In the asset management space, distribution will make or break the success of a firm. As the industry continues to evolve, access now occurs at various levels with the advent of different fee-based or transaction-based platforms that can deliver a manager's expertise through separately managed accounts, unified managed accounts and the newer phenomena of model manager programs.

New funds and new firms face the greatest challenge to distribution as they typically lack a brand or historic track record that one can review. Such firms are typically not given access by the gatekeepers to the financial intermediary/advisor space and then must rely on marketing and a compelling narrative to get their new funds off the ground.There are steps an advisor can take when considering a new fund along with how an asset management firm can support their needs in this process.

Data: Performance and Analysis

Data is a tool that asset managers use with disclosing holdings, displaying bid/ask spreads, position papers and thought leadership, providing historic performance streams and varying types of analysis.The challenge that a new fund can encounter is the lack of existing data in the distribution process. Many new firms resort to a backtest on their investment strategy, a backward looking approach to providing an estimate of what the return stream may have done. Backtests and hypotheticals can be a useful tool for an advisor, but should be used with caution as the ability to data mine and generate the desired outcome is too easily manipulated looking backward.That said, this data can still help an advisor better understand how to measure the inclusion of a product in their portfolio.A performance track record takes time, and for new entrants is clearly one of the biggest hurdles to overcome.

Content: The Four Ps of Distribution

Anyone with a business or marketing degree can note that the traditional marketing mix of price, product, promotion and place has been shifted slightly within the asset management industry. Some consider content as king within the new 24/7 world which we live. The marketing four Ps have been translated into the traditional asset management presentation of:

* People - the who

* Process - the how

* Positioning - the where

* Performance - the results

Fundsters, ETF sponsors and SMA providers typically drive messaging in their marketing to help an advisor understand who is managing the money, what their investment philosophy and portfolio construction process is, where this fund might fit in a portfolio, and lastly, what the expected outcome should be. If a new product can be effectively articulated and then deliver expected outcomes, this will help overcome the lack of brand or historic track record.People and process typically are the start of a conversation, but relationships usually open the door.A senior staff of tenured wholesalers is instrumental for a new firm's or new product's success. However, many new firms can't absorb the costs of building out a senior staff, whereas larger firms can benefit from experienced personnel in introducing new products, although not always successfully. Firms can overcome the lack of relationships or tenured wholesalers with a compelling narrative. This is perhaps the most important part of any sales and marketing message within the industry. One of the most important aspects of driving success without a track record is the story of the fund, the brand behind it, and effectively articulating what the expected results will be, and then of course delivering.There may also be structural advantages in distributing new funds:

* Mutual funds have a regulatory requirement to only disclose holdings quarterly; many disclose it more often and require a selling agreement to be in place with a broker dealer or directly from the fund company

* ETFs are transparent and exchange traded, meaning that there isn't a need for selling agreements for one to purchase an ETF in an account

* SMAs are also transparent and provide more control over the tax scenario with the ability to customize

The Advisor

The most important items that distribution professionals can undertake are research to understand the operational structure of an advisor, and how their staff can facilitate the adoption of a new strategy.Mutual funds still command the most wallet share of advisors, who are accustomed to and comfortable with buying and selling a fund. With the expansion and quick adoption of ETFs, advisors have to understand a new set of nuances on how to trade these products, their liquidity, as well as the costs associated with trading, including spreads and transaction costs. SMAs also present structural challenges as new entrants are typically relegated to dual contract relationships that are very paperwork intensive.Raising assets in a new fund is difficult, but with focus on the advisor and their needs, asset management firms can be successful.

James Carl is managing director of AdvisorShares, an investment firm that specializes in actively managed ETFs

 

 

 

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