Sorry, Fundsters: Fees and Wholesalers Don't Sway RIAs
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Thursday, September 07, 2017

Sorry, Fundsters: Fees and Wholesalers Don't Sway RIAs

Low-cost funds are on the march and distribution is more important than ever, yet fees and wholesalers may not be the solution to all your RIA channel distribution woes, at least for active U.S. equity mutual funds. So suggests new research from Advisor Perspectives.

Drawing from its 17,000-member online community, APViewpoint, the publication just issued its first research, an 80-page report. They put together an online focus group with advisors from 30 large RIAs, all with at least $250 million in firm assets and at least a 10-percent allocation to actively-managed U.S. equities. The people in the focus group are all involved in their firms' selection and monitoring of such funds.

Only 6.7 percent of respondents described fees as the "key determinant" when pick active U.S. equity funds, compared to 43.3 percent who pointed to performance and 13.3 percent who pointed to volatility and risk.

"Advisors are relatively insensitive to expenses on those funds," Bob Huebscher, CEO of Advisor Perspectives, tells MFWire. "It's unlikely that it's going to pay to reduce expenses."

Firms that do have low expense ratios should naturally play that up in their marketing, Huebscher says, but other firms should instead push the importance of performance (which is net of fees) and should only consider cutting fees if they're way outside the norm.

And for firms looking to ramp up their field salesforce to boost distribution, Advisor Perspectives has some sobering findings. 70 percent of RIAs in the focus group said that fund firms' wholesalers have very little or no influence at all on their selection of active U.S. equity funds. Even worse, 46.7% percent of RIAs actually reacted negatively to contact from wholesalers, usually to emails or phone calls.

The full report digs into a host of other details and shows various responses (including direct quotes) from the RIAs in the focus group. Going forward, Advisor Perspectives will be doing more research (all available in full to those asset managers who sponsor the publication) on a quarterly basis. And they'll also be doing custom research for fundsters.

"One of the things that we now offer to those fund companies are online focus groups where they can conduct their own research and do their own focus groups on whatever topics that they want," Huebscher says, noting that such results are kept private and only shared with the fund firm sponsoring the research.

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