Category: Registered Funds

02
Oct

Launching a Registered Fund: Is it Right for You?

This is part one of a series about determining if you’re a fit to start a registered product and how to get it off the ground.

You have a successful investment strategy idea. Perhaps you’re currently using it in your SMAs. You’ve done the math and know that you’re missing out on revenue by turning away smaller accounts. You know there’s demand for your strategy, but you’re hesitant to start a registered fund (mutual fund or ETF) because you don’t know if it’s right for your firm and because you’re concerned about the resources you’ll need to get it off the ground. That’s understandable, and it’s wise to critically evaluate your business and all potential scenarios before taking the leap into fund management.

What to consider

What benefits might I gain?

Recouped revenue
As you know from using our mutual fund calculator, creating a mutual fund can help you alleviate that pain of turning away assets because they don’t meet your SMA minimums. A fund may help you recapture or gain some of that recurring revenue you might be missing out on.

Potential efficiencies
In addition to extra revenue you may earn from operating a fund, you may also realize efficiency benefits such as reduced trading costs/activity and the ability to leverage research and investment ideas across your fund clients.

What’s it going to cost?

  • Setup and organization: $45,000 to $100,000, depending on the fund’s complexity and service providers selected. These expenses may be recouped by the advisor from the fund, subject to certain conditions.
  • Annual fund operational expenses: variable, but average approximately $200,000 based on a minimum fee structure. These are considered fund expenses and are generally paid by the shareholder, subject to the fund’s expense cap.
  • Distribution: extremely variable, depending on if your primary objective is to gain operational efficiency or if you are looking for additional distribution opportunities. Please contact us to discuss.

If my objective is to grow my business, how is operating a fund going to help me find new clients?

It’s all about distribution. No matter how strong your strategy is, distribution is truly key to the success of your fund, and one for which you must budget adequately. Beyond setup and ongoing operational costs, much of your investment should be earmarked for continuous sales and marketing. These costs are variable and, beyond compulsory platform fees, the amount you want to allocate to them depends on your desire to make your fund available to new investors through new channels. Although they don’t involve a defined cost, these dedicated distribution resources will be instrumental in your fund’s growth. Along with a great idea, to expand your distribution, you must have an entrepreneurial spirit and be committed to building a sales-driven organization.

Before considering a fund, it’s important to evaluate common characteristics of accounts you’re regularly turning away or not efficiently managing, as recording this type of demand in the planning stages will go far toward understanding the potential market for your fund. You will need to have a firm understanding of your potential target audience, taking into account varying market conditions, investment trends, and shortages in market offerings. Understanding your target client and how they approach investing is a crucial step in developing your fund; this is an area you can’t overlook. Good ideas must be marketed to a specific, appropriate group.

Check back next week, when we’ll go into more detail about how we help you determine appropriate fund structures, fee structures, and distribution platforms.

7756 GFS 10/1/2018 | 2139-NLD-10/2/2018

03
Feb

Interested in Starting a Mutual Fund? Don’t Forget Compliance.

Advisors look to start mutual funds for a myriad of really good reasons, such as new distribution opportunities, an increase in operational efficiencies, and reduced transaction costs, among many others. However, if you’re an advisor interested in starting a mutual fund, you should be aware that the financial industry is highly regulated, and that compliance is a key element for the success of your business.

The U.S. Securities and Exchange Commission (SEC) requires all investment advisers advising a mutual fund to be registered with the SEC. As part of this registration, the adviser must have a compliance program and a Chief Compliance Officer (CCO) to administer it. The CCO is responsible for a critical firm function, and the SEC looks to him or her as a senior member of your management team.

A major component of your compliance program is the creation and maintenance of a comprehensive compliance policies and procedures manual to provide guidance to the firm and its personnel. This manual must be uniquely customized to your firm’s operations, and provide guidance to your employees on the key aspects of your business including a code of ethics, trade execution, advertising and marketing, anti-money laundering, recordkeeping, regulatory reporting, custody, cybersecurity, disaster recovery, and more.

This may all sound overwhelming, but help is available. Various consulting firms, including Northern Lights Compliance Services, LLC, are available to assist in developing a custom compliance manual and code of ethics to meet the needs of your advisory firm. These firms can also provide guidance and assistance to your CCO to ensure compliance with industry rules and regulations, as well as compliance with the prospectus of your mutual fund once your fund is operational.

Good luck in creating your new registered product and please contact us at any time if we can be of assistance.

Learn more about Northern Lights Compliance Services, LLC at www.nlcompliance.com.

0002-NLCS-1/31/2018
2023-NLD-2/1/2018

03
Feb

Interested in Starting a Mutual Fund? Don’t Forget Compliance.

Advisors look to start mutual funds for a myriad of really good reasons, such as new distribution opportunities, an increase in operational efficiencies, and reduced transaction costs, among many others. However, if you’re an advisor interested in starting a mutual fund, you should be aware that the financial industry is highly regulated, and that compliance is a key element for the success of your business.

The U.S. Securities and Exchange Commission (SEC) requires all investment advisers advising a mutual fund to be registered with the SEC. As part of this registration, the adviser must have a compliance program and a Chief Compliance Officer (CCO) to administer it. The CCO is responsible for a critical firm function, and the SEC looks to him or her as a senior member of your management team.

A major component of your compliance program is the creation and maintenance of a comprehensive compliance policies and procedures manual to provide guidance to the firm and its personnel. This manual must be uniquely customized to your firm’s operations, and provide guidance to your employees on the key aspects of your business including a code of ethics, trade execution, advertising and marketing, anti-money laundering, recordkeeping, regulatory reporting, custody, cybersecurity, disaster recovery, and more.

This may all sound overwhelming, but help is available. Various consulting firms, including Northern Lights Compliance Services, LLC, are available to assist in developing a custom compliance manual and code of ethics to meet the needs of your advisory firm. These firms can also provide guidance and assistance to your CCO to ensure compliance with industry rules and regulations, as well as compliance with the prospectus of your mutual fund once your fund is operational.

Good luck in creating your new registered product and please contact us at any time if we can be of assistance.

Learn more about Northern Lights Compliance Services, LLC at www.nlcompliance.com.

0002-NLCS-1/31/2018
2023-NLD-2/1/2018

23
Jul

Amendments to Form ADV and the Books and Records Rule

An investment adviser filing an initial Form ADV or an amendment to an existing Form ADV on or after October 1, 2017 will be required to use a revised Form ADV.  (Changes to Form ADV can be found here: https://www.sec.gov/rules/final/2016/ia-4509-form-adv-summary-of-changes.pdf)  Additionally, amendments to Rule 204-2 (the “Books and Records Rule”) of the Investment Advisers Act of 1940 will apply to communications circulated or distributed after October 1, 2017.

Amendments to Form ADV will require an adviser to provide additional information regarding its advisory business, including information regarding its separately managed account business, other offices, and social media accounts for which the adviser is able to control the content associated with the account (e.g., Facebook, Twitter and LinkedIn). The amended Form ADV will also create an “umbrella registration” on a single Form ADV (within a new Schedule R) for multiple private fund adviser entities operating a single advisory business under certain conditions.

In addition, amendments to the Books and Records Rule will modify recordkeeping obligations as to certain materials relating to an adviser’s performance or rate of return. For example, the amended rule will require advisers to maintain materials that demonstrate the calculation of performance or rate of return in any communication circulated or distributed directly or indirectly to “any person” rather than to “10 or more persons” as the rule currently requires.  These amendments considerably expand the scope of the Books and Records Rule to encompass all performance related communications, including but not limited to custom calculations requested by a single investor or potential investor. Additionally, advisers will now be required to retain original copies of all written communications related to performance or rate of return that are sent to or received from any third party.

All advisers are encouraged to promptly review their current operational practices and determine what modifications, if any, will be necessary to ensure continued compliance with all applicable regulations.

The Final rule can be found here: https://www.sec.gov/rules/final/2016/ia-4509.pdf

7475 GFS-7/25/2017
2182-NLD-7/26/2017