Succeeding as a Boutique Investment
Management Company
By Dennis Clark, Managing Director at Shelton Capital Management
“It don’t come easy
You know it don’t come easy
Got to pay your dues if you wanna sing the blues
And you know it don’t come easy”
Ringo Starr (1971)
Making a good living as a boutique or emerging asset manager is tough these days. A select few gigantic players dominate the mutual fund business, and the cost of finding new fund investors is at an all-time high.
The ten largest traditional asset managers control 42.5% of global mutual fund assets, a figure business consultant PwC expects to hit 50% by 2027 while one in six asset managers disappears in the same time period. These dire predictions of further consolidation among mid-sized firms and the outright extinction of smaller ones are due to the high cost of distribution, shrinking margins, and the continued trend of flows into index products offered in low-cost ETFs.
However, what I have learned to appreciate in just the last ten years working for a smaller asset management firm is that sustainable alpha is more achievable in smaller funds than in the mega-funds managed by the largest asset managers. And after working with financial advisors for over 35 years, what’s clear is that many high-net-worth clients value advisors who seek to identify “alpha generators” for some portion of their portfolio. So, how can a boutique money management firm defy the odds and live out the David vs. Goliath legend?
My experience tells me there is no silver bullet or big check to write as a shortcut to success. You must do several things very well over an extended period of time. Here are four steps boutique managers can take to overcome seemingly insurmountable challenges:
Foster a growth culture.
Success starts with culture which, of course, starts at the top. A growth mindset in the C-Suite means accepting low or no margins, making smart acquisitions, and leading by example to instill a growth culture throughout the firm. If an asset management firm isn’t focused on growth, it will be stuck treading water. Every position, whether a Portfolio Manager or Client Service professional, should embrace the opportunity to sell firm capabilities. When everyone is working together, the boutique asset manager can “punch above its weight” and make enormous strides to stay ahead of the competition.
You must offer quality products delivered alongside authentic service.
Quality products are table stakes when beginning a conversation with a financial advisor, a public pension plan, or a 401(k) Plan Sponsor. Without compelling investment solutions, a financial advisor simply does not have the time to evaluate your product/service, thus keeping the door open for the next manager in line.
To complement quality products, boutique asset managers must offer authentic client service, such as having real people answer the phone and providing white-glove service to clients. Human service with no phone trees is actually a competitive advantage vis-a-vis the largest of players. In addition, providing clients with access to Portfolio Managers is an effective differentiator among asset managers.
You must have a professional Business Development team.
If you have identified intermediaries such as consultants, independent advisors, or captive advisor networks as a target market, you need to invest in quality business development professionals. An asset manager can have the best products in the business but may gain no traction without a professional distribution team because even the best products don’t sell themselves.
To recruit, onboard, and manage a high performing team is no small task and it’s not cheap. The best wholesalers will find ways of adding value to an advisor’s business and will act as a brand ambassador for your firm. The old adage “this is a relationship business” has never been more true as a means to differentiate your offering from your competitors. Devising an incentive compensation plan that motivates and rewards results is also key to making sure your investment in a sales force pays off.
You must employ marketing professionals who know how to leverage technology.
Digital marketing is a crucial component of today’s sales cycle. Digital marketing can fill the contact gaps which the distribution team cannot. While this may not have been true 20 years ago, we now live in a digital world where advisors and investors gain and retain information from digital sources. A digital marketing team that utilizes technology helps the sales organization maintain contact with a prospective client from the first contact through the life of the account. A high-performing team allows sales and marketing to work “hand in glove” and break down siloed departments to build a more integrated, efficient, and adaptable sales and marketing structure.
It can be a tough environment for boutique asset managers, and with constant competition, it’s no wonder PwC projects such a desolate landscape by 2027. Managers can take several steps to success and beat “the bigs.” But to paraphrase Ringo, success in an industry dominated by ten firms “don’t come easy. You know it don’t come easy.”
Dennis Clark is Managing Director at Shelton Capital Management. Mr. Clark is an industry veteran of 35 years and has held senior positions across the asset management industry.
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