Pacer Exploits Its Edges

September 16, 2019

ETF.com: Would you talk about that distribution model a little bit?

O’Hara: We are a heavily wholesaler-based model here. We have 33 external wholesalers. The plan is to move that number up to about 44 by the end of the year.

We break the world into two component parts today: what we would call the member firms (the Merrill, Morgan, Wells, UBS, Raymond James, the big member firms, as an example), and then sort of the rest of the world (which would be your big independent firms, your Ceteras, your Advisor Group, your Cambridge, your Commonwealth). And then in that group, also the pure breakaway RIAs of the world.

And then we do a lot of marketing. We do email marketing, social media. We do a lot of print. We do TV and other media. The bulk of what we do is focused on how do we gather more assets and how do we help people understand more clearly what it is we're trying to do with our ETFs and where they fit in client portfolios and who they're good for and who gets the most benefit out of that.

ETF.com: What kind of barriers to entry did the firm face when it launched its first ETF?
O’Hara: Well, we got lucky in that when RBS decided to exit the ETN [exchange-traded note] business, we were able to acquire a lot of the intellectual property that went with that business and build ETFs off of that intellectual property. The Trendpilot indexes in their original form came from RBS. We tweaked it just a little to make it a little bit better, having been dealing with it for about five years.

We were able to get a quick start with assets because we moved a decent amount of the RBS business. That was a very fortunate occurrence. We’d put a lot of effort into helping RBS get in the business, and so we had the sales force behind that. That was a big advantage for us.

One of the biggest obstacles you face as a newer ETF company is access to distribution. And then we face all of the other things that new ETF companies face, like you don't have a lot of assets to begin with in a product. Even though it's a great idea, people don't want to take a big bet on it, so they might give you a little money and wait for it to get bigger.

Every step of the way, it gets a little bit easier, because you get a little bit bigger in terms of the assets in the firm, which means that advisors can make a little bigger allocation to it or feel comfortable that they can make a little bigger allocation to it. It's a tough business.

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