Category: Distribution Planning

10
May

A Gemini Evolution

The latest issue of the Exchange is online now! If you are not subscribed to the newsletter, click here!

Our May issue highlights the evolution of Gemini as Kevin Hesselbirg takes the helm as CEO, true costs of mutual fund distribution, adding to your value proposition, and much more!

Click here to read the May issue of The Exchange!

 

7361 GFS-5/10/2017

2123-NLD-5/10/2017

12
Apr

Understanding The True Cost of Mutual Fund Distribution – Part Three

This is part three in a series on The True Cost of Mutual Fund Distribution. Part one focused on product placement, click here to read it first. Part two focused on active sales and marketing, click here to read part two. Part three focuses on tracking capabilities.

Tracking Capabilities

An investment manager will need to evaluate needs and determine what types of technology should be utilized. Although these costs are optional, it is important to evaluate each one and determine if any are necessary for the business.
Types of Technology Costs

  • CRM Tools
  • Sales Reporting
  • Omni/SERV

Customer Relationship Management Tools (“CRM”) – Customer relationship management tools help organize and document sales calls, email campaigns, and meetings. Most commonly utilized CRMs are Salesforce, Redtail, SalesPage, and ACT.

Sales Reporting – Aggregation tools provide consolidated data from custodians, broker-dealers, and other intermediaries. This type of service provides more detailed sales reporting to assist in managing territories, tracking sales traction, and determining market share. Providers may include Celera, AccessData, MARS Salesfocus Solutions, and SalesConnect.

OMNI/Serv – As more intermediaries are moving to Omnibus trading, Omni/SERV is an optional service to see account and rep level transparency for Omnibus trading. Although this is optional, it is important to have rep level data on trades.


Questions Advisors Should Consider

  • How can you use a CRM tool to your advantage?
  • How are you currently tracking sales data? Would using a CRM tool help your sales tracking?
  • Do you have Omnibus business? If so, does Omni/SERV make sense for your business?

 

2093-NLD-4/5/2017

7266 GFS-4/5/2017

11
Apr

Understanding The True Cost of Mutual Fund Distribution – Part Two

Join us for part two of a three part series on The True Cost of Mutual Fund Distribution. Part one focused on product placement, click here to read it first. Part two focuses on active sales and marketing. Part three focuses on tracking capabilities and will be released tomorrow. 

Active Sales and Marketing

The next phase in distribution planning are the avenues in which investment managers will seek to raise brand awareness and create sales and marketing activity.  The most common considerations are the creation of a sales team, investment in various public relations and marketing, and sales related activities. The extent of the distribution efforts are closely tied to the individual firm’s target market and budget.

Types of Sales Personnel

  • National Account Managers
  • Wholesalers
    • External Wholesaler
    • Internal Wholesaler

National Account Managers
National accounts, key accounts, and relationship managers are an extension of the business development team. They focus on interfacing and managing the overall relationship with key strategic intermediary home office relationships. Key account managers are charged with creating and managing the execution of distribution business plans through coordination with all interested constituents. They work towards forging partnerships, with an emphasis on increasing market share, through leveraging all centers of influence and “delivering the firm.” Key account managers proactively work with the investment manager to uncover product placement opportunities. They are tasked with understanding the client firm’s strategic priorities, search activity, product and marketing initiatives, and opportunities for engagement. It is the national account manager’s responsibility to develop and maintain strategic relationships with all centers of influence. This individual also positions strategies and portfolio construction ideas to home office audiences, manage all dealer agreements, participates in contract negotiations, and is the interface with the transfer agent. They also coordinate all marketing, sales, and support services, anticipate and resolve complex problems, and disseminate intelligence to the sales force and home office to improve sales execution.


Wholesalers
Wholesalers are categorized as internal, external, or a hybrid of the two. Wholesalers are typically paid commission only or a combination of base salary plus commission. There are also third party marketing organizations that offer individuals or teams for hire. There are several key items to consider when hiring wholesalers. The wholesaler should have experience in the desired strategy and have existing relationships or proven ability to build relationships within the territory. They should be able to not only sell, but also position and utilize consultative development approaches, as well as contribute to marketing ideas and utilize CRM programs. Above all, you want to hire an individual who will blend with the company culture and be a positive addition to the sales team.

External Wholesalers – External wholesalers, often referred to as regional directors, cover specific target channels (independent broker-dealers, registered investment advisors (RIAs), broker-dealers, bank and trust, insurance and retirement intermediaries) in a specific U.S. territory. External sales representatives tend to have established relationships and focus on positioning and selling the investment manager’s strategy and funds. They have strong communication skills with the ability to convey traditional and complex products in a concise manner to both advisors and their clients. Client coverage also includes management practices that are designed to offer solutions to advisors.

Internal Wholesalers – Internal wholesalers work with external wholesalers to cover a specific target market. Much like externals, they are expected to have the skills necessary to cultivate and maintain relationships within their designated territory. They contact the advisors in their territory regularly and manage the sales process. Internals respond to daily telephone inquiries, follow up with financial consultants who establish new business, and continually educate them on current products and upcoming new products. Internals should have the ability to converse knowledgeably with financial advisors and other key personnel about investment solutions and current economic and market conditions and provide account activity and sales reports to assist the sales team.


Questions Advisors Should Consider

  1. What type of sales team does your firm currently need?
  2. What type of budget do you have for a team? Do you have/need a budget for travel, expenses, and a CRM program?
  3. What are some realistic, long-term sales goals?

Marketing Costs
Each investment manager has specific marketing goals. Some investment managers will seek the services of a third party press and advertising agency while others may hire an in-house employee. Investment managers should consider the type of marketing opportunities that make sense for their firm, budget, target market, and overall goals. Marketing channels can include items such as industry or broker-dealer conferences, email campaigns, promotional items, hosting lunch and learns, and your website.

Types of marketing costs

  • Press & Advertising Agency
  • Conferences & Industry Events
  • Marketing Materials
  • Digital Marketing

Press & Advertising Agency – Annual costs for specific negotiated items that may include but are not limited to media tours, bylines, advertising, conference panel representation, and public imaging.

Conferences & Industry Events – The financial services industry offers many national, regional, and local conferences. Conferences may be hosted by third party intermediaries, such as broker-dealers, custodial firms, service providers, associations, and research organizations. Attendees may range from savvy investors, research analysts, financial controllers, financial advisors to investment managers. Each conference will have specific costs, depending on if you would like to sponsor or simply attend. There are costs for attending or sponsoring but there may also be costs for travel, hotel rooms, entertainment, marketing, and booth materials.

Marketing Materials – Example of marketing material costs would be the cost of design, printing, and shipping of the prospectus, fact sheets, brochures, and other marketing materials.

Digital Marketing – This includes the overall cost to create, maintain, and update a website. Service may begin at basic layout or a more in-depth website including blogs and videos. Pricing is dependent on the extent of the services needed.


Questions Advisors Should Consider

  • Will you budget to attend industry events or sponsor conferences? Which ones would you like to attend?
  • What do you need for marketing materials? Will you hire a third party to create these materials?
  • What functionality does your firm need for a website?

 

2092-NLD-4/5/2017

7265 GFS-4/5/2017

10
Apr

Understanding The True Cost of Mutual Fund Distribution – Part One

Join us for part one of a three part series on The True Cost of Mutual Fund Distribution. Part one will focus on product placement. Parts two and three will be released on Tuesday and Wednesday, respectively. 

Northern Lights Distributors, LLC (NLD) believes a successful mutual fund distribution strategy requires a solid competitive philosophy, process, and expertise as well as consistent performance and excellent client service. It also requires investment managers who thoughtfully plan and invest in a scalable sales and marketing strategy.  Distribution has a variety of associated costs. The amount of associated costs is dependent on each firm’s individual goals and its place in the mutual fund sales cycle. While some investment managers may have large goals, seek broad sales and marketing exposure, and desire expansive platform availability, others may pursue a more finite approach.

Distribution Growth Cycle
NLD developed the distribution growth cycle model to assist investment advisors in matching their current distribution characteristics with potential opportunities. This allows managers to tactically develop their distribution plans to align with where they are within the cycle, along with associated opportunities. NLD has identified four phases in the distribution cycle: Raising Capital, Emerging Manager, Growing Manager, and Established Partners. Each distribution phase has distinct characteristics, challenges, and opportunities.

 

Elements of successful distribution
Each element of successful distribution has inherent costs. NLD has created a summary of these potential costs and questions to consider as advisors develop their distribution strategies. “Understanding the True Cost of Mutual Fund Distribution” will cover the three elements of successful distribution strategies:

  1. Product Placement
  2. Active Sales & Marketing
  3. Tracking Capabilities

 

Product Placement

All non-direct investors purchase mutual funds through an intermediary provider: custodian, broker-dealer, bank, trust, or third party asset management program. To better fit the individual end client’s needs, intermediary firms may offer a variety of programs with multiple investment vehicles through either a commission or fee-based structure. Understanding the product placement requirements and the cost of such platforms is the first step in planning for successful distribution.

As investment advisors assess each firm’s goals and platform wish list, they should consider the potential access fees for all intermediaries. There is a common misconception regarding product shelf space. Some people believe that more platform availability equates to more opportunity for potential sales success. This may be true in some cases, but only with a combination of other sales and marketing efforts. The reality is that more placement will also mean higher costs. Unfortunately, there is not a magic number of platforms the fund should be on. Advisors should thoroughly consider the wish list and right size the opportunity to meet the current growth cycle, making adjustments as the fund grows.


There are typically two types of onboarding fees that an intermediary may require; fees for due diligence review and on-going platform maintenance fees.

Due Diligence Fees – Intermediaries may charge an upfront, one time due diligence fee for the review of a mutual fund for potential product placement. This is normally a hard dollar cost determined prior to reviewing a fund. Paying this fee does not guarantee the fund will be approved. (Investment manager expense)

Platform Maintenance Fees – Intermediaries may charge the mutual fund an ongoing annual fee. The annual fee is normally a fixed rate which covers expenses associated with fund maintenance. The maintenance fee may cover on-going CUSIP administration and review. Fee ranges vary across intermediaries. Some charge a per CUSIP fee at a fixed cost with a minimum monthly or annual fee at the fund level, irrespective of asset levels. (May be an investment manager expense, some exceptions may apply)


Intermediary operational expenses may have a broad definition across the target market landscape. Operational expenses may cover the intermediary’s administration and maintenance of client accounts, which may entail various client communication and fund transactions.

 Shareholder Servicing Fee – Shareholder servicing fees typically apply to custodians and self-clearing firms and may include, but are not limited to, client communication, such as, delivering fund prospectuses, proxy materials, SAIs, educational publications, and other fund information. In addition, servicing may include direct client support via telephone for wire transfers, when applicable. (Fund expense, with potential differences billable to the investment manager)

Networking Fees – Networking operational services provide mutual fund account reconciliation and dividend processing at the client account level. This service has three reporting types, to be agreed upon with the intermediary. Centralized connectivity across intermediaries may require fund/SERV participation. Networking services are typically charged annually for each shareholder account. (Fund expense, with potential differences billable to the investment manager)

Sub-accounting and Administrative Services (may be referred to as “Omnibus”) – Sub-accounting services are meant to provide a uniform and efficient trading and reconciliation process for platforms with accounts across multiple disciplines and funds. This structure seeks to minimize transaction cost, allowing for block trading and execution across fund account holders. Centralized connectivity across broker-dealers may require an Omni/SERV subscription. (Fund expenses, with potential differences billable to the investment manager)

Consult the transfer agent and intermediary relationship on the various options to best suit current and future needs.


Cost associated with certain sales and marketing activities may be paid as a fund expense. Intermediaries may have program/platform fees and or revenue share cost associated with mutual fund support that are not paid by the fund. Advisors should work with their relationship manager to discuss which activities are not covered.

12b-1 Fees – These fees are used to pay for expenses associated with mutual fund distribution. This includes, but not limited to, fees paid for marketing and selling fund shares. Such costs could include compensating individuals or organizations who sell fund shares, advertising and designing, printing, and mailing sales literature to potential investors. Certain 12b-1 fee plans may include “shareholder service fees,” which pay for servicing, such as organizations responding to investor inquiries on their investments. (Included in the fund’s expense ratio)

Platform Partnership Fee – Intermediaries may have optional and/or qualifying sales and marketing partnership programs that may support meeting and conference sponsorship, access to branches for educational and marketing promotions, and receipt of supplemental sales data. Fees can be in addition to, or standalone from the revenue share fees. (Hard dollars billed directly to the investment advisor)

Revenue Share – Revenue sharing payments are in addition to 12b-1 fees and other operational expenses, disclosed in the fund prospectus. Intermediaries may require revenue share and is at the sole discretion of the intermediary. The fees may be associated with sales and assets under management, and may be in addition to, or standalone from the platform partnership fees. (Basis points billed directly to the investment advisor)


Questions Advisors Should Consider

  • How many intermediary platforms do you wish to have your fund available on?
  • What are the individual costs of each platform? Do you have enough demand at the specific intermediary to justify the expense?
  • Do you desire additional sales and marketing intermediary partnerships, such as home office access? If so, what is the cost per intermediary?
  • Do you have the marketing resources to support partnership relationships?

Disclaimer: The fees and the underlying services are subject to change at the intermediaries’ discretion.

Northern Lights Distributors, LLC, member FINRA/SIPC

2091-NLD-4/5/2017

7264 GFS-4/5/2017

16
Feb

Positioning For Growth

Are You Ready For Distribution?

The Gemini Companies (Gemini) distributor believes successful marketing strategies require a thorough self-assessment during the distribution planning phase and frequent reviews to adjust accordingly. During strategy planning, investment advisors should seek to understand how to access their desired target client with focus on product placement requirements and expected activity. Gaining such understanding will help determine the best course of action to implement your distribution strategy and focus your time and resources in markets that are open to your fund opportunity.

Gemini developed the distribution growth cycle model to assist investment advisors in matching their current distribution characteristics with potential opportunities, allowing managers to tactically develop their distribution plan to match. Gemini’s distributor identified four distribution phases: Raising Capital, Emerging Manager, Growing Manager, and Established Partners. Each distribution phase has distinct characteristics, challenges, and opportunities. The phases are defined as:

FOUR DISTRIBUTION PHASES

Raising Capital – Investment advisors that have less than $250 million in firm assets under management and a fund with less than $100 million in assets. Fund may have less than a 1 year track record.

  • OBJECTIVE – Funds at this phase are seeking to raise capital and raise awareness of their strategy
  • CHALLENGES – Short track record, no Morningstar rating, conservative sales and marketing budget
  • OPPORTUNITIES –Tactical, geographic sales activity within platforms, that are open to listening to a new story

Emerging Manager – Investment advisors with approximately $250 million to $1 billion in firm assets under management and a fund with less than $200 million in assets. Fund may have a 1 to 3 year track record.

  • OBJECTIVE – Firms at this phase have garnered success raising assets and capitalize on that success to elevate awareness of their strategy
  • CHALLENGES – Less than three year track record, at the cusp of Morningstar rating, moderate sales and marketing budget
  • OPPORTUNITIES – With a young track record, broaden product placement within existing platforms and potentially expand to additional platforms. Increase activity in preexisting platforms through meeting participation and creating value add (i.e. intellectual capital)

Growing Manager – Investment advisors with over $1 to $5 billion in firm assets under management and a fund with more than $200 million in assets. Fund track record is 3 to 5 years.

  • OBJECTIVE – Firms at this phase have garnered success and are seeking deeper and broader platform placement opportunities
  • CHALLENGES – Established competition, strategic sales and marketing budget
  • OPPORTUNITIES – Broaden product placement within preexisting platforms, seek new distribution markets, and increase sales and marketing activity at the local, regional and national levels

Established Partners – Investment advisors with over $5 billion in firm assets and with a 5 plus year track record.

  • OBJECTIVE – Firms at this phase have a solid footprint in the investment community, may be seen as a market leader in their space. They are seeking to deepen relationships and product penetration across programs and platforms
  • CHALLENGES – Established competition
  • OPPORTUNITIES – Increase activity in preexisting platforms, create new strategies, seek allocations within recommended programs and seek new platforms open to a proven story

nld-akc-positioning-for-growth-distribution-growth-cycle-chart

 

 

akc-positioning-for-growth-next-steps

 

 

Northern Lights Distributors, LLC

Member FINRA/SIPC

2057-NLD-2/14/2017

14
Feb

DOL Readiness Guide

At the time of this writing, the compliance date for several provisions of the Department of Labor’s (“DOL”) fiduciary rule is still scheduled for April 10, 2017. Barring any delays, the day is poised to usher in many changes for the mutual fund industry.

As comprehensive and engaged partners, The Gemini Companies are providing investment managers to 1940 Act Mutual Funds with general share class guidelines to consider as they review the potential impact that the new DOL fiduciary rule may have on their businesses.

STREAMLINING SHARE CLASSES

The fiduciary rule is expected to expedite the industry shift from commission-based products to fee-based solutions offered through intermediaries—a swing that has been apparent since the financial crisis of 2008. In fact, a handful of distributors, including Merrill Lynch and Commonwealth Financial, have already announced plans to eliminate commission-based products.

Halting these types of products will make it easier for investment managers to market their funds to investors because fee-based products consist of generally less expensive and more transparent, share classes. Share classes that are expected to win assets include:

  • Institutional (Class I or Y): This is the preferred share class for large-asset accounts because institutional shares do not have sales charges or ongoing 12b-1 fees, and tend to have higher minimums.
  • Investor (Class N): This share class is most often offered through intermediaries, which may assess 12b-1 fees for shareholder services and do not have front- or back-end sales charges.
  • Class A: This share class includes shares that have higher front-end sales charges with ongoing 12b-1 fees, and have been utilized for asset-based accounts.  If the shares are expected to be sold within one year, Class A shares could serve as substitutes for Class C shares that have back-end load charges. Class A shares that waive their front-end sales charge may also be effective.
  • Class T:  This share class includes shares that have lower front-end sales charges with ongoing 12b-1 fees may be considered as a lower cost solution to traditional C and A shares. This is a relatively new share class structure that has garnered a lot of attention in light of the new DOL fiduciary rule.
  • Class R: These shares are generally only purchased through 401(k) and other employer-sponsored plans, and do not carry front-end or back-end charges. However, operating expenses among this share class may vary greatly among fund families.

These share classes are likely to attract future investments because they are easier to understand, more reasonably priced, and have simplified fee structures. The current share class “alphabet soup” causes much confusion among investors. The fiduciary rule is poised to streamline share classes through its push toward fee-based products. This would greatly benefit investors who would be able to choose from more products composed of the above-mentioned share classes.

NEXT STEPS

Investment managers should review their existing share class lineup to determine potential impacts and if an update to their current share class lineup is in order to stay ahead of this trend. Offering products with more transparent and cost-efficient share classes may enhance managers’ credibility by giving them the opportunity to showcase their cost-conscious funds in a highly competitive market.

dol-readiness-guide-chart-1

SHARE CLASS OPTIONS

Investment managers who determine that an adjustment is needed to their share class lineup have two share class options to consider: Create a New Share Class or Convert an Existing Share Class.

Each of these options require a team of experts to assist with a variety of tasks which include, but are not limited to:

  • Updating Registration Statement
  • SEC filing
  • Fund Board approval
  • Revised contract execution
  • Unwinding or converting a share class, if applicable
  • Blue Sky registration
  • Intermediary communication
  • Repapering of Selling Agreements

Option 1 – Creating a New Share Class

Action Items Fund Partner Timeline
Prepare and file updated Registration Statement with the SEC Gemini Fund Services Legal Team

·         Provides brief legal overview

·         Prepares updated filing for review by advisor and counsel

Manager

·         Reviews filing and provides comments or approval to file

Fund Counsel

  • Reviews filing and provides comments or approval to file
  • Receives comments (if any) from SEC approximately 45 days after initial filing
  • Updates revised Registration Statement to reflect SEC comments

 

One week to prepare filing, and then 60-day SEC review of filing
Fund Board approval Gemini Fund Services Legal Team

·         Schedules matter for Board consideration during next quarterly Board meeting; an in-person meeting is required for changes to a fund’s 12b-1 plan

·         Prepares updates to fund agreements (12b-1 plan, expense limitation agreement, etc.) and coordinates contract execution after Board approval is obtained

Boards typically meet at least once every three months
Blue Sky registration

 

Gemini Fund Services Treasury Team

·         To add a new share class for existing funds

·         For restructure/reclassification, the team sends notification to Blue Sky vendor for amendment of reclassification

10 business days from effective date
CUSIP and ticker changes

 

Gemini Fund Services Fund Administration Team

·         Submits CUSIP and ticker request

Up to 7 days from Board Approval

 

Option 2 – Restructuring an Existing Share Class

Action Items Fund Partner Timeline
Prepare and file Prospectus supplement or revised Prospectus with the SEC Gemini Fund Services Legal Team

·         Provides brief legal overview

·         Prepares updated filing for review by manager and counsel

Manager

·         Reviews filing and provides comments or approval to file

Fund Counsel

  • Reviews filing and provides comments or approval to file

 

One week to prepare filing, which is effective upon submission to the SEC via EDGAR[1]
Fund Board approval Gemini Fund Services Legal Team

·         Schedules matter for Board consideration during next quarterly Board meeting; an in-person meeting is required for changes to a fund’s 12b-1 plan

·         Prepares updates to fund agreements (12b-1 plan, expense limitation agreement, etc.) and coordinates contract execution after Board approval is obtained

Boards typically meet at least once every three months
Blue Sky registration

 

Gemini Fund Services Treasury Team

·         To add a new share class for existing funds

·         For restructure/reclassification, the team sends notification to Blue Sky vendor for amendment of reclassification

10 business days from effective date
CUSIP and ticker changes

 

Gemini Fund Services Fund Administration Team

·         Submits CUSIP and ticker changes

Up to seven days for ticker changes

Up to two days for CUSIP changes

[1] Board approval may be required before a Prospectus supplement or revised Prospectus can be filed with the SEC.  Gemini’s Legal Team shall consult with fund counsel on a case-by-case basis to determine the appropriate course of action based on the proposed share class changes. 

Additional costs* to consider when starting or restructuring a fund:

·         Outside counsel fees

·         EDGAR filing fees

·         Prospectus changes

·         Printing fees

·         Intermediary distribution fees

·         Outside counsel (provides finalized brief and filing)

·         Intermediary platforms (selling agreement changes)

 

*Some cost may be considered a fund expense.

SUMMARY OF ACTIONS

Action SEC Filing Board Approval Blue Sky Registration Prospectus Changes CUSIP & Ticker Changes Proxy Vote
Create No
Restructure No

7147 GFS-2/13/2017