Ultimus Press Release

Five Critical Questions to Help Identify the Ideal Distribution Partner

By Kevin Guerette, VP Director of Distribution Strategies, Ultimus Fund Solutions

In the last 15 years, understanding the nuances of fund distribution has become a keystone issue for investment managers launching new mutual funds.After all, without assets, a solid investment strategy isn’t much more than that: a strategy.There are more options than ever for effective distribution and wholesaling – internal or external sales teams, hybrid models, and virtual models, for example.The fund industry is also perpetually redefining how to best leverage internal resources – human capital, technology/data resources or a combination of the two – for wider fund distribution.The number of available options may add additional steps, considerations and complexity to achieving a successful launch. This leaves many managers in need of and seeking outside expertise for mutual fund distribution and resources to help leverage their strategy.

In the new mutual fund frontier, customization is king.That’s especially true as it applies to distribution. Managers shouldn’t have to fit themselves into an “off the shelf” program from service providers, third party marketers (3PMs), or any other fund distribution partners.It’s important that managers set strategic fund distribution goals that align with their business plans and work with a business partner who understands what it takes to get there.For managers, it’s also important to remember that all fund distribution partners are not created equal. To help investment managers navigate the growing complexity of today’s distribution landscape, below are five critical questions that a strong service provider and business partner should be able to answer effectively.

1. Will They Provide Client References?

Interviewing a 3PM or a service provider should be no different than a job interview.Think of it this way: potential employers frequently ask candidates to provide references to determine the value that a person will bring to his or her position.As managers start to think about their mutual fund distribution strategy, they need to know exactly what level of service they are going to get from the prospective provider or 3PM partner.What better way to find out than by asking other fund managers that have worked with them in the past?Calling clients to whom they’ve provided services and asking for their feedback is a simple way to alleviate a number of future headaches.In the process, fund managers can also clarify the exact resources and level of expertise delivered by the respective distribution partner.

2. What is Their Technology Track Record?

This question is meant to weed out any 3PM’s still relying solely on obsolete reporting systems.Capabilities have changed, and the value of reporting from traditional transfer agent (TA) systems has diminished.It can be a problem if a 3PM provider is still relying on older technology to provide information, because often the necessary information is no longer available from that source.Many of the larger platforms are migrating toward omnibus reporting, meaning the end-users of traditional TA systems aren’t seeing the detail that they used to in the past.Managers need robust sales data to learn who is managing the account, where they are located, and how they are trading the fund.Managers need to get enough information to make detailed and strategic sales decisions.Consequently, the manager also needs a partner that can integrate TA data and manager level sales reporting systems into a comprehensive solution. But who is going to bear that cost?

3. Can They Properly Leverage Data?

Using new technology to gain access to more comprehensive data is a blessing and a curse.Data systems, such as Discovery Data and RIA Database, give the manager access to large amounts of potentially relevant data, but using those systems puts the onus on the manager to use that data effectively.Simply having information does nothing if managers can’t leverage it properly.The best distribution partners and 3PMs have a process for using that data in conjunction with other tactical data solutions to better articulate their clients’ offering.Furthermore, they can find ways for that data to help establish the right targets and support the distribution effort.

4. Do They Have a Marketing Mindset?

Beyond technical expertise, to truly make the most of a distribution relationship, managers need to determine whether their partners have the marketing know-how to help spur growth.This comes in many forms.A good distribution partner knows the right contacts to provide additional marketing tools in support of your asset gathering effort.For example, new funds will likely need a dynamic website, but at a reasonable cost.They’ll also know which conferences and events will end up contributing most to the fund’s bottom line, and can provide guidance on which ones to attend to and what to do while there.

5. Do They Provide a Good Share Class Strategy?

Offering multiple share classes is costly and inefficient for mutual funds that may not have assets or the client base to support such a structure. For many managers launching funds, an institutional share class is the best starting point and may in fact be all that is ever needed – regardless of how things evolve with the Department of Labor Fiduciary Rule. The important thing is that a service provider should have a good handle on a manager’s business plan and be able to develop a share class strategy that both aligns with that plan and prevents the consequences that come with doing too much.This environment is complex and the fight for assets is competitive.Managers need to be confident that their distribution partner isn’t creating costs that conflict with the profitability of the fund complex.

The Upside to Distribution Due Diligence

For new funds, or for those looking to increase their footprint, having mutual fund distribution support is critical to get the fund off the ground without diverting valuable in-house resources.In addition to the right 3PM firm, finding a good service provider can also significantly increase a fund’s opportunity for successful asset growth.The ideal partners have the expertise and resources that new and growing funds need to accomplish their goals.By asking these five questions of both a third-party marketer AND the service provider, managers can go beyond sales speak that can be misleading, and possibly inaccurate, to put themselves and their firms on the path toward distribution excellence.



If you enjoyed this article, you might be interested in reading one of these:

The Share Class Creation Conundrum

Gaining Scale and Efficiency with Your SMA Strategy

Comparing Series Trust to Standalone Trusts


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