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Rating:How Should ETF Firms Spend Their Sales and Marketing Dollars? Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, June 17, 2011

How Should ETF Firms Spend Their Sales and Marketing Dollars?

Reported by Neil Anderson, Managing Editor

Fundsters interested in the distribution of exchange- traded mutual funds may want to take a look at the latest report from kasina. Yesterday, the New York-based consulting firm released "Mastering ETF Distribution."

In kasina's eyes, CEO Steven Miyao explained, there are three different types of advisors: advisors who don't use ETFs at all, advisors who use a variety of ETF families, and advisors loyal to one or two ETF firms. For sales and marketing purposes, Miyao argues, ETF providers should focus on the advisors in the third group and ignore those in the first group completely.

"It's just not profitable to convert advisors to believe in a product," Miyao told The MFWire.com, adding that even the diverse ETF users aren't worth actively selling to (though they are worth marketing to).

Miyao also notes that, thanks to low margins, the ETF business has a significant scale component, with the vast majority of market share in the hands of the Big Three -- BlackRock's iShares, State Street and Vanguard. For the small firms, active sales may be something to postpone for now.

"It's going to be very difficult to make any money for the first years using external wholesalers," Miyao said.

Company Press Release

New York, (June, 2011) – Asset managers’ tactics for distributing Exchange Traded Funds (ETFs) should depend on the size and sophistication level of the firm. Furthermore, advisors fall into three categories, each of which requires firms to take a different approach.

Asset management firms cannot get ETFs to market fast enough. With a backlog for SEC review, cash flows to existing ETFs surging, and the market currently dominated by iShares, State Street, and Vanguard, firms are chomping at the bit to get a piece of the pie. While it seems as though getting ETF flows is like shooting fish in a barrel, kasina’s Mastering ETF Distribution report points out that firms need to approach ETF distribution with a clear plan to optimize profitability.

Not all firms, and not all advisors, are alike. Large and small firms need to approach the ETF market differently. Margins among ETFs are fairly thin, only 19 basis points on average, according to kasina. “Only firms with enough scale to make money on volume can compete on price and support higher-cost distribution, such as wholesaling. Smaller firms need to have both differentiated product and efficient distribution approaches,” says Steven Miyao, kasina’s CEO and co-founder. kasina also found that advisors fall into three separate buckets based on their attitudes towards, and usage of, ETFs:

-Non-adopters, who do not understand or do not use ETFs

-Multi-Provider Advisors, who use ETFs from multiple firms

-Loyal Advisors, who gravitate towards one or two firms consistently

“These three audiences want and expect different things from asset managers,” says Miyao. “Firms should focus on educating Non-Adopters, articulating the differentiating value proposition to Multi-Product advisors, and trying to lock in the Loyal Advisors. The goal is to move all advisors along the continuum towards loyalty by giving them targeted messages, all in a way that is cost-effective for the firm.”

The report delivers insights and analysis from interviews with senior distribution executives representing the top seven asset management and insurance firms. Participants responded to a mix of open-ended questions on topic areas including:

-ETF distribution strategies

-Role of the Web

-Advertising and Marketing

-National Accounts

-Product offerings

-Staffing, people management, and compensation

The report also includes findings from the FA Vision ETF Topical Survey, a report on behavior and preferences of over 550 U.S. financial advisors conducted in partnership between kasina and Horsesmouth.

Some of the specific issues addressed in this report include:

-Key distribution challenges facing ETFs providers

-Margins in the ETF market

-Targeting the three types of advisors: The Non-Adopter, The Multi-Provider Advisor, and The Loyal Advisor.

-ETF attributes advisors care about most

-Advisor communication and support preferences

The report identifies key opportunities and recommendations for firms to:

-Strategize to mitigate impact of thin ETF margins and concentrated market

-Emphasis your brand differentiation

-Segment and target advisors; use tactics to match the firm’s size , product s, and targeted advisors

-Streamline your distribution through selected wholesaling efforts and digital marketing

For more information on the full report, Mastering ETF Distribution, or to learn about kasina’s other studies, visit www.kasina.com/reports.

About kasina

kasina's commitment to innovating distribution in the financial services and insurance industries has made it one of the most influential strategy consulting firms in its sector. kasina works with a wide variety of clients from five continents, including firms representing 90% of the U.S.'s total assets under management. An overview of services offered by kasina is available at www.kasina.com. 

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