Practical steps to ensure a consistent client experience.
The last set of considerations for fully vetting an ETF managed-portfolio strategy for a client portfolio involves some numbers, but also a realistic self-assessment. At this point advisors should identify the information needs of both their clients and themselves.
Nearly all of the assets in ETF managed portfolios reside in separately managed accounts, and this structure has significant differences in potential information flow, as well as investor experiences, compared with regulated vehicles such as open-end or closed-end funds.
The Double-Edged Sword of Transparency
Managed accounts accessed through an RIA or other financial professional have greater leeway on information disclosure compared with funds. In some ways, they're more transparent than funds. For example, clients have continuous access to their investment accounts, giving both the advisor and client a real-time look at any changes the asset manager makes in both individual ETF and asset-class exposures. This transparency, however, could become a nightmare for advisors if clients were to demand monthly (or even weekly) trading or investment rationale. As a result, the advisor must consider the realistic client demands for information and justification for changes in the portfolio and determine whether the strategy support is available for a long-term fit for an overall portfolio plan.
A discussion around "distribution" usually gravitates toward the platforms, channels, and gatekeepers an ETF managed portfolio firm should focus on to gather or retain assets. The advisor should partner with an ETF managed portfolio strategist that provides enough communication and access to the supporting intellectual capital to satisfy the advisor's clients. Advisors will find that the level, depth, and frequency of information vary greatly among firms. Specific communication points to evaluate include:
Platform Support--For advisors using an affiliated platform, consider how much support of this strategy is likely to garner relative to other offerings. Is the strategy gaining assets on the platform? Are there dedicated analysts available to discuss performance and use in a portfolio? Will the platform provide asset-allocation guidance to help advisors determine an appropriate allocation to this strategy? Does the platform provide access to the manager through webinars, forums, or conference calls? Answers to these questions will set proper expectations on what support will be available outside of the advisor's own research process and how well-equipped the advisor will be to answer client questions.
Direct Manager Access--Understand the volume, transparency, and frequency of manager communications to clients. For example, Nottingham Advisors and Stringer Asset Management produce weekly market commentary and summary technical statistics. Others, such as Windhaven, focus on fewer, in-depth pieces around major portfolio rebalances and market themes. Some firms will also host open analyst-type calls for advisors and answer direct questions on their strategies, positioning, and rationale for recent portfolio changes. This level of depth or volume may be too much for some, too little for others. But advisors must have a clear expectation for them (and their clients) about what intelligence they will receive and when on the portfolios. Trade blotters or posts may come a day or two after a rebalance, or not at all, and will land somewhere between technical portfolio insight and broader, thematic changes in the market.
Market Commentary and Perspectives--In a relative vein, some firms will also comment on market trends, economic policies, and other aspects of the broader financial ecosystem. Considering that many strategies can be used as holistic, one-stop offerings, understanding the psyche and philosophy on related market aspects could help set proper expectations for clients and provide an additional source of insight beyond the advisor's own analysis.
Ultimately, advisors should be assured that they'll have the tools to confidently discuss changes in one or more ETF managed portfolio strategy holdings and manage their clients' expectations.