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Fund firms woo advisers to get onside

The days of freebies like Las Vegas trips are long gone in the battle to win loyalty

MUTUAL FUNDS REPORTER

TORONTO -- It's half-past eight on a Wednesday morning and Philip Taylor, president and chief executive officer of AIM Funds Management Inc., is doing his best to energize a crowd of about 200 sombre financial planners.

"It's a slower growth environment for stocks and bonds, maybe for the next decade," Mr. Taylor says from the brightly lit stage that's designed to look like a TV studio.

The planners sip their coffee and settle in for a five hour crash-course on portfolio management, tax tips and asset allocation. PD Network Live is a carefully staged performance the mutual fund company will tour across Canada over the next six weeks, from Victoria to Moncton.

"I feel like a rock star," says Mr. Taylor in an interview. He will be speaking at 15 of the upcoming 22 events.

Mr. Taylor, along with the rest of the mutual fund industry, are working hard to win the loyalty of financial planners, an influential group of about 35,000 that determine how Canadians invest their savings. The pressure is intense. In the mid-1990s, the average planner would do business with eight to 10 companies. But a proliferation of funds and industry consolidation means planners now do 90 per cent of their business with only four fund firms.

For the fund company, winning a planner's loyalty is a delicate art that hinges on product, performance and, above all, relationships.

"It is a relationship business," said David Feather, president of Mackenzie Financial Services Inc. Every spring, the Toronto fund company mounts Mackenzie University, a full-day seminar for planners held in nine cities.

Less than ten years ago, green fees, hockey tickets and gift baskets were the chief tools used by the fund executive to woo planners and brokers.

"It was out of control," said Caroline Spivak, spokeswoman for Advocis, an association that represents financial advisers and insurers. All-expenses paid trips to Las Vegas, pricey gift baskets for a new baby and a luxury car for the weekend were not uncommon, she said.

Then in May, 1998, the Canadian Securities Administrators adopted National Instrument 81-105, a new policy governing mutual fund sales practices that banned freebies and bonus sales commissions. As a result, trips and golf are out; seminars and one-on-one meetings are in.

"Every fund company is looking at different ways to make sure they get their name out there," said Dan Richards, a mutual fund marketing executive. "You have to get in front of [the planner] face to face, tell your story and provide personal contact."

Wholesalers are a fund company's front line, each building personal relationships with as many as 200 planners, advisers and brokers. Invitations to luncheon seminars and events featuring fund managers are common.

The decline in AGF Management Ltd.'s fortunes is a sober lesson on the importance of the wholesaler's networking skills. In 2002, well-regarded U.S. equity manager Brandes Investment Partners & Co. cut its ties with AGF and set up its own shop in Canada. Despite some negative publicity and lawsuits, Brandes hit the road and began telling its story. In contrast, AGF retreated from the market and wholesalers failed to keep planners up to date. Today, Brandes has amassed $2.8-billion in assets under management while AGF's mutual fund assets have slid 24 per cent to $22.8-billion.

Fund companies flirt closely with the regulatory rules of engagement; planners pay their own way but fund companies lay out a big spread for events, two of which recently featured tickets to concerts by Quebec chanteuse Celine Dion and Celtic rockers Great Big Sea.

All the wooing can make a difference, said adviser Michael Morrow of Morrow Financial and Insurance Services in Thunder Bay.

"If you were a broker you probably would give AIM Trimark a little bit more of your business after going to that [PD Network Live] because you understood their fund a little bit better. You got a nice feeling."

One way to get your funds an edge is to buy the sales force. At a recent industry conference, Ned Goodman, head of Dundee Wealth Management Inc., said increased industry regulation all but forced the firm to acquire distributors to remain competitive.

Dundee, along with CI Fund Management Inc. and IGM Financial Inc., have each snapped up financial planning assets in recent years. Meanwhile, the Big Six banks market a suite of in-house funds through bank branches and brokers.

Owning the dealers can be a boon to business, but also raises concerns investor interests aren't paramount, says Robert Francis, president and CEO of Montreal's PEAK Financial Group, an independent financial planning firm. "When you buy the dealer," he says, you can also create a "huge imbalance" of advice that favours in-house funds.

Assante Corp., a financial planning firm with more than a 1,000 advisers, typifies the debate. In its own 1999 prospectus, the company was upfront that its growth strategy rested upon acquiring competing planning firms and maximizing shareholder value by shifting clients over to in-house funds and products. It also said it did not reward advisers to push in-house funds over others.

But holding manufacturing and distribution under one roof creates conflicting interests and gives fund firms "moral suasion" with planners, said John De Goey, an Assante adviser.

"There is a [client] perception here of 'What is this guy up to? Is he representing this fund as being the best for me? Or will it benefit him in some way, albeit indirectly?' " Mr. De Goey said.

Assante was acquired last year by CI for $846-million in cash and shares. CI, along with Dundee, AIC and other companies interviewed, insist fund manufacturing and distribution operations remain independent. Financial incentives to sell in-house funds are forbidden.

Assante planners "get the exact same payout," whether they sell CI or competitor funds, said Bill Holland, CI's president and CEO.

That said, CI's ownership of Assante "guarantees you get their attention," Mr. Holland said.

"Financial planners today are focusing on two or three companies. They are looking for the biggest companies that are well-branded, that have a huge selection of product. That is what they are looking for."

Owning a piece of the adviser action

Several mutual fund money managers also own planning advisory firms, which sell funds to clients.

Company......... Assets under management ($billion).....Ownership..............Number of planners

................... .............................................Dundee Bancorp............3,300 financial

Dundee Wealth...............................................Controlled by Ned............and insurance

Management............$40.................................Goodman, pres. & CEO......advisers

Asssante..................19..................................CI Fund Management.........850.........

Berkshire Group........More than...........................Michael Lee-Chin.............More than

of Companies.............10....................................................................1,000....

IPC Financial..................................................................................More than

Network.....................7.3...........................IGM Financial..................600

IQON Financial..........4...................................CI Fund Management.........350

Peak Financial.................................................Privately held by.....................

Group......................3....................................The Frances family...........350

© 2007 The Globe and Mail. All rights reserved.

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