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Can Mutual Fund Wholesaler’s Salaries Be Justified?

One of the biggest problems facing the mutual fund industry’s relationships with its millions of shareholders is justifying fund wholesalers’ salaries.

This is a contentious and sticky issue for a few reasons:

First, mutual fund wholesalers really don’t add anything which directly benefits shareholders.

In theory, they should be reducing overall fund expense ratios by increasing the asset base of mutual funds.

This would then lower the overall expense ratio for all shareholders. That was the original theory and rationale behind allowing 12b-1 fees to be charged in the first place about 30 years ago.

But since then, fund wholesalers have been selling funds, receiving huge salaries, having all of their expenses paid by the fund companies, and(in many cases)receiving commissions based on revenue sharing deals with registered reps.

The problem today is how to justify these huge salaries when they do not directly benefit shareholders.

It’s a dilemma which has not been publicly discussed before and that is surprising due to the abundance of financial journalists and financial media outlets, which are supposedly working to educate investors about the optimum ways to invest.

Yet almost everyone agrees that the best way to increase overall fund returns is to invest in funds with low expenses.  Since that is the case, how can so many funds justify these large salaries without decreasing their expense ratios?

So with that as a brief background, this salary chart (which comes from U.S. Department of Labor statistics and Kassina) show the salaries of various professions, many of which provide specific, tangible societal benefits.

 

Are the salaries justified?

Since the late 1990s, mutual fund asset growth has declined significantly from the record levels seen during the mid- to late-1990s.  Yet according to Kassina, a mutual fund consulting group, wholesaler compensation has not declined despite the downturn in the industry and the significant layoffs.

Data from Kassina shows external wholesalers typically receive an average annual base salary from $65,000 to $98,000, with an average of $83,000.  Total target compensation can range broadly from $225,000 for an average-performing wholesaler to over $500,000 annually for top performers.

This puts mutual fund wholesalers at the top of the compensation list, based on government and fund industry statistics.

What Benefits Do Wholesalers Provide Shareholders?
Now, the mutual fund industry’s largest funds should justify why, and how much, mutual fund wholesaler salaries benefit their own shareholders.

Ideally, this should be shown using correlations between wholesaler salaries and a specific fund company’s decrease in its total expense ratio over time. If such a correlation exists, it would make a great marketing message and allow some fund marketing exec to differentiate their fund.

This would be a historic revelation.

It also would be especially welcome now since the fund industry is so openly antagonistic and has vehemently lobbied against all issues related to fiduciary responsibility, transparency, fee reduction and any modicum of financial reform.

But this again raises the simple question:  What benefits do fund wholesalers deliver directly to  their fund companies’ individual shareholders to justify their large salaries?

It’s a simple question that deserves a simple answer.

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Chuck Epstein

Chuck Epstein

Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry.

He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial.

He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

2 Comments

  1. Tequila George
    October 4, 2017 at 3:47 pm — Reply

    The real question is… How do we justify the absurdly low wages of laborers and the huge disparity in earnings of all employed?

    If this author’s pet peeve happens to be a person that earns a good living for having fun, then, please, join in that career & abandon your jealousy.

    If you truly are concerned about justifying earnings, investigate the basis of all corporate executive compensation, that might prove to be a whole lot more fruitful investigation.

    • Chuck Epstein
      October 5, 2017 at 2:46 pm — Reply

      Since its inception, this site has covered wage disparities and stagnant real income that began in the Reagan Administration. The role of mutual fund wholesalers is that are among the most highly paid people in the fund industry, but they do not contribute one cent to the net return of investors. There are many reasons wages are so low, such as productivity has not kept pace with wages; Republicans consistently vote against a higher minimum wage; there is rampant job security and more automation; the decline in union memberships; changes in demographics; outsourcing; and a corporate mentality which diverts investment into stock buybacks and executive compensation rather than expanding the workforce.

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