ETF Strategy Guide by Randy B ullard

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ESG’s Distribution Strategy for Managed ETF Solutions was developed as a resource to help ETF Strategist investment managers better understand the distribution landscape, aid them in making product development decisions necessary to support broad market distribution, and provide guidance about how to organize and implement a productive distribution strategy.

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ETF Strategy Guide by Randy B ullard

  1. 1. Distribution Strategy for Managed ETF Solutions A Guide to Developing Effective Growth Strategies in a Competitive MarketRandy BullardCEOETF Strategy Groupwww.ETFStrategyGroup.comOctober 2012 www.RandyBullard.com
  2. 2. The Managed ETF Solutions industry has experienced significant growth over the last several years. According toMorningstar’s ETF Managed Portfolios Landscape Report, the entire industry is growing at approximately 50%annualized as of September 2012. With this growth has also come a proliferation of new products, as well as agrowing number of maturing products with competitive 3+ year track records. Recent conferences hosted by themajor ETF issuers for ETF Strategist asset management firms have highlighted the increasingly competitivenature of the industry.Morningstar currently reports on almost $50 billion in AUM/AUA from 130 ETF Strategist firms. But only a dozenof those firms are managing or administering over $1 billion in AUM, and only one (Windhaven) is over $10billion in AUM/AUA. Relative to the broader asset management industry, even the larger ETF Strategists are verysmall firms, and most struggle with growth on a variety of dimensions. The vast majority of ETF Strategist assetmanagement firms are operating well below the critical scale necessary to run efficient and profitablebusinesses. Compounding this problem, the most recent Morningstar report indicates that the big are gettingbigger, with flows of new assets predominantly going to the handful of largest providers. Smaller firms arestruggling to stand out in an increasingly crowded market, even with annual industry-level growth of 50%.Growth Through Effective DistributionIt will not come as a surprise to any veteran of the asset management industry that distribution is the key tobuilding a long-term successful asset management firm. Even firms with great stories, performance trackrecords, and management teams will fail to succeed in growing their businesses without a well-developed andexecuted distribution strategy. ETF Strategy Group has developed this overview and guide to aid ETF Strategistinvestment management firms in understanding obstacles and opportunities for distribution in the wealthmanagement industry, and to aid them in formulating productive distribution strategies that will help th em bemore competitive in the market, raise awareness of their products and services with financial advisors, and growassets under management/advisement. The guide is broken into the following main topics:  Evolution of the Managed ETF Solutions Market  Wealth Management Program Types & Product Packaging  Distribution Channel Overview & Opportunities  Implementing a Productive Distribution Strategy o A Content-Centric PR & Marketing Strategy o The Changing Face of Advisor Sales & WholesalingPage | 2
  3. 3. Evolution of the Managed ETF Solutions MarketThe market collapse of 2008 was a watershed event for the asset management industry. A number of industrytrends already in process have accelerated in the subsequent market recovery. One of those trends is theconsiderable growth in all categories of managed solutions. Managed Solutions (including traditional separately managed accounts, mutual fund wrap/advisory, Rep-as-Advisor, Rep-as- Portfolio Manager, Unified Managed Account, and ETF Advisory) have all seen a steady recovery since 2008. Due to expanded regulatory requirements for delivering a fiduciary standard of care, and pressure to increase margins and recurring revenue, advisory firms in all channels have aggressively pushed their advisors away from Assets in Total Managed Solutions traditional transaction-based investment ($Billions) – 2007 to 2011 products, and towards fee-based managed solutions. Source: Money Management Institute & Dover Financial ResearchExchange Traded Funds (ETFs) had a small footprint within the realm of managed solutions prior to 2008, andwere largely relegated to brokerage accounts and the self-directed market. Since 2008 though, and particularlysince 2010, ETFs have had the fastest growth rates within the Managed Solutions marketplace. In their 2012report “Growth in a Time of Uncertainty, The Asset Management Industry in 2015”, McKinsey Consulting predictsthat the “second act” is about to begin in ETF industry growth. Currently at $1.5T in total assets (at the time ofthe report), they predict that by 2015 more than $1.6T in new money will enter ETFs with a globa l market inexcess of $3.1T.Managed ETF solutions (as defined by the Money Management Institute and reported by participating MMIsurvey respondents) have seen the most dramatic growth of all of the different program types within managedsolutions (28.1% in 2011). This growth in managed ETF solutions is likely understated though, as the MMI surveydata focuses on the wirehouse and national/regional broker dealer markets, and a large portion of the g rowth inmanaged ETF solutions has been in the independent RIA and independent broker-dealer markets. Page | 3
  4. 4. The utilization of non-correlated assetclasses and diversification through style-box constrained investment products (e.g.growth / value, large / small cap, equity /fixed income) according to modernportfolio theory failed to protect manyclients in 2008 when supposedly non-correlated products became highlycorrelated in a collapsing market.At the same time, the ability to add alphathrough individual security selection hascome under renewed attack. Managersand products that focus on individual 2011 AUM, Market Share & Growth by Program Typesecurity selection (e.g. long-only equity Source: Money Management Institute & Dover Financial Researchseparately managed accounts and mutualfunds, as well as traditional transactional brokerage business) are declining in favor with advisors. The mostdramatic growth in recent years has been in lower cost indexed or passive investment strategies through ETFsand mutual funds. An increasing portion of the returns that investment products produce are explainable invarious forms of beta. As a result, there has been a proliferation of product development and innovation from agrowing universe of ETF issuers that package that beta in very low cost ETFs. As demonstrated by the graphs,the growth and adoption of ETFs is now challenging the traditional security selection-centric asset managementindustry, leading advisors to change the types of solutions and products they offer their clients.Building on these market dynamics and others, a new category of asset managers has emerged in the lastdecade – ETF Strategists. Rather than seeking alpha through individual security selection, ETF Strategistsgenerally seek to minimize risk, improve diversification, and seek alpha by selecting and managing exposuresusing ETFs rather than through stock or other security selection. By using ETFs, strategists are able to avoidstock/security specific risk, while addressing many of the shortcomings in the failed traditional style-boxed basedinvestment approach.The development of the ETF Strategist segment of the asset management industry began around 2000 with thegrowth and adoption of ETFs, but has seen its most explosive growth since the 2008 market reset. Startingaround 2000, a large number of independent RIAs and emerging quantitative asset managers beganconstructing solutions for their clients using ETFs rather than the individual eq uities and bonds that hadtraditionally been used. The products developed by many of these firms have now matured, resulting in top-performing portfolios with one, three, five, and even ten year track records, making them suitable for broadmarket distribution into the fast growing managed ETF solutions market. The next phase of evolution for thissegment of the industry is now upon us – broad market distribution and adoption.Page | 4
  5. 5. Program Types & Product PackagingETF Strategies are inherently “simple” investment products in their underlying construction (a portfolio of ETFs).But there are a variety of different types of programs, and product packagings that are tied to various types ofdistribution platforms, channels, and advisor types. Many of these programs have substantial systems andoperational requirements, compliance/legal issues, and setup costs that managers must consider in determiningexactly how to package their products for productive distribution.The following diagram outlines the primary types of programs and product packagings (columns), and thevarious operational processes and systems (rows) that managers will need to develop to support those programs. Portfolio Delivery FrameworkThe following sections provide additional details on each of these program types, and issues ETF Strategistsshould consider in determining how to package their products for maximum effective distribution. Cross-referencing these program types with information in the section on Channels can be useful in determining whichpackagings will create opportunities in specific channels. Page | 5
  6. 6. Direct Separately Managed Accounts (SMA) – In this type of program, the ETF Strategist is directly soliciting aclient, operating as a primary fiduciary RIA, and typically working on one of the major RIA custodial platforms forcustody, trading, and other services. The key distinction between direct SMA business and other business is thestrategist firm is acting both as a fiduciary advisor to the client and as the asset manager. There is no otheradvisor sitting between the manager and the client. For this reason, asset managers offering their productsdirectly to clients via Direct SMAs must have robust client service teams, and compliance procedures to ensureadherence to fiduciary standards. Because the strategist is operating as a full advisor to the client, Direct SMAbusiness tends to be the highest margin (and highest cost) business, with a typical advisory fee of 50-125bpsdepending on the nature of the firm and client relationship.Dual-Contract SMA – Many firms (wirehouse, regional/national BD, RIA custodians) operate dual-contract SMAprograms in which the manager has a direct contract with the client and is serving in the samediscretionary/fiduciary role as with Direct SMA business. The primary differences with Direct SMA are that themanager is working in concert with the client’s primary advisor (who has their own contract with the client,hence the term “dual contract”), and the manager typically must trade and manage the assets on the advisor’scustodial platform. Dual-contract SMA programs are a bit of the “worst of both worlds” in that they have all ofthe operational costs and complexities of managing accounts on a 3rd party platform, but are generally notpromoted or otherwise heavily supported by the home office organization. Managers available in dual-contractSMA programs are explicitly not covered by home office research, and are not “endorsed” or recommended toadvisors, thereby limiting growth and distribution opportunities. On the positive side, managers can typicallycharge higher fees (individually negotiated directly with the advisor and/or client). To operate on a dual-contractSMA platform, managers will either need to utilize an in-house multi-custody shadow portfolio accounting andorder management systems, or access and trade the accounts directly via tools provided by the custodian o rplatform provider. Some ETF Strategists have had great success building high-margin books of business via dual-contract SMA programs, particularly in the wirehouse channel.Sub-Advised SMA – Sometimes called SMA “wrap” accounts, or just separately managed accounts, Sub-advisedSMAs were historically the largest type of program accessible to ETF Strategists, prior to the development ofmodel-based UMA/SMA programs (more on that shortly). Managers/products available to advisors throughSub-Advised SMA programs must be approved by the sponsor’s research organization, typically requiringmanagers to have a minimum of $500mm in total AUM/AUA, $100mm in specific strategies to be supported ontheir platform, and a 3+ year GIPS compliant track record. Sponsors typically negotiate lower fees in sub-advisedprograms, often with volume breaks (e.g. 40bps for the first $100mm, 35bps for assets over $100mm). In Sub-Advised SMA programs, the manager is discretionary and responsible for all trading. As with dual-contract SMAprograms, managers typically need to have a robust portfolio accounting and trading infrastructure thatsupports trading through the underlying brokerage’s desk, or trading away with settlement to the custodian.Sub-Advised SMA programs are generally superior distribution opportunities (as compared to dual-contractprograms) since they have smaller product rosters and are promoted to advisors and better supported by th esponsoring institution.Page | 6
  7. 7. Mutual Fund & Sub-Advised – An increasing number of managers are having success packaging their strategiesas 40-act mutual funds, or even as an “ETF of ETFs” (e.g. AdvisorShares). Mutual funds are more accessible toadvisors and clients, are simpler to administer than SMAs, and are more cost-effective for smaller account sizes(e.g. < $50k). There’s also a significant portion of the advisor marketplace that are more comfortable usingmutual funds than various forms of SMA and UMA programs. Managers wanting to launch mutual funds of theirportfolios should budget $125,000 in total startup costs, and will need to get AUM up to approximately $20mmbefore the administrative costs of the fund are being covered by fees. Managers can typically charge a muchhigher asset management fee in mutual funds and have greater control of the economics as compared toSMA/UMA programs. There are several quality outsourced providers that can turnkey the development andoperations of a mutual fund for ETF Strategists. In addition to launching a mutual fund directly, there arenumerous fund families that actively research and hire sub-advisors for their own funds. The details and businesscase considerations regarding mutual fund development and sub-advisory distribution opportunities are beyondthe scope of this paper, but launching mutual funds for high performing and high potential products can be acost effective means to generate assets in many channels that are inaccessible via SMA/UMA programs.Model-Based SMA/UMA (Unified Managed Accounts) – The most accessible (requiring the least infrastructure)and fastest growing form of distribution for ETF Strategists is via Model-Based SMA/UMA programs. In UMAprograms, managers transmit changes to their model portfolios to the sponsor or overlay manager who isresponsible for trading and other operations. The manager is operating solely as a “research provider” or non-discretionary sub-advisor in the provision of their model. Because of this reduced role, managers typically receivea reduced fee (20-35bps) in model-based programs. Most UMA programs have research-constrained productrosters, as well as pre-configured asset allocations administered by the sponsor’s research organization. Thesepre-configured asset allocations are often particularly productive distribution opportunities for ass et managersas they are promoted heavily by the home office and are the easiest solution for advisors to access for theirclients. Some sponsors have begun to convert their existing sub-advised SMA programs to model-basedSMA/UMA programs as a means to capture additional revenue and reduce manager fees. Some sponsors havealso begun to set up separate and distinct model-based ETF Strategist programs that have become the mostproductive distribution channel for a number of the leading ETF Strategist asset managers.Model-Based Rep-as-Portfolio Manager – Rep-as-Portfolio Manager programs are generally utilized by moresophisticated advisors that select securities directly and act as their own portfolio mana ger, rather than selectingETF Strategists or other 3rd party asset managers to manage their clients’ assets. There are though a growingnumber of programs that allow advisors to select securities (e.g. individual stocks, bonds, ETFs) for a portion of aclient portfolio, and comingle those selections with models managed by 3rd party strategists. Some of theseprograms are configured as Unified Managed Accounts, whereas others are configured more like discretionarybrokerage accounts where the advisor is given trading tools and direct access to manager mo dels forimplementation. Presently there are limited distribution opportunities for ETF Strategists in these types ofprograms, but as the fee-based platforms within the industry continue to evolve in the coming years, it is likelythat the lines between rep-as-PM and UMA programs will continue to blur, and ETF Strategists will haveincreasing opportunities to distribute their portfolios to the sophisticated advisors that utilize those programs. Page | 7
  8. 8. Distribution Channel Overview & OpportunitiesETF Strategist asset managers have multiple opportunities for distributing their portfolios, from directly solicitingand serving retail investors as a discretionary RIA (typically via directly managed SMAs), to sub-advising in theinstitutional market. The following framework outlines the major distribution channels available to ETFStrategist asset managers with sample firms (certainly not exhaustive lists) within each channel. The followingpages provide details for each channel, some perspective on the distributio n opportunity for the channel, andcosts, considerations and strategies for pursuing opportunities in the channel. Distribution Channel FrameworkPage | 8
  9. 9. Wirehouse – While the term “wire house” has a much broader definition in some circles, general usage refers tothe (now) four major historic broker dealer advisory firms – Morgan Stanley Smith Barney, Wells Fargo Advisors,Merrill Lynch (owned by Bank of America) and UBS. The wirehouses led the development of fee-based wealthmanagement solutions and have the largest and most mature platforms, accessible to thousands of advisors.Wirehouse advisors are generally constrained to the solutions/programs supported by their home officeorganizations. Some ETF Strategists have raised significant assets in the dual-contract programs of wirehouseswithout research coverage or endorsement from the home office, but as of this publication, the wirehouses arenot broadly distributing 3rd party ETF Strategist solutions in their more productive sub-advised (SMA and UMA)programs. This is typically because they have developed proprietary asset allocation products that they wouldprefer to promote over 3rd party offerings. As ETF Strategists gain traction in the broader market and thewirehouses are forced to compete for advisors that use those portfolios, and as the wirehouses’ in-housesolutions are forced to compete (on a performance basis) against 3rd party managed ETF solutions, the channel islikely to become more productive for ETF Strategists.Regional/National Broker Dealer – The “regional” broker dealer market has shrunk considerably in the lastdecade as firms have been acquired and merged into the wirehouses (e.g. UBS acquiring Piper Jaffray andMcDonald Investments), and as former regionals have merged to become larger nationals (e.g. Stifel Nicolausacquiring Ryan Beck and others). Nevertheless, the regional broker dealers are a strong channel and represent agood distribution opportunity for ETF Strategists. Some regional/national broker dealers have been leaders inthe promotion of 3rd party ETF Strategists to their advisors, even constructing dedicated programs (e.g. RBCWealth Management Consulting Solutions). Most of the regional/national BDs have mature fee-based platformsanalogous to the wirehouse offerings, but are typically easier to work with and provide sales coverage for.Independent Broker Dealer (IBD) – Unlike advisors in the wirehouses and regional/national broker dealer firms,independent broker dealer firms don’t typically have strong proprietary fee-based platforms that would supportETF Strategist distribution. Advisors at IBDs vary considerably in the nature of their practice and utilization ofinvestment solutions (e.g. insurance affiliated brokers focusing in insurance products, or transactional brokersfocusing on traditional stock brokerage business). IBD advisors will often operate in a hybrid model, beingaffiliated with a broker dealer for their brokerage business, and one or more of the RIA custodians or turnkeyplatforms for their fee-based advisory business. IBD advisors that provide any substantial investment advisoryservices typically use one of the turnkey platforms (see below). ETF Strategists that seek opportunities in the IBDmarket should focus on specific firms where they can develop a preferential home-office sales relationship, orpursue firms in partnership with the TAMPs that are better positioned to service IBD advisors.Registered Investment Advisors & Hybrid BD/RIA – Independent RIAs are the fastest growing channel of thefinancial advisory market. Independent RIAs generally partner with one of the major RIA custodians (Fidelity,Schwab, TD Ameritrade or Pershing) for custody and trading services, and often for other platform and productservices. The TAMPs (see below) also generally target advisors in the RIA market, and also partner with themajor RIA custodians. We have also included LPL and Raymond James in this category as “hybrid” firms thatstraddle the line between national broker dealers and independent RIA platforms, in that they have programsthat allow advisors to operate independently and utilize their platforms as independent RIAs, competing with the Page | 9
  10. 10. other RIA custodians (e.g. Schwab). While the entire independent RIA market is growing, it is also one of themost complex channels to target for distribution. Independent RIAs are very different in how they practice, theproducts they use, and the vendors they partner with. Many ETF Strategists also operate as RIAs in servicingtheir direct retail clients, and many are actively partnered with one or more of the major RIA custodians formarketing and promotion of their solutions to other RIAs. The Independent RIA channel probably represents thehighest potential, but also complex to address market for ETF Strategists.Turnkey Platforms (TAMPs) – The TAMPs are typically used by advisors in the independent broker dealer andindependent RIA channels. Some turnkey platforms target other niche markets such as small banks. Turnkeyprograms are extremely varied in their product rosters and philosophies. Some firms (e.g. Placemark) have abroad super-market approach and provide very easy access for ETF Strategists, where other firms (e.g.Genworth) offer their advisors very constrained product rosters based on their internal research and investmentphilosophy. Some TAMPs have also created their own managed ETF solutions (e.g. Envestnet PMC) that competewith 3rd party ETF Strategist portfolios. The TAMPs as a category have been early adopters and promoters of ETFStrategists and represent good distribution opportunities/partners and efficient access points for ETF Strategists.Multi-Family Office (MFO) & Small Institutions – The smaller institutional (< $100mm) and multi-family officemarkets have traditional used more sophisticated products (e.g. hedge funds, private equity, limitedpartnerships, real assets), often selected in partnership with institutional consultants. Recently though, someinstitutions (particularly $10-50mm portfolios) have begun working with established ETF Strategists in lieu ofinstitutional consultants in something of an outsourced CIO model. Like the independent RIA channel, the MFOand small institutions market is very heterogeneous and difficult to penetrate without a highly experienced salesforce. The larger traditional institutional market is not covered in this guide, as those firms generally would notconsider ETF Strategists for their portfolios.U.S. Banks – The U.S. banks could rightly be sub-segmented by size (smaller regionals vs. the larger nationals) aswell as advisor types (retail bank brokers and wealth advisors vs. HNW private client and trust groups). Ingeneral, banks are late adopters of wealth management solutions, and the bank channel is not a particularlylucrative market at this time for ETF Strategists. In addition, many bank research groups are averse to tacticalmanagement and other characteristics of many managed ETF solutions, and typically control asset allocationchoices and limit product selection to traditional products (e.g. long only equity and fixed income). There areexceptions though, and some ETF Strategists have had considerable success partnering with banks (particularlyregional banks) in utilizing their managed ETF solutions as the “house” solution for their advisors.Canada – While not truly a “channel” per se, the Canadian market represents a unique opportunity for U.S.based asset managers. The market is dominated by approximately six bank-affiliate financial institutions, plus ahandful of independent RIA equivalents and a few large insurance affiliated advisory firms. Two of the top -3firms have well developed model-based programs that provide efficient distribution opportunities for managers,and the rest have well developed sub-advised SMA programs. The Canadian market is typically several yearsbehind the U.S. market in product development/adoption, but the major Canadian platforms are likely to developPage | 10
  11. 11. ETF Strategist rosters for their advisors in the next few years, following in the footsteps of the major U.S. basedplatforms.Direct Retail – Many ETF Strategists started as wealth managers, directly soliciting and servicing individualinvestors and operating as independent RIAs. Managed ETF solutions are particularly well suited to direct retaildistribution given their relatively simple operations, holistic nature (as compared to style-box constrainedproducts), transparency, and low cost. For ETF Strategists with established direct retail advisory practices,invested in digital and local market marketing efforts can be highly productive. Some ETF Strategists havedeveloped very innovative and productive direct retail strategies, such as hosting a local radio program. For ETFStrategists that do not presently directly solicit or service retail investors, developing a full advisory offering canbe a cost-effective way to diversify the business.International – Like Canada, “International” isn’t truly a channel, but it does represent a very large potentialfuture distribution opportunity for ETF Strategist asset managers. The non-U.S. markets are extremely varied intheir regulatory requirements, and in their use of investment products. The European markets are increasinglyaccessible to U.S. based asset managers, and some ETF Strategists have had success packaging UCITs for EU-wide distribution, typically in partnership with the major European banks. The European private banks, as wellas major private/trust banks in Asia (Singapore, Shanghai, Tokyo), the UAE and Latin America are all potentialdistribution partners for ETF Strategists. Effectively selling into any of these markets requires considerableinvestment in understanding the market, legal/regulatory expenses, and the establish of partnerships withforeign banks/institutions with dedicated and knowledgeable sales resources.Insurance / Annuities – The U.S. insurance industry has primarily utilized proprietary (and expensive) mutualfund families for annuity products. Recently some insurance companies have begun using (or at leastconsidering) ETFs, and managed ETF portfolios within variable and fixed annuity wrappers. Success in theinsurance channel generally requires sales, legal and operations resources familiar with the operatingrequirements for running portfolios within insurance packages, and an active partnership sales model with aleading insurance provider.401K / Retirement – Perhaps one of the largest (largely untapped) distribution opportunities for ETF Strategistsis the 401k (and other retirement accounts) market. 401k programs tend to be dominated by proprietary (andoften expensive) mutual fund offerings, but in recent years several providers such as Mid Atlantic Capital Grouphave begun offering programs and technology for implementing managed ETF solutions efficiently within 401Kprograms. As with other channels, opportunities in the 401k market are best developed by experienced salesstaff that are familiar with the variety of 401k program providers and plan administrators. Page | 11
  12. 12. Implementing a Productive Distribution StrategyDistribution is more than “sales”. Implementing a productive distribution strategy for an ETF Strategist assetmanager requires planning and execution across six primary disciplines and functional areas.PR & Centers of Influence Awareness – An effective press strategy can provide enormous leverage in support ofsales. A PR strategy requires the cultivation of relationships with key writers for the on -line and printpublications most frequently read by a strategist’s primary target channels. Creating regular newsworthy“events” or stories, as well as writing by-lined articles can provide significant inbound interest in your portfolios,as well as provide content (reprints) that can be used in support of your direct sales and marketing efforts.Event Planning, Marketing & Materials – A productive marketing program is organized around key industryevents and activities, with a deliberate plan and calendar to drive preparations of necessary materials, eventplanning, follow-up communications and sales dialogs, etc. Collateral that highlights product metrics andattributes are necessary but insufficient to support mailings, digital distribution and conference participation.Value-adding content in the firm of meaningful research and ideas that advisors can use to support theirutilization of your product are critical.Digital Marketing – Not surprisingly, today advisors often first turn to an asset manager’s web-site to learn moreabout the firm and products. A high quality, professional, and regularly updated web site is a basic “cost ofentry” requirement for ETF Strategists operating in a competitive asset management market. A well-organizeddirect email marketing infrastructure, managed social media presence, webinars, and other on-line interactionscan build awareness and loyalty with advisors.Page | 12
  13. 13. Key Account / Home Office Sales – Generally responsible for getting your portfolios “on the shelf” and keepingthem there, key account management and home office sales is particularly important for ETF Strategists lookingto compete in the wirehouse, regional/national BD, and independent BD/hybrid channels. Key account staff needto be highly skilled (e.g. CFA holders) and able to represent the firm well both in research dialogs, and businessexchanges (i.e. financial arrangements) required to get preferential positioning on major fee-based platforms.Outside Advisor Sales – Historically referred to as “wholesaling”, the role of outside advisor sales has changedsignificantly in the past decade. Due to the cost of providing branch-level support, most ETF Strategists haveadopted a hybrid sales model in which representatives participate in major events/conferences and pursuereferrals generated from digital marketing and inside sales campaigns. The section below on “The ChangingFace of Advisor Sales & Wholesaling” provides additional content on this topic.Inside Sales & Support – Most asset managers (including ETF Strategists) typically maintain a ratio of at leastone inside agent to one field wholesaler, with that ratio being much higher in some instances. Some ETFStrategists have been very successful in staffing a larger inside sales function to drive sales through targeted calland email campaigns, and in digital marketing campaigns tied to major industry events. Inside sales is muchmore cost-effective and flexible than outside wholesalers. See the section below on “The Changing Face ofAdvisor Sales & Wholesaling” for additional thoughts on the role of inside vs. outside sales. A Content-Centric PR & Marketing StrategyCore to a productive public relations and digital marketing strategy is regularly developing content that iscompelling and value-adding to advisors. Beyond information specific to your strategies and investmentphilosophy, what is your firm going to be known for? Developing compelling content is hard work and requiresdeliberate planning and resource allocation. While some firms work with outside agents/consultants on thedevelopment of content, a content strategy must ultimately be driven by the CIO and other thought leaderswithin the ETF Strategist’s organization. Content can take the form of white papers, “how to” guides, traderationales, economic views and opinions, and other topical content that advisors can use to become informed,and also aid them in their own efforts at raising assets and utilizing your products in the development ofsolutions for their clients. The Changing Face of Advisor Sales & WholesalingThe advisor sales model has changed significantly in the past decade. In the 1990s and before, branch-levelwholesaling (often buying lunch for the branch and handing out sleeves of golf balls while giving a rote productpitch via PowerPoint) was key to driving product awareness and adoption. Increasingly, large sponsors do notallow wholesalers in their branches, and advisors don’t want to invest the time. There are multiple models thatETF Strategists have developed in lieu of putting ‘feet on the street’, primarily digital marketing, event marketing,and outbound campaigns via inside sales organizations. Partnership selling with ETF issuers, TAMPs and otherindustry Centers of Influence are also increasingly providing sales leverage for ETF Strategist asset managers. Page | 13
  14. 14. About Randy Bullard & ETF Strategy GroupETF Strategy Group (ESG) was founded in July 2012 to help ETF Strategist investment management firms developand grow their businesses. ESG provides a variety of services including the following:  Strategic business consulting, and distribution strategy development and implementation services for ETF Strategist asset management firms.  Third-party marketing services designed to help ETF Strategist asset managers execute effective distribution strategies and grow assets under management in key markets.  Investment banking services designed to help ETF Strategist asset managers gain access to growth capital, and implement productive growth and business transformation strategies.  Consulting and business development services to ETF issuers, private equity firms, and product/service providers targeting the growing ETF Strategist asset management market.ETF Strategy Group is led by Randy Bullard. Randy has over 20 years of industry experience in strategy consultingand asset management services, most recently as co-founder in 1999 of Placemark Investments. While atPlacemark, Randy led the firm’s PR, Marketing and Business Development efforts, as well as many aspects of thefirm’s product and service development and evolution. Randy led the establishment of custom wealthmanagement programs for ~20 leading providers including Smith Barney Consulting Group, UBS, RBC WealthManagement, TD Ameritrade, BMO Nesbitt Burns and many others resulting in $8B+ in assets undermanagement and relationships with thousands of financial advisors. Prior to founding Placemark Investments,Randy was a Principal Consultant with A.T. Kearney, leading strategy and systems implementation projects forfirms in the financial services industry including Goldman Sachs and Citigroup. Randy has published numerousarticles and papers on wealth management industry topics, and is a frequent speaker and cited industry leaderon a variety of topics including Unified Managed Accounts, Overlay Management, Wealth ManagementPlatforms, and Managed ETF Solutions.For additional information, please contact Randy at Randy.Bullard@ETFStrategyGroup.comCopyright © 2012 Randy Bullard, ETF Strategy Group. Distribution in whole permitted withou t notifica tion. Distribution inpart or o ther usage granted upon request. www.RandyBullard.comPage | 14

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