But then the pricing structure was something that was really our focus when we started the firm. It seemed like the traditional assets under management fee structure didn’t reflect the actual work that was involved in doing the kind of work that we do.
And the truth is, it doesn't take any more work for us to manage a $1 million account than a $100,000 account, so it didn't make sense to have a vast difference in the fees that were charged to the clients. We came up with the flat fee pricing, and we've gotten tremendous response from the advisor community.
ETF.com: What have you learned about the advisory space in this first year—biggest advisor needs, biggest challenges? Anything surprising?
MacKillop: I haven't really experienced any surprises, but it’s mainly been confirmation of what we originally thought when we set out to do this. We made an adjustment in our pricing. Our original pricing when we started out a year ago was a capped-fee approach—we charged 0.50% up to a $300,000 account, and then we capped it at $1,500.
We found people were interested in that business model, but it wasn't compelling enough to get them excited enough to work with us. Moving to the $500 flat fee really generated a lot of enthusiasm. We learned that the simplicity and transparency of a flat-fee model was a powerful factor in attracting advisors to the firm.
We also learned that combining active and passive management styles, while focusing on keeping costs low, was very appealing to advisors. There aren’t many asset managers doing this, using passive ETFs with very low expense ratios along with some active mutual funds.
And I would say that—and this is something I didn’t really expect—there were a lot of people who liked our pricing model, but they were focused on a passive strategy. They didn't like the combination of active and passive management, which is what led us to create our ETFs-only portfolios.
ETF.com: When it comes to choosing between an ETF and a mutual fund, in what instances is a mutual fund a better choice than an ETF?
MacKillop: Our portfolios that use both mutual funds and ETFs start as all-ETF. We use a core satellite approach, and the core is all ETFs. That's our starting place, where, if we have no strong opinions, or if we don't find a skilled manager somewhere, we'll go all ETFs. That’s because ETFs are so efficient, so low cost and we can get the broad diversification that we want at a very, very low price.