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Choosing Your Battles, Wisely

by Mike Trapanese

Pop quiz: what do Merrill Lynch, Morgan Stanley, Wachovia, UBS, Smith Barney, LPL, and Raymond James all have in common? (Besides national networks of high production advisors, of course).

Answer: They're all on your list of '08 focus firms. You and everyone else.

It is no surprise that this is the case for large, well-entrenched asset management shops. What's perplexing, however, is that this focus defines the industry all the way down to its smallest participants.

In the investment management profession, we often see smaller shops establish a niche by developing focused expertise. Examples that come to mind are Matthew's, Domini, Diamond Hill, and Nuveen (the manager, not the distributor). In the investment business, however, it is far more rare to see a distribution team carve out a niche within a major market segment.

Most distributors cover the national grid, however sparsely, and treat the biggest distribution partners by assets as the biggest opportunities. This is fair on paper. But given the history and stiffness of the competition, it may not make sense for a relatively young, relatively small firm.

Imagine this: a $10 billion mutual fund shop with a 5-man hybrid schmeek team focusing on the largest RIAs in the Southwest. Here's a less far-fetched hypothetical: a traditional wholesaling force that goes very deep with only Merrill and LPL. Or maybe ML, LPL, and the two largest regional brokers in each major geographic region.

The strategy should clearly vary from firm to firm based on size, approach, and existing relationships. But the question is a pertinent one for any distribution team that feels outgunned by powerhouses like American Funds, Franklin Templeton, and MFS: if everyone's focus list looks eerily similar, doesn't that leave a host of niche-building opportunities on the table?

Sometimes you've just got to let the big dogs eat-- but that doesn't mean you have to starve.