The Middle of the Middlemen | A wholesaler's Role in the Exempt Market
By: Chris Yeung
The term wholesaler is more commonly used in context of the retail consumer goods market. Retail chains often purchase goods from wholesalers because it can offer efficiencies for the chain’s buyer by getting hundreds of different brands all from one source. Similarly, product manufacturers utilize wholesalers to grow distribution channels in regions they are not established in. In both situations, there may be long-term savings in utilizing a wholesaler’s established distribution networks, product sales expertise, and customer support services. When it comes to the financial industry, fund managers rely on wholesalers to get their funds marketed to financial planners, pension funds, mutual fund dealers, and investment advisors. Financial wholesalers are traditionally seen as a fund’s front line sales force, ensuring enough capital is raised for the fund manager to operate a successful investment business.
In general, wholesalers have been in existence for many decades servicing the traditional investment community, but for the exempt market, wholesalers are a new breed. Issuers in the exempt market space have traditionally assigned the marketing role to an officer or director, and in some cases during the pre NI 31-103 days, created their own sales force to handle investor capital raising directly. With the growth of the exempt market and the changes in securities regulation however, the importance of an issuer having a wholesaler is becoming more apparent. Some issuers are finding that raising funds in the exempt market can become a full time job in and of itself, often taking away from their time in managing the underlying business of their issuance.
Although one may see a wholesaler as just a sales position, the role of a wholesaler can be more involving by providing value added services to enhance an issuer’s competitive edge in the market place. These value added services go beyond just connecting an issuer with a prospective broker or exempt market dealer. A well-rounded wholesaler will provide a wide array of services that range from back office support to brand strategy, marketing material creation, relationship building, and investor relations, all of which are important to building investor confidence and advisor trust. In addition, a wholesaler may possess the skill set to manage all of these services in house. Thereby providing significant cost savings for an issuer by removing the need to outsource all those different services. By having a dedicated person responsible for these jobs, an issuer can focus on what is important, which is managing the investment and maximizing returns for investors.
The role of a wholesaler also extends to the advisors that the wholesaler is building relations with. Wholesalers conduct ongoing training sessions to help advisors stay current with an issuer’s offering, as well as provide marketing support to ensure advisors are fully prepared prior to meeting with clients. This ongoing marketing support may include distribution of securities documents, creation of custom marketing material, client presentations, and subscription document support.
The goal and focus of any issuer is to successfully manage the underlying business of the investment and generate returns for investors. To succeed in the exempt market, an issuer must be able to raise the capital it needs to carry out its business, hence the importance of having a dedicated wholesaler planning and carrying out that process. The wholesaler should possess characteristics that include being resourceful, organized, and self-motivated. In addition, having excellent presentation, public speaking, and networking skills is a must for wholesalers. It should be emphasized however, that a wholesaler does not replace the importance of principal owners meeting occasionally with advisors. That face-to-face contact with advisors is what gives the exempt market its uniqueness and helps differentiate it from the traditional public investment offerings.