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T. Rowe Price plucks an RIA 'pain' expert from Vanguard Group to rethink asset management delivery

With net flows flattish in Baltimore, Michael Park arrives to make sales interactions with RIAs more of a 'dialog'

Wednesday, December 21, 2016 – 6:09 PM by Sarah O’Brien
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Michael Park: We need to ask them questions about their business challenges, their points of pain and their strategic priorities.

Brooke's Note: T. Rowe Price has proven to be skeptical about chasing after trends in mutual fund sales. See: Why only 10% of elite RIAs are receptive to fund wholesalers yet depend on a handful of good ones. Its esteemed name was long synonymous with no-load investing -- namely selling to self-directed investors. And only in recent years did T. Rowe give in to selling funds on Schwab OneSource. See: Schwab and T. Rowe Price finally strike a OneSource deal with help from an ex-Fido exec. But T. Rowe, for all its aura as an old line asset manager, peopled by residents of Roland Park, is not a company with hardened corporate arteries and has a history of making changes when it's darn good and ready. The hire of Michael Park is a humble act. Not only is it hiring somebody away from Vanguard Group, but it is bringing over a guy who was more enmeshed in ETFs and other passive vehicles -- never on T. Rowe's hit parade. Park joins an existing RIA effort at T. Rowe, but one he hopes to make more active by having it interact with the channel of advisors that look to be the future.

In the passive vs. active wars of fund management, one passive soldier has defected to reactivate the enemy camp.

Michael Park, who most recently served as a regional sales manager at The Vanguard Group, focusing on growth in the RIA channel, has joined T. Rowe Price.

The Baltimore mutual fund giant, whose specialty is actively managed funds, hired Park as a vice president and head of its RIA and regional banks segment in its U.S. intermediaries business unit.

The hire comes as investor sentiment, that fickle weather vane, is giving full props to passive choices like index funds and exchange traded funds. See: Yale endowment's performance comes in like a lamb again -- even as David Swensen is lionized in the pages of the NY Times. Chicago-based Morningstar, Inc. data shows that in the first nine months of 2016, $177.2 billion has flowed out of actively managed mutual funds. That compares with $166.2 billion going into passive mutual funds, $160.3 billion into passive ETFs and $4 billion into active ETFs. 

Even T. Rowe is not immune to the trend. While its latest quarterly results showed a 12% year-over-year increase in its assets under management ($812.9 billion vs. $725.5 billion) and its revenue and income are up, its net flows have been largely flat. Its first nine months' of 2016 net inflows of $2.2 billion ride on the tails of a stronger first quarter. In the third quarter, $200 million left T. Rowe’s coffers, and that was on the heels of $2.7 billion shed in the second quarter.

But T. Rowe has another card it has yet to play. In 2013, the company got the SEC nod to offer actively managed, transparent ETFs, and it also is seeking approval for a nontransparent version of same . See: Fleet-footed RIAs storm into the active ETF market as fund giants tie pretzel dough

Although the company is mum about its exact ETF strategy, it appears to intend sticking to its roots of using in-house expertise to actively manage its product lineup.

The company provided a statement that emphasized preservation of the sanctity of formulas and profit margins in existing active funds.

“If we introduce ETFs, our intent would be to offer products that are differentiated from offerings currently in the market and that deliver long-term value to our clients," the company responds to a query from a reporter. "We will not introduce an ETF version of our traditional active mutual funds if the daily disclosure of portfolio holdings could be detrimental to existing shareholders.” See: After Vanguard gains $550-billion ETF lead, Fidelity makes 'rabbit out of the hat' play to regain ground

As for T. Rowe, if it does start offering ETFs, Park’s experience at Vanguard – where a full menu of stock and bond ETFs are used by RIAs -- would surely come in handy and almost flatten his learning curve.  

RIABiz recently chatted with Park, who sold Oppenheimr Funds from 1997-2007 before joining Vanguard, about his new job in Charm City, his plans for expanding T. Rowe’s connection with advisors and his perspective on active and passive investing.

RIABiz: In your new position, what will be your responsibilities and where will you direct your energy? 

Park: My scope of responsibility will include leading our firm’s efforts within the RIA, regional bank, and multifamily office space. Within this role, which is part of our broader U.S. Intermediaries business, I’ll oversee all aspects of strategic direction, sales, and relationship management. The team’s energy will be directed at deepening existing client relationships, uncovering new partnership opportunities, and ensuring that we are meeting the unique needs of our clients with relevant solutions that help them within their businesses.

RIABiz: Is this a newly created position? And how does your position fit into the growth strategy of T. Rowe?

Park: This is an existing role that has been expanded to include leadership responsibilities for regional banks and multifamily offices. T. Rowe Price is extremely committed to growing the partnerships that we have with intermediaries, and we are allocating more resources to the U.S Intermediaries business more broadly, which includes all channels of intermediary distribution.

RIABiz: How does your experience at Vanguard lend itself to your responsibilities at T. Rowe?

Park: Both of these organizations are deeply established investment management firms with exceptional brands, reputations, and long-term track records of investment excellence. My years of experience in working with the RIA community directly have allowed me to learn about many of those investment and business issues that are top-of-mind for clients and prospects. Understanding these unique needs and being able to engage in productive dialog with those that we develop relationships with will help to further strengthen our ability to deliver meaningful solutions.

RIABiz: Vanguard is known for its low-cost, passively managed funds. T. Rowe is known for its low-cost, actively managed funds. Will that difference pose any challenges for you? Are actively managed funds a harder sell to RIAs?

Park: It is widely recognized that active and passive funds can be used effectively in combination with one another in constructing a well-diversified portfolio for clients. Cost has clearly become a more important factor in the investment selection process, and we are committed to continuing to offer low-cost strategies that help to meet the investment needs of RIAs and their clients.

RIABiz: How does T. Rowe as a mutual fund company maintain and capture new market share in the RIA channel?

Park: The industry continues to evolve at a rapid pace. Now, more than ever, we need to listen to our clients. We need to ask them questions, not only about their investment preferences and views on portfolio construction, but also about their business challenges, their points of pain and their strategic priorities. It is our responsibility then to develop and deliver appropriate investment products, services and resources or to connect clients with others in the industry who might be wrestling with similar issues and can share best practices and substantive ideas. We need to continue to be a true solutions provider to our clients.

RIABiz: Can you expand on the part about “connecting clients with others in the industry”?

Park: I believe that we are in a great position to identify trends that we are hearing from RIA firms across the country.  And as we hear common themes that are surfacing, we can serve as a valuable resource by connecting different RIAs together who might be interested in discussing something that they might both be wresting with (e.g., implementing appropriate technology solutions within their businesses).  We can help facilitate this type of collaboration between firms. See: Asset managers at Morningstar's ETF event, facing an in RIA-in-charge future, show mettle

RIABiz: Do you think traditional, actively managed mutual funds will always have a place in the investing world? Or will ETFs – both passively and actively managed -- eventually take over?

Park: We believe there is a strong appetite for both well-performing actively and passively managed products. Both active and passive management styles will continue to evolve, and trends will ebb and flow. We expect the demand for long-term, risk-aware active investment strategies will continue to be robust for many years to come.

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