With Registered Investment Advisors predicted to control 26% of retail advisor assets by the end of 2016, mutual fund and ETF managers are increasingly targeting this space for growth opportunities. As these managers ramp up their sales and marketing resources to tap into this market, they often face the challenge of creating a strategy that provides the intelligence RIAs value while effectively penetrating the fragmented nature of the channel. Therefore, it becomes critical for these managers to understand this distinct market, their role in the process, the best fitting segments and, finally, their distribution strategy.
Know Your Market
The unique nature of this market requires managers to consider the demographics of the space and how it will respond to their distribution strategy. From a business perspective, fund sales teams need to consider these characteristics unique to the RIA market:
* RIAs are small business owners who compete for long term growth. They are mindful of their own expenses and search for value in all aspects of their own businesses.
* They have limited resources, particularly time. Balancing life and business needs can create time constraints that limit the opportunities for fund sales team to effectively interact with them.
* RIAs value their independence. They have chosen to develop their practices free of corporate expectations, branch goals and other business constraints that can stifle creativity.
* RIAs are renowned for being the innovators. They are often first to apply advanced planning techniques, and their independence from home office platform requirements means they can introduce new concepts, including alternative investments, that can improve the risk/reward opportunity for their clients.
* RIAs play the role of a "quarterback" in the financial planning process. They bring in top accountants, lawyers, estate planners and sophisticated investment managers to tackle the most complex financial planning problems.
Know Your Role
According to a recent TD Ameritrade study, more than a quarter (28%) of RIAs plan to grow by increasing their product lines this year. While not beholden to product availability restrictions, RIAs do rely on their custodian relationships to offer enough investment products and services to meet the needs of a complex client base. The major custodians constantly seek new strategies to broaden their product offerings. With that in mind, it's important for fund managers to keep the following points in mind:
* Ensure the funds can be supported by the operating platforms. RIAs will apply due diligence procedures to confirm the fund strategies have market interest and can be traded efficiently enough to be considered.
* Understand the platform requirements. Before newer fund families build an RIA strategy, it is wise for the managers to talk with either the RIA custodians or their fund distributors to understand the requirements for adding new products to their platforms.
Know Your Segment
Managers can begin to segment out this market by using the available databases, which give fund families the tools to search based on certain criteria, such as AUM, product usage, custodian, location, etc. They can then begin to whittle down the total RIA market (stat) to something more manageable. It tends to be segmented into three groups:
* Smaller RIAs, with less than $100 million in assets under management. The majority of RIAs fall into this group. They are often in asset gathering mode.
* Mid-size RIAs. This group, typically with anywhere from $100 million to $500 million in AUM, is more established. They spend more time on investment research and product selection, and often build models that serve the needs of a broader client base. They still struggle for time to meet with sales teams and look for more digital communication to get new and better thinking from their fund relationships.
* Large RIAs. With more than $500 million in AUM, these firms are at a size where they have teams of investment research personnel thereby making them more inclined to use hedge-like strategies across their client base.
Know Your Distribution Strategy
Once advisor demand is achieved and a fund is added to the various custodial platforms, fund families need to begin executing an RIA sales strategy. Keeping in mind the business mentality of RIAs, there are several best practices that have worked well for newer managers to this space:
* Understand their businesses first. Keeping in mind that they value passion, survival and growth, fund managers can leverage their relationships with RIAs to generate the early support platforms require.
* Introduce strategies in a succinct manner. Keeping it short and to the point, explain how you can help them build their businesses, protect their clients' assets, and growth their AUM.
* Low expenses matter. In part because of their fee for advice models, remember the need to keep expenses low.
* Prepare for a slow sales process. Success requires multiple and layered touch points, including digital/social media, phone conversation and the occasional face-to-face meeting.
* Have a conference strategy. To get the most face time, set meetings ahead of time at the major custodian events. Make it personal by bringing a portfolio manager to build deeper relationships.
* Increase brand awareness. By keeping a focus on the unique capabilities and following up with phone calls and emails, fund managers can raise the level of awareness for their fund families.
The RIA presence is becoming too strong for mutual fund and ETF managers to ignore the tremendous opportunities for growth. If fund families take these concepts into account with their approaches, they will be able to better take advantage of the growth potential presented in the RIA market.
Jonathan Dale is distribution director for SEI's Investment Manager Services division.