Advisors Asset Management's priority for growth is to train, educate reps, Randy Pegg says

By Emma Trincal

New York, June 22 - Educating brokers and financial advisers about structured products is key for the growth of the industry, Randy Pegg, executive vice president and head of structured products at Advisors Asset Management, told Prospect News while giving some insights on his own firm's education program and strategy.

"I am very passionate about education. I want to make sure that reps are educated properly in structured products," he said.

"When we entered [the market] in 2005, people had a web site, pointed and clicked the product, and the firm would clear the sale. We want to go further from that and make sure people understand the products."

Formerly Fixed Income Securities, Advisors Asset Management has been rooted in the fixed-income markets for almost 30 years. The distribution firm provides brokers and advisers with access to the bond markets, trading support and assistance with bids and offers.

Wake-up call

Pegg has been heading up the distribution of structured products in the United States since 2005. He said that during that year, the industry received the first "Notice to Members" from the National Association of Securities Dealers concerning the sale of structured products.

"It was a shockwave in the structured products community. The message was clear: You need to be training your reps," said Pegg.

"When we began to implement our education program, people thought we were crazy. They thought that testing people on their knowledge of structured products was a barrier to sales. But it was the best decision we ever made. In my view, you shouldn't have to teach someone how to sell. It's the product knowledge that's important," he said.

Specialists

Pegg said that his firm's team of "specialists" ensures that communication and education are provided to the brokers.

Advisors Asset Management, a broker-dealer and distribution firm, deals directly with financial advisers and brokers at other brokerage firms.

"We go out and make presentations with our specialists; we speak at conferences; our specialists will meet a group of advisers at certain locations. They have a one-on-one relationship with the actual broker. And they specialize in structured products," said Pegg.

Pegg said that while his firm focuses more on principal-protected products, its specialists are experts in many kinds of structures or products.

"We just don't rely on our tech guy. We marry that technology with the specialists. Our specialists are like the wholesalers in the mutual fund industry," he said.

Jargon

While structured products have gained in popularity, investors do not always fully understand them, said Pegg. "We believe that in order to grow the industry, people need to understand the products," he said.

"One of the problems in our industry is the complex nomenclature of products," Pegg noted.

"Issuers price different products under different names. It's important to get back to basics. For instance, if you're talking about a principal-protected product, it's 100% of the principal that is protected. If it's partially protected with a buffer, then it's buffered. Right now, there are too many different terminologies," he said.

Some of the typical gray areas, he said, involve the understanding by investors and advisers of issues such as the creditworthiness of the issuer in relation to principal at risk, the fact that investors must forgo dividend payments for equity-linked products and liquidity issues.

Big picture

"I think educating the broker is a two-step process. First they need to understand the product. Then they need to know how the product fits into the portfolio. Is it a tactical allocation with a 5% exposure? Or is it targeted to the core? The [exchange-traded notes] industry has done a great job at publicizing white papers and research. It laid a road map for the industry," Pegg said.

Some progress has been made, Pegg said. Prospectus writing is an example.

"Prior to the Free Writing Prospectuses, prospectuses were complicated. The industry has done a great job with the FWPs trying to simplify things."

'AAM University'

In order to make sure that brokers who do business with Advisors Asset Management have the required knowledge to sell the products, Pegg said that his firm created "AAM University."

"We have AAM University with dedicated classes for brokers who buy the product. If you're a broker and want to sell a product, you have to pass the appropriate education module first," said Pegg.

The first module is called "Basics and Principal Protection." Brokers need to pass the test with 100% of the questions correct, said Pegg.

If a broker or adviser wants to buy reverse convertibles or leveraged products for his clients, he must pass module two, named "Enhanced Yield and Leverage." The required score is also 100%.

"We're a little unique in that our sales force works only with broker-dealers and financial advisers, not directly with investors," he said. But the role of educating salespeople is fundamental in making the industry more mainstream, he said.

Advisors Asset Management is based in Monument, Colo. The firm has nine offices and approximately 125 staffers, Pegg said.

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