Three Things A 1099 Wholesaler Does Different Than You [captive wholesalers]

 In Blog, Wholesale

So, 14 months ago, I took the bait and took a 1099 position with a group representing four boutique managers. It’s the best thing I could have done. It’s scary, and I get up every morning at 5 am and my head explodes, but it’s working. We’re making a wholesaler-sized living. But it’s different.

What’s the big buzz about 1099 wholesalers?

When I got “downsized” from my last traditional wholesaling position at a major money management firm, I knew that our industry was moving in an unfavorable direction for people like us who carry the bag. I took a hard look at the industry, and saw some game-changing trends:


With all of the margin getting squeezed out of the fund industry, the only way to make money now is by volume. Think about it – twelve or so years ago, before the tech blowup, mutual fund timing scandals, enhanced C shares, etc., there was plenty of profit margin to pay a wholesaling sales force. Recent government activities, such as FinReg and Dodd-Frank, seek to continue to convince the American public that the alpha that good financial advisors add to portfolios is not worth a plug nickel. That’s why large mutual fund shops continue to merge.


Because of the lower cost structure, many firms are scaling down traditional wholesaling efforts in favor of platform sales, VA/Defined Contribution-Investment only, and RIA sales. Why? Because it’s a more institutional sale, it’s usually done by someone with a “stripe” (CFP or CIMA at the least, preferably CFA or MBA) to someone with a “stripe,” and the money comes in in big bunches. It’s way more cost-effective for the traditional money manager.


Over the last 15 or so years, our industry has done a 180-degree turn for the better – better for the clients, the FAs and the firms. When I started wholesaling in 1997 for a white-shoe midtown Manhattan multi-boutique investment shop, all the wholesalers were young and fresh-faced, and all of the PMs were older. The new wave of PMs are young, and the wholesalers are old! They don’t hug a style box, they run portfolios that cast a wide net, and they solve investment problems. They dovetail perfectly with the Core-Satellite-Alternatives investment strategies of the new millennium. They have fabulous 10-year institutional numbers and great track records on their short-lived mutual funds. What they do not have is a) the money to hire a sales force or b) the rolodex to do it themselves.

These are the reasons that these up-and-comers hire independent contractors to distribute their funds. It’s a lower-cost platform for distribution, an eat-what-you-kill situation, and it’s where the future of money management meets the future of distribution.

So, I took the bait. It’s the best thing I could have done. Don’t misunderstand — it’s still scary, but we are getting there. Slowly, but surely, we’re getting there. The allure is big, despite the challenges. But it’s different.


I don’t have to. Nobody tells me, “sell this (last year’s hot-dot) fund or you’re fired,” because I don’t work for them. They work for me, and I work for my clients. It’s 180 degrees different – my fund families are very good at educating me and my colleagues on their portfolios — we can truly be unbiased business consultants, problem-solvers, solution providers.


As long as business gets executed by me, I cannot have my territory slashed and I can build a sales hierarchy within my geography. So, I run it like a business, because it is. It’s my business. So we make good and prudent decisions with our capital, our time, and our resources. Don’t get me wrong – I still play my share of golf. We work to live, we don’t live to work.


It’s just me – Chief Cook and Bottle Washer. We have four strategic partners that deliver sales info in four different intervals and formats, no CRM, no internals, no scheduler, no top-down thought leadership, and no manager (which is good and bad – I’ve had many managers and you know who you are). I’ve had to work very hard to build myself a business infrastructure, with scale and efficiency, so I can achieve my activity goals. I have a very simple business plan – “WORK OR DON’T EAT,” so I have to be efficient.

So, if we see each other in the field, I will still be smiling. For different reasons than you. But I will still be smiling. As I said to my wife, who 14 months ago was scared out of her wits, “You never know, Honey, it’s such a crazy idea, it just might work.”

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