth,” Mr. Schneider said.

The most likely adopters are large fund companies such as T. Rowe, Vanguard and Fidelity, he said.

That is because in order to focus on individual advisers, firms need the infrastructure and resources to commit to building a database, Mr. Schneider said.

Even among larger firms, however, behavioral profiling isn't likely to supplant the use of channels to direct sales and marketing efforts.

What channel an adviser falls into will always be important to the sales effort at T. Rowe, Mr. Weker said.

And Vanguard will also continue to pay attention to channels, Ms. Nassar said.

E-mail David Hoffman at [email protected].

Related Topics: Fidelity Investments, Vanguard Group