Bill Hortz's picture

"Mutual funds still represent the majority of investor assets and managers are often surprised by the low AUM required for a fund to breakeven.Kevin Guerette, Ultimus Fund Solutions

[The Institute for Innovation Development recently sat down with Kevin Guerette, Director of Distribution Strategies for Ultimus Fund Solutions, one of the largest, independent mutual fund service and middle-office technology providers for Investment Advisors in the country. Having recently launched their Ultimus Distribution Advantage Program exclusively for their clients, we asked him to share with us details on their new support services and their perspective on the changing landscape in mutual fund distribution.]

Hortz: Tell us a little about your new Distribution Advantage Program. What’s the thinking behind it and what are some of the program’s components?

Guerette: The goal of the program is to help provide very strategic and practical education to our clients. Our intent is to ensure that, regardless of size, age or asset class, the tools we are building and the resources that we are providing are adding value for all of our clients and their businesses. There are three primary elements of the program. The first is distribution consulting provided by me and the other members of the distribution management team. The second is a monthly webinar series featuring outside speakers and topics ranging from regulatory issues, technology, marketing, and best practices. Finally, we launched a distribution specific website earlier this year exclusively for our clients that hosts information on all of the largest intermediaries across the industry (including pricing, minimum requirements, and program details), along with directories for outside providers of distribution related services, and a calendar of industry events. In addition, we are actively working on building out the website to include more educational distribution related content that can offer insights to assist asset managers in determining and executing on their distribution strategy.

Hortz: Compiling and updating all that information on an ongoing basis on a wide band of industry intermediaries puts you in a unique position to spot industry changes or opportunities. What are some trends or opportunities you are seeing in working with industry intermediaries?

Guerette: A few things stand out.  Broadly we have seen a significant number of fee changes across the intermediary landscape – some good, some not so good. We have also seen some new platform developments, which have caused us to revise our approach to share classes. Most of those developments have surrounded the pending DOL ruling, which we think will continue to evolve. Another trend we are witnessing is the continued interest in certain asset classes – small caps, micro caps, emerging markets, and frontier funds, to name a few.

Hortz: Walk us through the kind of distribution consulting you do with your fund clients? How do you help your clients get exposure to financial advisors and get some of their funds on investment platforms?

Guerette: That really depends, but we try to help them think about a progression of topics. For example – who is your audience, where do they trade, and how can we reach them? What tools will you need to reach them? What resources or existing collateral do you have in place now? Who will be responsible for these efforts? Ultimately, we are trying to help them with their business and marketing plans and identifying gaps to be filled. Once we have the strategic plan in place, we can then assist them in connecting with the key individuals (research, gatekeepers, and providers, among others) to begin executing in a more tactical way. We also offer product analysis and fund development advice and assist them with pertinent industry networking opportunities.

Hortz: What are some of the types of distribution services and industry business partners you connect your clients to?

Guerette: Most of our clients are looking for marketing support or data to better identify their target audience.  There are a number of providers for these services that we have worked with over the years, and based on the specific needs of our clients, we can generally make a few good recommendations and introductions. Other clients are really looking to partner with active distribution providers. Again, there are a number of firms that we are familiar with and can help our clients understand the differences between them and the specific aspects to look for when evaluating them.

Hortz: What are some of the topics and speakers you have planned in your webinar series?

Guerette: We have already covered a variety of distribution related topics this year like distribution opportunities via UCITS and how to develop a differentiated business story. Moving forward we plan to produce more presentations on marketing and best practices pertaining to various elements of public relations. We also plan to hold other webinars on various forms of wholesaling for investment advisors. Heading into next year, we would like to incorporate presentations from some of the intermediaries that we work with to better educate our clients on the opportunities these firms represent and how to best capitalize on them.

Hortz: What are your thoughts on all this debate on passive vs. active asset management and the DOL fiduciary rule? How do you advise your active manager clients on how to respond to those discussions?

Guerette: It is hard to say with any certainty what the DOL rule holds for the industry at this point, given the lengthy delay we have seen, but I assume the SEC will become far more involved and a rule will be drafted that applies to both qualified and non-qualified accounts. As for as the active / passive debate, I think that once we see the inevitable correction in the capital markets, there will be more opportunities for active managers to demonstrate the value they can bring to investors. I also believe that there is a complementary nature between the two and a balance will be struck allowing good managers to identify inefficiencies in the markets – particularly in more volatile asset classes.

Hortz: What is your best advice to advisors considering developing ’40 Act products in this environment?

Guerette: First, over the years I have listened to countless presentations that investment managers have delivered to RIA’s or research analysts. In virtually every instance, the goal of the audience is to identify a number of data points in addition to identifying ‘what makes this fund different’, ‘what value does it bring to my portfolio’, or ‘why should I select this manager over the dozens of others in this asset class’. As an investment manager is developing their business or distribution plan – and specifically their collateral – they should be mindful about being able to provide an answer to these questions. They should be able to communicate what makes them unique and what problem their strategy solves.

Second, my other best advice is to anticipate what success looks like when launching a mutual fund.  Many of the managers we work with have been very successful in raising assets, but it did not happen overnight. It might not even happen when they get to their three-year number, as many anticipate.  In most cases, their growth and success may take longer and they should be prepared. Managers should target hitting their stride in a range of four, five, or six years. Mutual funds still represent the majority of investor assets and managers are often surprised by the low AUM required for a fund to breakeven. However, building a business plan that extends beyond the first two or three years after launch is highly recommended.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of  Financial Advisor and Private Wealth magazines). For more information click here.   


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