FLX Distribution provides a platform to help connect asset managers, wealth managers and advisors. For those that are unfamiliar, can you share the story of FLX and how your decade-plus of experience navigating ETF distribution led to your involvement?

FLX Distribution offers ETF issuers a modular approach to distribution strategy providing cost-effective and on-demand resources across all aspects of the business. Our technology platform revolutionizes the distribution experience between asset managers, wealth management home offices and advisors by creating a marketplace to provide resources and asset management solutions.

We recognize that distribution is changing. It’s more than just salespeople and needs to be supported by a holistic strategy. We also recognize that not all firms are at the same phase of their lifecycle and therefore don’t need the same levels of distribution support. We meet our managers where they are to provide solutions tailored to their needs and evolve the strategy as they and their needs change.

Personally, after a decade and a half in ETF distribution, I saw a real need for distribution solutions in the ETF industry as the barriers to entry came down in the last few years with the regulatory change. There has been a flood of new product and issuers of all sizes have been unable to effectively build distribution either from lack of resources or lack of focus given competing priorities.

At FLX, we think about distribution sitting at the intersection of tradition and innovation. Meaning, taking the best practices that we have from our many decades of experience across the firm and combining it with a sharing economy to help our clients achieve scale they wouldn’t be able to do on their own. We have also worked across the asset management industry, including with various platforms specific to the ETF industry, to develop strategic partnerships to help better commercialize and support the sales of our clients’ products. Again, showing the distribution is well beyond just the human capital.

There are incredibly innovative ETFs coming to market and as such we have seen huge demand. I’m excited that we can provide such meaningful solutions and help support the growth of the industry.

Active ETFs are on pace for another record year, yet one of the most common topics the NYSE is asked about is building effective distribution. What is the state of play within ETF distribution today and what are the key items a firm should focus on to build an effective distribution strategy?

ETF distribution is changing. It was happening before COVID but that certainly accelerated the changes.

Distribution is about more than just salespeople. A holistic distribution approach incorporating an integrated media, marketing and digital strategy and understanding the use of technology and data is necessary.

You need to create scale across all aspects of a distribution strategy to compete. I believe that is one reason that FLX become such an important partner to ETF issuers. We help create that scale and our clients see the value, whether a startup or established issuer.

You have to be bringing more than just product and more than just a relationship. Don’t get me wrong, both matter immensely, but support for advisors beyond that is increasingly important.

A key part of the distribution strategy is understanding the buyer and the barriers to those buyers. Will wealth management platforms approve your product given its structure (i.e.: fully vs semi-transparent), what are the criteria for approval, will advisors face a ticket charge if they want to buy my ETF? These are questions that a firm should know the answers to before ever considering a launch.

Can your current distribution team and approach support ETFs if you are launching for the first time? It is important to have ETF DNA inside your firm at least in part – someone who understands the ecosystem and its participants.

And no discussion on distribution would be complete without talking about data. Where do you get it, how much does it cost, how to you use it to make for a better sales experience. The conversation is endless. Let’s just say it is driving distribution and is only getting more important.

In the ETF industry we often say ETFs are sold, not bought. How does this comment pertain to active ETFs and what strategies can an asset manager employ to overcome distribution hurdles?

In the vast majority of cases, ETFs are sold, not bought and that is certainly true in active ETFs. As with active products in general, an asset manager, or ETF issuer in this case, needs to teach advisors about their strategy. What is their investment process, how is it differentiated versus similar strategies, how has it performed and why? Now that is also part of the sales process for index-based ETFs – think strategic beta, thematic or even market cap weighted – as seemingly similar indexes can be quite different under the hood, but it is that much more pronounced in active.

An issuer must also bring more than just product. Having a unique product with great performance is table stakes. Advisors are working with fewer and fewer partners and are looking for more from said partners. How do I use your ETF, where does it fit in my portfolios, what happens to the performance and risk of my portfolio if I add it, what research do you have to support your investment thesis – and so on.

Over the last year the active ETF market has welcomed a series of new structures, including the NYSE Active Proxy Structure, that allow an asset manager to maintain holdings disclosure flexibility and access the benefits of ETFs. How have the distribution platforms responded to these new product structures?

Generally speaking, the wealth management platforms have taken a wait-and-see approach. Many have said publicly that they plan to eventually approve them for use by their advisors but would like to watch them trade, gain track record, etc. While I am not privy to the discussions, I have to imagine the last year plus since the first semi-transparent ETF launched has been filled by a lot of education on the part of the issuers. That education will pivot from the home offices of the platforms to advisors once the products begin to gain approval.

What guidance would you provide sponsors as they consider expanding their product offer to include actively managed ETFs (either fully transparent or semi-transparent)?

There are several considerations that I would put at the top of the list. This is by no means exhaustive, but just some of what an asset manager should think about in making the decision.

Who are your buyers? Can you access those buyers? Meaning, are you relying on particular wealth management platforms that may or may not approve your ETF for use?

How are you raising your first $50 million? This goes hand in hand with the first consideration. A thought-out distribution strategy is critical - not just sales, but PR, media, marketing (digital and otherwise) and technology needed to support all of this.

If you’re an existing asset manager, will your current sales team support the ETF, or will you hire ETF Specialists?

I don’t like to lean on performance but frankly that is why investors buy active products. If the strategy is not gathering assets in a different structure (SMA, mutual fund), just putting it in the ETF wrapper is unlikely to change the tide. Performance must be there.

Competitive landscape – what ETFs are currently available in your asset class and at what cost? What is your differentiator versus those products? You have to bring something beyond just your product to the table for advisors.

Surround yourself with great organizations like the NYSE who can also act as a consultant and connector. The NYSE provides unparalleled support to their listing clients helping them navigate the entire ETF ecosystem and supporting distribution. They understand what all must go in to an ETF launch and ongoing promotion.