Current fund flow data continues to indicate no end to the exponential growth of ETF assets which are expected to double again in the next five years. Much of this growth is at the expense of actively managed funds, which is leading many asset managers to reconsider their strategies with an eye toward the ETF market. And now, with a recent rule change by the SEC, the ETF market could very well be the path of least resistance for asset managers wanting to launch a product.
Until the rule change, anyone seeking to launch a new ETF had to navigate a cost and arduous approval process that resulted in months, sometimes years of delay. The change lifts the requirements for ETF sponsors to seek “exemptive relief” from the SEC, freeing them from the same regulatory framework covering mutual funds. The rule change applies only to ETFs organized as open-ended funds.
Firms Still Face Post-Launch Challenges
This should come as welcome news for asset managers with designs on entering the ETF market. However, they still face major challenges, the biggest of which is the dominance of the $4 trillion ETF market by four sponsors – BlackRock, Vanguard, SSGA, and Invesco Powershares who bring in more than 60 percent of all new assets under management. Their dominance and the maturation of the marketplace have led to fee compression, creating a larger barrier to entry for new managers already struggling with shrinking margins.
Assuming a new ETF is well-capitalized, launching it is relatively easy. The challenge is in the post-launch – raising enough assets quickly enough to gain an established foothold in the space. New ETFs, especially from smaller firms, are often disadvantaged due to their lack of access to distribution channels. However, it’s not an insurmountable challenge if the new fund is launched with a well-conceived and well-capitalized marketing strategy that hits on all cylinders.
Have a Great Story to Tell
In a competitive marketplace where there is an ETF for nearly every asset class, region, strategy, and sector of the global economy, a new ETF may never make it to post-launch if it is unremarkable. If the targeted space is too crowded or too competitive, a new fund will never garner enough attention.
However, if your fund is an innovation, you have a story that is more likely to get the attention of platforms, advisors, and investors. For example, fixed income, especially global fixed income, smart beta, and ESG still make up a relatively small portion of ETF assets. The danger is, if your new strategy is too innovative, it could be too complex, making it difficult for advisors to explain to their clients.
Hone Your Message
Even with a good story to tell, the standard messaging for most fund managers typically leads with who they are and what they know about investing. While important, it’s just table stakes. The most successful ETF launches come out with strong, concise and compelling narratives that demonstrate their understanding of the needs and concerns of their target audience. Your messaging about the fund product and your firm is crucial if you’re going to get noticed.
Get Your Message Out
Contrary to the age-old saying, you may build a better mousetrap but, if the world doesn’t know about it and why it’s better, they won’t be beating down your door. Getting your message to your target audience is more difficult today because your audience controls the interaction – they determine what messages to receive, how to receive them, and when or if they will respond.
To cut through the noise, firms need a proactive sales process. Make the case to the platforms that your ETF is valuable to their clients. Then communicate why aggressive through wholesaling or national accounts. You can also focus on marketing communications.
Convert the messaging into strong content and push it out through multiple digital and news channels. With the right tools and processes, that content can be repurposed to create multiple touchpoints with a target audience as possible.
And, with the advent of marketing automation, the content can be tailored based on the type and level of engagement of your audience so your prospects and clients can be tracked and the messaging honed to their interests and preferences. As their level of engagement increases, you have a well-qualified prospect ready to talk.
Don’t Launch Without a Post-Launch Strategy
In the ETF market place, the days of “if you build it, they will come” are long gone. In the current environment, even the very best ideas won’t sell themselves. While the SEC rule change can make it easier to launch new funds, firms must put as much, if not more, time and effort in their post-launch strategy to push and pull their new fund into acceptance and sustainability.
Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs. Click to read Dan’s latest Insight articles and to schedule a complimentary consultation.