ETF Distribution Battleground - Gain & Retain

Recon

Understanding the competitive landscape of your unique ETF is paramount.  Creating a plan without intel and direction can lead to misguided efforts.  The first phase in attacking sales & distribution efforts begins with a forensic dive into where your ETF “fits”.    

Who is the Target AUM Audience?

ETFs cater to a diverse clientele, including retail investors, institutional investors, financial advisors, and pension funds – each having unique needs and preferences. Identifying which group, or groups, your ETF will best serve is critical to the establishment of an effective sales and distribution plan.  Whether it’s offering institutional capabilities to retail clients through derivative based strategies or unique beta exposure to emerging sectors, a great product can only go as far as its targeted investors.

AUM Destinations - Captive v Captured

AUM is always top of mind when considering launching an ETF.  Assets are usually in one of 2 categories – Captive and Captured.

Captive AUM can be described as capital brought in or identified prior to launch.  Often this is from a seed investor to help launch the strategy, financial advisors that have a need within their book of business, those who express interest or commitment once an ETF begins trading, or a control group that has assets to be converted from an existing strategy into the ETF.  All these avenues are great AUM sources on day 1 or within the first weeks after launch.

Identifying Captured AUM can be challenging, but with the right strategy, it’s possible.  Finding AUM involves assessing various channels where ETFs are commonly sold, such as:

• Brokerage Platforms: Online brokerages and self-directed platforms have grown in popularity as younger generations begin investing.  ETFs are a common, low-cost investment with low minimums attracting investors that may have an impact or purpose-driven portfolios.
• Financial Advisors: Many retail investors rely on advisors for investment choices, so understanding the various gating requirements at larger advisor platforms vs. independent registered investment advisors (RIA’s) can be sources of AUM.  Building relationships with advisors and offering differentiated solutions can facilitate access to their client base.
• Institutional Investors: Larger funds and pension plans often have distinct requirements, so working with relevant groups to create customized products can result in early captive assets and further captured adoption by similar institutions.

Gameplan

Following a thorough market analysis and insights gained from the “Recon” phase, the “Gameplan” stage can begin.  This stage includes identifying how your ETF offers a differentiated solution in portfolios compared to similar strategies, understanding ETF due diligence and approval metrics, and the creation of a realistic timeline to implement the “Gameplan”.

How to Compete Against Existing Strategy

Each ETF issuer should develop a distinct value proposition that highlights what sets them apart.  A unique strategy can benefit from first mover effect to gain assets, but market acceptance may be a hurdle as institutions and investors take time to understand where this new strategy fits. 

In most cases where there are similar, existing strategies in the marketplace, pick a lane and stick to it.  Positioning the strategy can go in many different directions, – low cost, alpha generating, beta exposure, etc. – so finding a niche within comparable products will serve the ETF long-term.  Complementing a largely adopted ETF with a reliable brand can be just as effective to reach investors as it serves a purpose in numerous portfolios.

Reaching AUM Destinations

During the planning phase and identification of possible destinations for captured AUM, there are key due diligence and product approval considerations which influence the ability of financial advisors and certain investors to access your ETF.  Some of these factors include platform fees, performance, AUM, track record, trading volume, and platform availability. 

Self-directed, retail investors may not have the same restrictions for some ETFs, so digital marketing and social media engagement are often cited as cost conscious ways to reach investor segments. 

Establish a Timeline

A 1-year goal usually takes…1 year to accomplish.  Outside of the given frames that are required or established by others, sticking to the plan set forth by the recon and discovery process helps everyone stay on track.  Above all, establishing a budget for sales & distribution efforts needs to be at the forefront of all planning conversations. 

Execution

The “Execution” phase is where the strategy comes to life, focusing on establishing a strong brand presence and driving investor engagement with all efforts driven toward pre-determined AUM destinations.  AUM accumulation is only the beginning.  Successful execution of sales & distribution needs to be a living plan – emphasizing retaining assets during ongoing efforts.

Brand Establishment

While a regulatory requirement, an informative and user-friendly website often acts as the introduction to your ETF and hub for all related content.  Investors in all AUM categories go to an ETF’s website before and after they purchase the Fund.  Once they visit the website, find ways to keep them there and coming back for more!

Educational resources and thought leadership pieces not only act as promotional and retention tools but also attracts attention to instill confidence in your brand.  Whitepapers, webinars, and FAQs educate potential investors regarding the ETF’s strategy and performance to attract investors.  Outside of strategy specific content, regular updates on the ETF industry and investment market conditions can attract a broader audience.

In addition, ETF conference and similar events can enhance your ETF’s visibility and expand relationships.  Participating in industry events provide networking opportunities that allow issuers to connect with potential partners, financial advisors, and individual investors.

Performance Metrics

Ultimately, performance remains a key driver in the Execution phase.  Without having above-average performance or meeting expectations within the parameters of the investment policy, attracting and retaining investors becomes increasingly difficult.  This isn’t earth shattering news, but do not neglect a regular review of your ETF’s performance combined with thoughtful communication of factors attributing to past performance.  This creates a transparent, proactive experience for investors in your ETF and continues the brand’s enhancement.

There is no single, one size fits all ETF sales & distribution strategy.  There are plenty of “right place, right time” stories regarding successful ETF’s; however, being in the right place at the right time can be a result of being well prepared to meet an opportunity.  It’s no secret that navigating ETF sales and distribution is difficult, but a well thought out plan to Gain & Retain AUM will be done by thoughtful exploration, careful planning, and tactical execution.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.