Maximizing Distribution Effectiveness

The Data Possible Podcast: Episode #7

Speakers: Brian Nelson & Joe Neuberger

Summary: In this episode of The Data Possible Podcast, Brian Nelson, managing director at Harborside Group, and Joe Neuberger, president at U.S. Bank Global Fund Services, discuss the creation of their multiple series trust partnership, Total Fund Solution, and how it can benefit asset managers and investment advisors. You will learn:

  • What a multiple series trust is and the benefits of leveraging this vehicle
  • How working with Total Fund Solution allows managers and advisors to maximize distribution and marketing effectiveness
  • How Total Fund Solution helps solve the challenges of today’s environment

Resources: Harborside Group | U.S. Bank Global Fund Services | Discovery Data

Podcast Transcription:

Doug: Hello, and welcome to The Data Possible Podcast presented by Discovery Data. This is your host, Doug Heikkinen. And today we have two guests. First is Brian Nelson, who’s a managing director at the Harborside Group. Harborside Group is an investment sales and marketing firm that provides comprehensive and customized solutions for asset managers. Also with us today is Joe Neuberger, who is the president at US Bank Global Fund services. Joe has formed a strategic alliance with the Harborside Group focusing on helping small fund companies, which we will certainly get into. Welcome to the podcast, gentlemen.

Brian: Pleasure to be here.

Joe: Thanks for having us.

Doug: Let us start a bit broadly. As we further head into 2021, what are the significant challenges investment managers are facing?

Brian: Doug, I would say that in 2021, it is very much the same as it’s been for a couple of years. That is, two different areas are challenging managers today. I’d say overall, their business model is a bit under pressure. And, I say from two aspects, one would be from a competition standpoint, there is a tremendous amount of product competition and a tremendous number of managers in the marketplace. Now with all of that, it is certainly leading to a bit of a fee compression taking place in the industry. So, asset managers just can’t have the same fees that they had before because of these different pressures that are taking place. But I would say the one that is really coming to the forefront is the challenges with respect to gathering assets. And those are becoming more and more difficult. There is less shelf space in the marketplace than ever when you are looking at where can financial advisors buy a product, as well as the costs just keep rising. And I think this is huge challenge, because managers cannot grow if they can’t gather assets. And this was even more difficult if you look at 2020, during a pandemic period.

Doug: Joe, anything to add there?

Joe: Yeah, think Brian’s points are right on. If you look at the product competition in the fees, I think that something Investment Advisors need to keep in mind is, yes, there is a lot of pressure on fees, keeping in mind the quality of the service that they’re getting, for the fees that they are paying. And I just think that is something that is sometimes overlooked, that investment management firms then regret at some point down the road. And then to get to Brian’s second point, how best can investment management firms get the word out on their products. And that gets back to the distribution side Brian referred to.

Doug: Yeah. So, you guys have entered into a partnership? Why did you do it? What is it called, and who does it benefit?

Brian: Joe and I have been in the industry for a long time, and we had the opportunity to work together for over 15 years. And in our conversations, we’ve always kind of shared the same thoughts with respect to, there really is a need for a vehicle that can provide asset gathering that just wasn’t available in the marketplace. So, that’s why we developed this very comprehensive series trust called Total Fund Solution, which really was just a natural extension of vehicles that are available in the marketplace and adding some innovation to asset management.

Joe: I agree with Brian. If you look at these multiple series trust structures, the element that has been missing is really that active distribution and marketing element. And I think that that’s what the partnership that we have in terms of the new product offering. I think it’ll really benefit investment advisory firms, because now they can shift their focus to not just managing the portfolio and working on distribution and marketing or go through the cost of internally building that. But especially for the smaller firms, they can rely on the expertise of Brian and his business.

Doug: And I believe that’s called Total Fund Solutions, the product that you’ve created.

Brian: That’s correct.

Doug: So, Joe, for those who may not be aware, what is a multiple series trust and what are the benefits?

Joe: Yes, a multiple series trust, sometimes referred to as a shared trust, is basically a mutual

fund that is organized in a series trust such that you have typically sponsored by a service provider and is utilized by multiple unrelated investment management firms to house their mutual fund products. Each fund is a portfolio or a separate series of the trust. And the trust through its board and service providers performs the management of all fund operations, governance, and the administration operational matters of the fund really allowing the investment advisor to focus on its core competency, which is really investment management. In terms of the benefits, we feel that the benefits of a multiple series trust is fourfold. And I’ll go through those quickly. One it reduces the time to market to start the mutual fund, you’re capping in investment advisory firm is tapping into an existing series trust. So, your registration is typically about a 75-day process. Number two, we believe there are cost advantages, both as it relates to startup of the fund, and ongoing expenses because you have shared expenses across multiple funds in the trust. And then three, would be really the governance and service expertise. You’re tapping into an existing series trust with their already existing Board of Trustees, and the expertise that those trustees bring and have based on the other products that they’re that they’re already providing governance for, then lastly, would just be the compliance structure you’re tapping in the adviser investment advisory firm doesn’t have to recreate the compliance infrastructure, whether it’s a chief compliance officer, they can rely on the compliance that’s being offered by the multiple series trust.

Doug: Brian, is there anything that makes the Total Fund Solution unique? And how does it help solve the challenges in today’s environment?

Brian: Sure. So just like Joe is saying that if you take a look at the typical series trust, it’s created to provide some operational and administrative efficiencies and lower costs. What’s missing with that? In a typical series trust is that the manager is responsible for gathering the assets for all the distribution functions, as well as doing the portfolio management, where the real benefit of Total Fund Solution adds to the equation is, it allows that portfolio manager only to focus on portfolio management, all of the asset gathering is done by our group. And this way, it provides expertise in the marketplace that those managers just don’t have. Now, I’ll tell you a bit about that Harborside as an example, because it’s key point is the company formed 17 years ago, we provide very custom and specialized services to asset managers that are looking to grow their intermediary distribution. Today, that’s grown substantially. I’d say we’re the largest independent sales and marketing organization in the asset management industry. We sell essentially about $3 billion of product a year. And we have relationships with over 40,000 financial advisors that we have to service day in and day out the owner, our clients’ products. That gives us a level of intelligence in the marketplace that I’d say is quite unique. What Total Fund Solution allows these managers is the opportunity to tap into our expertise. Let us gather those assets. Let us provide the advisory oversight, that compliance oversight, and take all those functions away from them. And allow them only to focus on what they really like to do, which is just manage money. So, the efficiencies of Total Fund Solution allow distribution efficiencies that just weren’t available. So those in the trust will be able to share dealer agreements, have sales forces that are just particular to their products, and allows infrastructure costs also to be shared. So, huge benefits to the asset manager.

Doug: In addition to these 40,000 advisors that you already service, what kind of investment managers might consider this type of solution?

Brian: Yeah, I would say it’s for managers that have two different types. It’s certainly for managers that are high quality managers that have been managing money for many, many years. In fact, that’s what we see as a primary market. They may have formed a mutual fund or two or an ETF or two, but it doesn’t really represent their primary business line. And so therefore, they really can’t give resources to that effort. Total Fund Solution gives them the opportunity to get distribution that they’ve been seeking all along, where they can concentrate on their core business. So, managers that have good product, long track records, and realize that there’s a different way to go to the marketplace, I think are ideal for that. It also allows them the soft cost, the oversight of a mutual fund is pretty extensive. And they’ll be able to take that away from them and let them focus only on portfolio management, I think is a huge advantage. And that’s something that Total Fund Solution allows them to do. I think you might have some thoughts on maybe some new managers as well.

Joe: Well, let’s say you have alternative investment managers, so more hedge-to-hedge fund type managers that currently do not have registered mutual fund products. What this allows them the opportunity if they so desire to take their product offering into the retail mutual fund space, and enter that space, I think very cost effectively. And the key to this is having a distribution element, I think if you have hedge fund advisors who are looking to enter, for example, the mutual fund space, one of their big obstacles are, they don’t know distribution in that space. And to tap into a trust like this, where you have all the economies and efficiencies of the Trust’s governance structure and the distribution, that element to Harborside provides, I think that’s an example of I think of a type of investment advisory firm, that would really look at a structure like this. It also I would say, investment advisor, it has maybe many separate accounts, they want to reduce those number of separate accounts, they could put them in a mutual fund structure really reduces a lot of their internal costs.

Doug: I think we should always be thinking about the end investor. So, what benefits does the Total Fund Solution allow advisors to deliver to their clients?

Brian: It allows them to deliver products that maybe they would have never seen before. So many of the many funds that are out there today, and there are thousands and thousands of mutual funds out there. But many just remain relatively unknown. This allows high quality managers to get greater exposure to the financial advisor. And in turn, they can offer those products to their clients. So, these are very strong managers, very good product, but unfortunately, have product out there that isn’t widely known. With Total Fund Solutions they get far greater exposure.

Doug: So, rather than the investor and advisor seeing just the big brands, they see good managers as well.

Brian: Absolutely. And these tend to be very high-quality managers that are specialists at what they do, but may not necessarily have the size or the marketing strength behind them to have that brand name. But this now gives the opportunity for them to participate in that.

Joe: To that retail investor, that may not be able to meet the high minimums required for a separate account management, or for a non-registered hedge fund it registered mutual fund product allows them access to that.

Doug: When does this launch, or has it launched, and what’s been some of the initial feedback?

Brian: It was just announced in, let’s say, the fall of 2020. And we’ve been having discussions with various asset managers today to enter the trust. Those have been overwhelmingly positive. In fact, I think for many of them, it’s a breath of fresh air to now know there’s something much more innovative in the marketplace that really solves the issues that they have when they formed the mutual funds, which is I want to deliver a very good product, but I also want to grow those assets. So, we look to be operational in Q2 of 21. As far as we have to go through some legal and proxies and so forth with us. But it’ll be available in the marketplace in just a couple of months.

Doug: Right. So, if you’re a manager or an advisor that wants to know more, where do they go?

Brian: Sure, they could either reach out to me or to Joe at us at US Bank Corp or to Harborside.

Doug: Brian and Joe, it’s been quite a pleasure. Thank you for joining us today.

Brian: Thank you so much for having us.

Joe: Yeah, thank you for having us on for everyone.