Fund advisors generally pleased with their dealers, survey finds

The vast majority of mutual fund advisors have a good working relationship with their dealers, who provide good value in areas such as compensation and support, according to a new survey. The ADVISOR Group study, presented on Thursday at Changing Channel: The Future of Mutual Fund Dealers conference in Collingwood, Ont., indicates that 88% of advisors have a strong relationship with their dealers and 82% of advisors believe those dealers provide good value.

Dealer firms are viewed as the preferred training supplier for due diligence, practice management and sales, though taxation and retirement income planning topped the list of advisor’s training needs.

Interestingly, top producers — defined as those with annual practice revenues above $500,000 — were less likely to agree that their relationship with their dealer was strong or that the dealer provides good value.

“Only three in 10 top producers say they have a strong relationship with their dealer,” noted Tricia Benn, the ADVISOR Group’s director of research.

And the demand on dealers is increasing, noted Benn, particularly in the areas of compliance and legal support. “Compliance costs are going up,” said Chris Enright, managing director of FundTrade, who took part in a panel discussion after the research presentation. “Forty-eight per cent of our top-line revenue goes into compliance. We have to get in front of these issues.”

“We send out regular compliance bulletins, but we know that not all advisors are going to read them,” added Worldsource president Andy Mitchell. “So we have a team to let them know how these changes will affect their practices.”

Among the 340 advisors questioned for the online survey this past August, top producers preferred selling securities to mutual funds (40% compared to 17%), while the average advisor’s sales mix was dominated by mutual funds, at 54%.

Forty-one per cent of advisors described their dealers as “highly structured,” offering everything from training to business development. Compensation was fair, but not high, they said. About one-quarter of advisors characterized their dealers as a “volume shop,” providing a broad base of products and the highest compensation for experienced advisors. Eight per cent said they worked with a niche outfit, which provided a “unique set of support mechanisms to assist advisors in one or more specific market segments.”

Compensation was a concern for a number of the advisors surveyed, with 18% stating that their dealer was receiving too much. However, others said they would be willing to give up a larger share of their commissions, in exchange for improved services, such as prospecting, training, marketing and an educated support staff. “Expectations are spread across the board,” Benn explained.

Mutual fund advisors generally plan to retire at the traditional age of 65, although a significant number (37%) admitted they did not have a business or succession plan in place. Top producers hope to retire earlier, at an average age of 57, and 70% have a succession or transition plan.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com