Aim Past the Board

Platform fees, ETFs, and connecting with end-clients

My father loved Tae Kwon Do. He became a 5th degree black belt, maybe even a 6th. Every single weekend he went to those karate classes, and every weekend throughout my childhood I came up with a new excuse not to join him.

Now that he is gone I wish more than anything that I had just gone with him to those fucking karate classes. But I digress.

Dad

I did manage to join him for a year here and a year there, and while I didn’t love karate, I hated boards. Hated them! Breaking boards was so much fun. And there was this one lesson on board-breaking that I still remember: don’t punch at the board, punch through it.

If you aim for the board itself your body will slow at the point of impact, just when it should be accelerating. Imagine the target a foot or two behind the board, aim for that. Aim past the board.

There’s been a lot of industry talk about platform fees and brokerage platforms squeezing independent asset managers. It is wild to see fully mature corporations with revenues north of $10 Billion actively working to deny a seat at the table to firms with revenues south of $10 Million, but that is what is happening.

Small business owners have long been unwelcome in the industry of asset management, the only thing that’s changed is the level of hubris with which the largest companies have become willing to punch down. Alas, this is the business we’ve chosen.

This is the business we’ve chosen, Michael.

Asset management works best at scale, and the success of small managers puts no money into a brokerage platform’s pockets. If their clients don’t care, why should they?

And that gets to the heart of the situation. The platforms are there to serve their own clients.

Punching at the brokerage is punching at the board, not through the board.

Ben Hunt explained the situation perfectly, over five years ago:

Put more directly, I mean that you need to get closer to the end client – whoever is spending the money that drives your business ecosystem – even if that means getting farther away from developing the products or services that your business ecosystem is known for. 

This is particularly true for the financial services ecosystem, which has been totally wrecked by financial asset inflation, a tide that lifts all boats and squeezes all margins regardless of skill or smarts.

If you want to have any pricing power at all, if you want platform access, if you want a seat at the table, all you need is for the end clients to demand it.

Easier said than done.

But also, worth the effort.

An asset management firm without a strong identity, without a unique ethos, and without a rallying cry, is… what exactly? A collection of spreadsheets with tickers and weights on them? If funds are being commoditized it’s not without reason.

As Marty Neumeier said, and as Doomberg explained to me on the best podcast episode I’ve ever recorded: a brand is not what you say it is. It’s what they say it is.

A brand is not what you say it is. It’s what they say it is.

What do your customers say about your brand? Would they call platforms to demand access to your funds? Do they care that much? Have you given them a reason to care?

Again, what is your rallying cry?

Every business has to make a trade off, prioritizing the short-term, or the long-term. This comes up constantly. For me at Armada, fighting with platforms for access that nobody cares about, to push retail advisors for a a few million in AUM, that is fighting for the short-term.

Mastering advanced AI/ML techniques to mine for unique sector-specific factors while building an audience with a rallying cry, an audience that will demand to work with us, to me that is fighting for the long-term.

Our ETFs will have access granted when we are ready, which is when our end-users are demanding it. That’s a lofty goal, and it’s a goal we are embracing. Until then, our focus is on building the leading protectable intellectual property and leading with technology to better understand the one little sector we’ve dedicated ourselves to, and continuing to build our institutional client base which is gaining momentum.

Those are goals worthy of our time and attention. That is a fight worth fighting.

We are aiming through the board, not at it.