A Question Of Size, Style
One of our greatest challenges was estimating the initial amount of assets that we would be able to place into the fund. Our research showed that anything less than $15 million to $20 million was problematic. All service providers have minimums that they charge for administration, custody, legal, etc. The fund could absorb all of those fees, but the expense ratio for a fund with under $20 million in assets would be exorbitant and no sane investor would buy the fund. Therefore, our firm would have to waive any fees over a completive amount. We wanted to keep the fund expense ratio under 2%. Forecasting the initial net assets, as well as the quarterly and annual expected growth at various expense levels over many years, required quite a few Excel spreadsheet "what if" iterations. In the end, we decided the fund needed to exceed $20 million in assets.

Another important factor to consider for managing a successful fund is finding a viable investment strategy. It takes three years of performance just to get your first star rating from Morningstar. Having a proven, consistent investment process is key. Our advisory firm has managed a conservative, long-term, absolute-return strategy for the last 10 years that has never had a down year and averaged around 6% net annually. This strategy-which emphasizes low-risk, long-term growth through income and capital appreciation-is the same one we are using in our mutual fund.  The fund's conservative growth objective and absolute return focus, which strives for positive returns regardless of market conditions, is designed to meet the needs of today's investors, especially baby boomers who are nearing retirement. Their accumulation years are winding down. They will need some growth over a hopefully long retirement, but do not want to carry the type of risk that could expose them to a collapse like the one in 2008. By catering to this group of investors, we felt the fund could be a success.

There were other start-up ramifications we had to consider, such as severing a valued, long-term relationship with our broker-dealer. We had been a hybrid fee and commission firm. The commission slice of our advisory revenue has historically been minimal, but we always wanted to be able to offer our clients variable products with which we were comfortable, when needed. As required by Finra, the broker-dealer supervised our fee-based advisory practice as well as the commission business that flowed through them. In our discussions with them regarding establishing our own 40 Act fund, they informed us that they would not want to expose themselves to the additional burden of supervising the fund. Eventually, we concluded that we would need to forgo our commission revenue in order to open the fund and become a fee-only RIA.

Impact On Employees
One of our greatest concerns entering this endeavor was how the additional workload would impact our employees. Mutual fund administration, including daily reconciliation and reports, is an entirely different ballgame than what goes on in an advisory practice. A mutual fund "shareholder" has many different characteristics than an advisory practice "client." They have differing wants and needs. Who in our organization would now receive shareholder phone calls? What information would be needed to answer shareholder questions? We needed to work through how we would adjust our processes, decide on any new hires, and train our employees to successfully manage the new duties.

Also, we had to consider what new compliance requirements to expect. Because of our broker-dealer relationship, we were already very familiar with Finra rules and regulations and had them built into our procedures. Yet we knew that a mutual fund has its own regulations and we needed to learn what they were and how to administer them properly. We did make mistakes along the way. For example, because of an error that was caught by our compliance officer, we had to revise our first quarter fund fact sheet to remove our Morningstar ranking. We did not know that a fund needed to be in place for a year before rankings could be published.

Because we wanted to make our fund available to broker-dealer networks as well as advisors and retail investors, we filed our fund with a loaded Class A share structure. We waived the load if the fund was purchased on a platform, such as the ones offered by Fidelity or Schwab. This would provide for commissions for registered representatives as well as NAV purchases for advisors and retail shareholders. However, we found that many prospects did not take the time to get past the load information and remained unaware of the waiver. It was an oversight that probably cost us some business. We have since re-filed with the SEC as a no-load fund.  

Getting The Word Out
Since the fund launched, our greatest challenge has been and will continue to be marketing. We knew at the outset that our marketing chief had to have a good ability to develop and maintain relationships, with an eye for identifying opportunities quickly and a talent for being creative and resourceful in capitalizing on them. We found someone in-house to take on the role: Melissa Jordan, who has served the firm in client relations and marketing for more than 10 years.

Through trial and error, we have learned that the best way to spread the word about mutual funds is very similar to how you spread the word about your business in general. The process starts with making sure your clients know about the fund and understand the value it brings to a portfolio. It also helps to build relationships with strategic partners who have already gone through this process so they can almost serve as mentors.

I also found it valuable to build relationships with business development officers and relationship managers in the industry who act as gatekeepers for RIAs who value strategies such as ours.

Building relationships with the various platforms, such as Schwab, Fidelity and Pershing, is also very important to ensure we are taking advantage of all of the opportunities available to make GAMTX more visible. These opportunities range from access to platform databases that open up your fund to a large viewership of advisors to invitations to key events and conferences whose audiences are your target market.