Standing Out In The ETF Crowd

Jillian DelSignore is managing director and head of advisor sales at FLX Distribution. She has a depth of experience in the ETF industry and with helping clients understand the ETF ecosystem.

With ETFs coming to market at a record pace against a backdrop that has shifted how people work together, DelSignore shared her thoughts on important considerations for launching and distributing a new ETF no matter the size of the brand.

The following transcript has been edited for clarity and brevity.

ETF.com: Last year was a record one for ETF launches, and we've seen issuers of all sizes come to market. If someone’s thinking about launching a new ETF, what’s important for them to consider when it comes to distribution?

Jillian DelSignore: They have to understand, first and foremost, the ETF distribution landscape. Although these are publicly traded equities, there will be what I refer to as the “access challenge.”

What that means is that when you launch an ETF, regardless of the seed capital, there are specific onboarding requirements that the majority of the intermediaries require for placement on their platform.

Initially, an ETF will be immediately available on the discount brokers at Schwab, Fidelity, Pershing. They need to be aware that that product is going to be available in a very small silo of the market.

The RIA market happens to be one that’s very fragmented and bifurcated. You have these very large firms that feel like institutions, and then you have this long tail [of smaller firms] that you can be talking to digitally and virtually.

Understanding your product and its viability to different advisor types is important. I have a client currently at FLX. They're not [offering] an ETF; they're [offering] a separate account. And they’ve said, “What if we take our separate account—it's a dividend strategy—and make it an ETF?”

I said there are some things you really should think about. No. 1, the dividend ETF category could not be more crowded. You may be the most differentiated SMA in the world, but you really need to understand where you're going to sit and where you're going to fit relative to the other competitors in that space before you consider this.

No. 2, those advisors you work with on the SMA side—where do they work? They told me Wells Fargo. Well, that ETF isn’t going to be available at Wells Fargo anytime soon, so they need to have a path to scale through other avenues.

That’s an example of someone whom I don't want to deter, but I want them to go in with their eyes wide open. It’s understanding the journey to availability and the access challenge that’s important.

The other thing is, having a true differentiator—how are you different? There were over 70 new ETF brands that came into the market in 2021 and over 400 new products. How are you different from those products? And are you a known brand? Probably not.

So as much as folks don't want to hear it, the beginning of the distribution life cycle should be digital. It should be brand awareness. You really need to think about what you're going to do from that brand-building perspective at the onset.

How are you going to market? How are you going to advertise? How are you going to get your name in front of the masses, that long tail that I mentioned of RIAs and some of the independent broker/dealers that have low barriers?

The other thing I'll say would be distribution isn’t just about human capital. The early parts of the distribution phase actually have very little to do with a national salesperson.

What you need to be successful in distribution is not just a person or people. You need a tech stack around them. You need access to data to be more targeted. You need marketing. You need video. You need PR. You need all of these things that make a holistic distribution strategy in order to be successful.

And the seed capital does matter. If they're coming to market with $1 million versus $50 million, that makes a difference. But very few are coming with that latter amount.

ETF.com: You touched on this in your response, but can you talk about the differences in how large versus small issuers should be approaching distribution?

DelSignore: That access challenge exists whether you’re a boutique or whether you’re a $50 billion mutual fund manager coming to market.

[The larger manager] may have a broader relationship with a particular home office that gives them a bit of an advantage. But largely speaking, those onboarding requirements are there. If you're an active ETF, the bar is even higher.

The distribution challenges those firms face don't go away. The challenge these larger asset managers face is, how do you find the mindshare of the salespeople for this new business venture?

You have folks who’ve been selling mutual funds or separate accounts, and now they're launching ETFs. There's a learning curve. There are products that need to be learned, the competitors that need to be learned. This is a vehicle they're not used to selling. So not only is it a new vehicle, it’s a competing priority.

I think finding the right model—specialist or just educating your generalist—that's the thing these larger firms that are coming in with multiple vehicles are trying to figure out.

Now if you're converting or you're cloning, there’s less of a hurdle because it's the same product, but it's still a bit of a mind shift. There's a behavioral component to it that I think goes underappreciated sometimes.

ETF.com: In one of the pieces that you've written for ETF.com, you've discussed how the pandemic has shifted distribution. You wrote that piece almost two years ago, and here we are, still dealing with the pandemic. How have you continued to see the distribution landscape change?

DelSignore: COVID didn't cause this shift; it accelerated the shift that was already coming. We existed in a market where advisors want to buy when they want, what they want, how they want. I still believe that many ETFs are sold, not bought. But they’re sold in different ways now.

The days of being able to be face to face physically with an advisor are largely gone. In thinking about conversations that my teams [have] at all the different organizations and certainly as a salesperson myself, it was so much more about portfolio construction and education and resources and business-building. I think that's what becomes critically important, especially for some of these new issuers—what's the value?

So that's really what's continued to evolve. I participated in a study with some industry colleagues over at Blackwater Search when we interviewed over 30 heads of distribution from ETF issuers. And that was one of the things they talked about—the resources you're providing, the education you're providing to advisors. They're picking fewer and fewer partners that they want to work with. And they're looking to those partners for more.

This is not something that was created by COVID; it was something that was accelerated by COVID. And I think it's going to continue.

ETF.com: Are there any other influences you see shifting things from a distribution standpoint going forward?

DelSignore: The volume of product that's coming to market [creates] this need for scale to be competitive. Those barriers have come down so far and it's great. The ETF Rule, semitransparent rules, all of that is just adding to the innovation that we're seeing. I always thought the ETF industry was the corner of asset management where innovation went to thrive. I think that will continue.

Competition has gone up, and the distribution challenge has been exacerbated because of that. The need for scale to be competitive has gone up—finding that scale, synthetic or otherwise, to truly compete in a distribution landscape in an industry that has changed so rapidly.