Lou Foran is the executive VP of sales and marketing for Rydex Funds of Rockville, Md. He joined the firm in January 2002 after serving as executive VP of sales and marketing for Legg Mason's Private Client Group.
Foran discussed his new position, Rydex's recent push into the broker/dealer channel and the firm's overall marketing efforts with Mutual Fund Market News' Andrew Brent. An edited version of their conversation follows.
MFMN: What is your role with Rydex?
Foran: As the executive vice president of sales and marketing, I'm responsible for the three channels of distribution [registered independent advisers (RIA), retail and broker/dealer], as well as our marketing effort.
MFMN: You just joined the firm in January. Was there anything from a marketing strategy perspective that you wanted to change immediately after taking the position?
Foran: You know, not really. Rydex is a very healthy company. We've been in existence since 1993 and I think the company has done quite well by bringing unique and effective products into the market.
The company is different. It was founded on the RIA business and has grown into the retail and broker channels. And that strategy has worked well so far, and we plan to stay with it. The people we have here that I quote-unquote inherited are hardworking and talented, and I think we have the right strategy in place and the right people to get the job done.
MFMN: When did Rydex get into the broker/dealer channel?
Foran: Our efforts in the B/D channel really came into being in 2001, so we're still new in the channel. As a matter of fact, we just recently finished hiring out our staff to support that channel.
MFMN: How many people have you hired for that effort?
Foran: Our entire sales and marketing team is approximately 50 people. The field sales support team for broker/dealers consists of 20 people.
MFMN: How does marketing to the three distribution channels differ? Is one any more expensive or time-consuming than the others?
Foran: We have three channels of distribution, and each one does have a distinct marketing plan. Our strongest channel right now is clearly the RIA channel. There, our strategy is to listen closely to what our clients want so that we can help them grow their businesses. The plan there is that we're going to continue to listen and bring new and unique products and services to them. As a matter of fact we have several new products on the drawing board specifically suited for the registered investment adviser.
On the retail side, our primary strategy is based on a focused public relations effort. And lastly, the strategy in the broker/dealer channel is based on building a strong and dedicated sales force. Their job will be to go out and tell the Rydex story to the independent, regional and national broker/dealers. We're still relatively unknown in the broker/dealer world, and we think that we have a unique value proposition for them. And lastly we plan to introduce new funds that specifically appeal to the broker/dealer channel, the first one being a sector rotation fund, which is in a pre-subscription period ending [March 22].
MFMN: Do you know yet how many funds the firm is going to launch in total specifically for broker/dealers?
Foran: I do, but I'm not going to tell you.
MFMN: Is there a timeframe for which you want to get them out to the market?
Foran: We're still in the formulation process. We have several products that I think you'll see over the next 24 months.
MFMN: Is there a difference between breaking into the broker/dealer channel and networking relationships there versus building a network within the RIA channel? Is one more difficult than the other?
Foran: If you're asking whether it's easier to get traction in the independent broker/dealer channel versus the regional and national firms, the answer is yes. They tend to not get as much support from the larger fund companies, and when we go in and help and support them, I believe that they're very appreciative of it.
MFMN: What was the impetus for Rydex going after broker/dealer distribution last year? Clearly, you want to bring in assets, but was that specific point in time an advantageous time to do it?
Foran: Probably the obvious answer is that there are a lot of assets in the broker/dealer community. We were getting a lot of unsolicited phone calls from brokers at independents, regionals and nationals, who were interested in our funds because they are unique. And as a result, sales momentum kind of picked up all on its own because of the uniqueness of our products. We looked at that and said, You know what? Here's a business opportunity.' And we believe it's an important part of our future.
MFMN: You said that the RIA channel is Rydex's strongest. What is the breakdown by percentage of Rydex's assets from the three channels?
Foran: Well, I'm not going to give you specific numbers or percentages, but I will tell you that our oldest business and our most substantial business is RIA. Our second largest business today, in terms of assets, is retail. And number three, currently, is broker/dealer. But I think in time those numbers will even out as they all grow.
MFMN: Is Rydex's experience in dealing with the RIA market particularly advantageous now because intermediaries have seemingly taken on a greater importance for fund distribution?
Foran: In the RIA segment, we have a huge lead on everybody else, because no one has worked with them as long as we have. We know them better than anyone else and they know us better than anyone else, so I think we have a distinct competitive advantage in the RIA channel. And we continue to invest in that channel because it's very important to us.
On the broker/dealer side, it seems that everybody on the Street today is turning away from their no-load fund business and trying to become load companies and work with the intermediaries, as we are. And the reason for that is that a lot of people think we are in an advice-driven market versus a hot stock market, where anybody can do it themselves.
MFMN: And you would agree with that?
Foran: I would agree with that.
MFMN: Many asset management firms try to ward off market timers because it can become problematic to have investors constantly moving money in and out of funds. Rydex, however, allows exchanges later than most firms do. Is that to attract active traders? Is that something the firm promotes?
Foran: That's a very important point. Rydex was originally built as a fund company that could accommodate any investment style, including dynamic asset managers. As a result, we have very sophisticated trading systems in place so that active money does not interfere or disrupt our operations. We don't promote any single investment management style, nor do we shun any money management style. We see ourselves as a provider of tools that allow other people to manage money effectively with a high tax efficiency. We think we serve their needs better than anyone else.
MFMN: But how is it that many firms take action to evade active traders, but Rydex is able to avoid having them interfere with the firm's operations?
Foran: All of our funds, to this point, not including our newest strategic fund, the sector rotation fund, are index-based or benchmark-based. We know exactly what we're supposed to own in each fund every single day. And each fund is fully invested at the end of every day. There is no cash in any of our portfolios. That is drastically different from a typical mutual fund, where a money manager is picking stocks and making sector estimates, and he needs to keep cash on hand to meet redemptions. We don't need to keep cash on hand. At the end of every day, we are either sellers or we are net buyers, so not only do the funds accommodate that type of business, but we also have the sophisticated systems in place. I believe we were the first ones ever to come up with a service and product like that.
MFMN: For how many funds does Rydex serve as a sub-advisor?
Foran: We're sub-advising for a handful now and we're in conversations with several other companies, but I don't think that's information I can disclose to you right now.
MFMN: How do you extend sub-advisory relationships? Is Rydex approached or do you seek out firms for which Rydex might serve in a sub-advisory role?
Foran: Typically, we're approached. One of the things Rydex has is very extensive relationships in the brokerage community, both from our wholesalers, our regional people, everyone on the sales effort, but also on the trading side. Because of the fact that our portfolios carry no cash and every day are net buyers or net sellers of securities, we do a lot of trading on the Street. As a result, we have a very strong reputation with institutional brokerage firms, and that's typically how the word gets out that Rydex does this very well. So when someone needs that type of service, they typically approach us first for sub-advisory.
MFMN: Before joining Rydex you were the director of sales and marketing for Legg Mason's Private Client Group. What has that transition been like? What are the differences between your sales and marketing efforts there and your responsibilities at Rydex?
Foran: They're very similar and, at the same time, very different. I was lucky enough to have been associated with Legg Mason for almost six years, and they are a terrific brokerage firm. The similarities are that at Legg Mason, as here, both companies are very focused on doing the right thing at the right time for the right reasons. What I've found here at Rydex is a very keen focus on customer service. The other similarities are of course the sound marketing and sales principles, which really are the same in almost all businesses. The biggest difference is that the scope of my role here at Rydex is greatly expanded versus my Legg Mason experience.
MFMN: Expanded how?
Foran: I have more responsibility. Being a smaller company there are fewer layers of management, so I am more directly responsible for sales and marketing here than I was at Legg Mason. I was not indirectly responsible at Legg Mason, but I'm more directly responsible here.