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So You Think You’re Ready to Invest for Other Advisors

By Chris Latham January 14, 2014

In a roundabout way, the financial crisis helped Mitch Eichen expand beyond traditional wealth management and into subadvising for his peers.

The Morristown, N.J.-based founder of MDE Group says his team’s search for investment strategies to protect individuals against catastrophic losses led to the creation in 2010 of Acertus Capital Management. The new firm, which manages $500 million, became a subadvisor for MDE Group, which manages $1.5 billion.

Nearly a quarter of Acertus’s assets under management come from outside advisors. To attract institutional business it helps to get on trusted third-party platforms. As a result of subadvising for Hatteras Funds, Acertus strategies are available on investment platforms like those of Fidelity Investments, TD Ameritrade and Bank of New York Mellon’s Pershing — with Schwab in the wings. On its own, Acertus isn’t “a sales-driven organization,” Eichen says. So it needs "to partner with somebody” to get their strategies in the marketplace.

It can also help to focus on market niches, like insurance agents who want to beef up their investment offerings. Experts say this can be a good entrée to institutional business, especially if the firm is careful to keep the marketing compliant and make sure all private clients continue to receive an appropriate standard of care.

Meanwhile, word of mouth seems to be getting the job done for GL Capital Partners, a year-old offshoot of GL Advisor. Its parent company, Waltham, Mass.-based Graduate Leverage, manages $124 million. So far most of the company’s business is retail, but founder Dan Thibeault expects that to change soon.

GL Capital Partners, which recently hired a manager from BlackRock, offers two mutual funds and several managed accounts to institutional clients, mainly RIAs. In the last six months these strategies have made it onto several major trading platforms. “We met with these firms and made pitches,” says Thibeault, whose firm dedicates relatively little time to marketing. In aid of one such pitch, GL Capital Partners had some of its clients provide testimonials that “went a long way” to helping it win the mandate, he adds.

In addition to good returns, Thibeault says GL Capital Partners’ competitive advantage comes from a service gap that allows it to make headway with other RIAs.

Drew Horter has owned advice firms since 1991, but it wasn’t until he switched from buy-and-hold to tactical strategies after the financial crisis that he started letting other advisors with insurance licenses tap into his investing acumen. Cincinnati, Ohio-based Horter Investment Management oversees $700 million. About 90% of that is spread across more than 200 external advisors, whom Horter trains. While his firm has about 350 retail-channel clients, he figures future growth will be through referrals to financial planners at regional insurance firms.

Drew Horter

Some firms, like Delta Investment Management in San Francisco, get institutional business without trying too hard. In addition to private clients, the $40 million firm has institutional customers for which it either subadvises directly or picks subadvisors, says cofounder Nick Atkeson. One RIA client specializes in insurance, another puts its stock in managed futures trading. These firms may have come to Delta through any combination of its founders’ marketing efforts — convention presentations, an investing book or its free online newsletter.

“We’re not aggressively pursuing the RIA channel,” Atkeson says. “But they can always open a small account and then expand. That’s what’s happened with the RIAs we have now.”