I feel Ben Warwick’s article “Build Your Own” (November 2005) oversimplified starting a mutual fund by utilizing service providers. Picking the right service provider for a fund is crucial to the fund’s success.
Service providers can be categorized into three broad criteria: “Bronze” provides minimal services, “Silver,” the next step up, and “Gold” provide a full soup-to-nuts handholding type of service. The three most common ways they bill are an annual asset-based fee, a base fee plus an annual asset-base fee, and a base fee plus a tiered annual asset-based fee. Bronze to Gold fees may start at $10 per account for a transfer agent and go as high as (or higher than) $100.
Other things to consider: Do they offer the services your customer expects? Will you be able to reach out and educate everybody who answers phones about your fund? Can they handle your call volume? Is their software proprietary (which could cause problems if you need to transfer providers)? Is your fund established under their series or does it stand alone? What are the repercussions of leaving a service provide? What do references (those who have left the service provider) say about them? The list goes on.
I recommend finding a balance between cost and the group you most trust. This intangible is important since you will be working with these people daily. When the pieces feel right, it makes for a stronger enterprise.
Start a Successful Mutual Fund
Size Counts, But It’s Not The Only Measure
Thank you for Angie Herbers’s recent article “Wising Up” (The Fast Track, November, 2005). I had gotten very tired of being constantly told that growing revenues and firm size was the only way to be successful. This message is constantly hammered out from Moss Adams, Mark Hurley, all industry publications, and even Charles Schwab.
Your comment, “They have a vision, are good at their trade, and want to provide service in the way they believe it should be done,” is 100% spot on.