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Monday, August 17, 2020

A Survival Guide for Asset Management
Guest Column by: Arnold Reichman

The financial services industry has not been immune to the effects of the COVID-19 pandemic, nor the economic fallout that has resulted from it over the past several months. The current environment is just the latest variable in the evolution of asset management. For many firms looking to survive, outsourcing will be critical, especially for boutique investment advisors looking to scale their businesses.

Arnold M. Reichman
The RBB Fund, Inc.
COVID-19 has made us all re-evaluate our lives, including how we conduct business. Asset managers are looking at all opportunities they can to increase efficiency and reduce costs, while also keeping the same high-quality service for their investors.

In this highly competitive environment, most managers I know would rather spend their time evaluating companies and markets than worrying about compliance or fund governance. Utilization of a series trust, originally designed for start-ups, is now being considered by larger, more-established mutual fund firms looking to simplify. This makes a lot of sense, especially in the current economic climate. As shared in this recent piece in FundFire, asset managers are looking to cut costs any way they can right now.

According to data from Morningstar, mutual fund flows for active equity managers have been negative for the past 5 years, creating massive pressure on expense ratios and the money managers who support them. This trend looks likely to continue, with no end in sight. For many advisors, a stand-alone trust no longer makes sense, and reorganizing under an umbrella trust is a win-win for both the advisors and their shareholders. Shareholders often benefit from a reduction in fund operating expenses, while advisors benefit by alleviating their expense cap obligations. Additionally, advisors can reduce resources needed to support stand-alone trust operations. In my experience, these savings can exceed $500k per year, and sometimes move into seven-figures!

The popularity of exchange traded funds (ETFs) continues to develop, and actively-managed ETFs, in particular, appear poised to emerge into the mainstream with the recent approvals by the SEC. Active managers are highly intrigued by these structures due to the desirable characteristics they offer shareholders. Many of these managers are looking for established, affordable platforms that provide the experience, knowledge, and education needed to bring products to market. A series trust is a great way to access all three.

Here are a few time-intensive and/or high cost responsibilities that a series trust solves for:


A fund's compliance with the Investment Company Act of 1940 and other regulations takes careful analysis, planning and diligence to stay abreast of all the most recent guidance. Furthermore, the Chief Compliance Officer ("CCO") function is critical in the oversight of a fund's service providers, including but not limited to the fund’s accountant, custodian, transfer agent, distributor, and principal underwriter. Outsourcing compliance is one of the simplest ways to streamline costs and gain access to experienced and capable professionals. It often provides a high level of compliance expertise at a fraction of the cost.

Costs – D&O, Insurance, Legal, Service Providers

Size does matter. Leveraging the economies of scale and sharing the fixed costs across a platform is an easy concept to understand. The more funds and AUM, the cheaper everyone’s contribution would be. However, the savings do not stop there. Like a union, there is power in sticking together — larger trusts can often negotiate better rates from various service providers than can ordinarily be obtained by advisors on their own. This can be an automatic cost-saver for firms of all sizes, but for shareholders of boutique firms in particular, this can save material amounts of operating expenses — which often times flow through to advisors who can then re-allocate such resources for growth and money-making endeavors.

Auditing/Financial Reporting

Going through an audit process and preparing financials is extremely tedious and time-consuming. When managed in-house, because of their importance, these tasks can many times be a distraction and can completely de-rail operations, workflow, and growth initiatives. Offloading these non-revenue generating tasks can free up human capital, budget and time needed to execute the revenue-generating aspects of an advisor's business, which include expanding sales & marketing efforts, hiring more analysts, delivering superior returns, and any number of other growth-oriented actions, instead of spending resources on areas that can be done more efficiently and for less cost.

Adaptation is the key to survival. It is true in nature, and it is true in business. Today, more than ever, we all need to adapt. This includes adapting to the effects of COVID-19; adapting to the changing cultures and climates; and adapting to our changing industry.

Arnold M. Reichman is chairman of the RBB Fund, Inc., a registered open-end investment company organized as a series trust. RBB oversees approximately $15 billion in assets, supporting nine unaffiliated investment advisors and more than 30 funds (including both ETFs and traditional mutual funds). 

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