MutualFundWire.com: James Investment Research Plugs In To Both Sides of Morgan Stanley Smith Barney
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Wednesday, September 16, 2009

James Investment Research Plugs In To Both Sides of Morgan Stanley Smith Barney


For James Investment Research, relationships are everything. The 18-employee investment manager recently struck agreements with Morgan Stanley and Smith Barney to sell JIR's mutual funds through their soon-to-be-combined wirehouses.

Jeff Battles
 James Investment Research
 Director of Marketing
Jeff Battles, director of marketing for the Xenia, Ohio-based firm, told The MFWire that relationships with brokers were the main contributor to forming distribution agreements with the major wirehouses. But reaching deals with the big broker-dealers was neither easy nor quick.

JIR's story began in 1972, when Frank James, unhappy with Wall Street's research, decided to analyze stocks himself. The company he founded now has mutual fund AUM of $700 million, $550 million of which is invested in JIR's flagship fund, James Balanced: Golden Rainbow (GLRBX), which Morningstar rates at five stars. (JIR boasts $2 billion in total AUM, including $500 million in wrap account assets and $800 million in separate accounts.)

The Golden Rainbow fund opened to the public in 1991, though JIR had managed it since 1984. In the early days, JIR focused its business on regional high net-worth clients and institutions.

The Three Keys to Successful Distribution for Small Firms


  • Value national relationships.
    Always be trying to find new relationships, and maintain and grow the ones you already have.

  • Be persistent.
    Rejection is to be expected. Between the Fidelity rollout (January '05) and the Merrill Lynch rollout (November '08), JIR didn't close any major distribution deals.

  • Build on the momentum of previous deals.
    For JIR, the Merrill Lynch deal contributed to the Smith Barney deal, which enabled the Morgan Stanley deal.

    • In December 2004, Charles Schwab picked up JIR's fund family, and the next month, so did Fidelity. Battles said that since then, Schwab brokers have contributed $250 million of JIR's assets, and Fidelity has brought in $100 million. JIR also has deals with a few other wirehouses, but none has been nearly as successful as Schwab's and Fidelity's.

    Battles said that the main attraction for brokers was JIR's “foul-weather performance.” He noted that in 2008, its flagship fund fell only 5.5 percent. In comparison, the Standard & Poor's 500-stock index fell 38.5 percent for the year.

    “We never take our eye off risk,” Battles said.

    A strong fund helps distribution, but luck plays a part, too. JIR's break came when a Smith Barney branch manager in nearby Dayton, who was already a fan of JIR's funds, got promoted in summer 2007 into a position where he could bring JIR's funds to a national audience. (JIR also manages small cap, mid cap, equity, and market-neutral funds.)

    But luck works both ways, and when another small boutique blew up in the fall of 2007 after it couldn't handle the assets Smith Barney sent its way, the big company decided it would take on no more small firms. Smith Barney told JIR that the deal was tabled.

    Yet things turned around quickly for JIR, and in October 2007 the asset manager struck a deal with Merrill Lynch. The deal was approved in April 2008, and the “thundering herd” began introducing JIR's five funds to its clients in November 2008. Battles then called back Smith Barney, telling them that if Merrill could handle JIR, so could Smith Barney.

    Battles said that in the 10 months since Merrill's rollout, Merrill clients have contributed $15 million in assets to JIR's funds. JIR has seen a total decline of $50 million in assets in that period.

    In March 2009, Lipper named the Golden Rainbow fund tops in the 10-year Mixed-Asset Target Allocation Moderate Funds category. The next month, Smith Barney and JIR reached a verbal agreement, and as soon as it officially merged with Morgan Stanley, in the beginning of June, Smith Barney formally approved the deal.

    Morgan Stanley then picked up JIR's funds, as well—in a separate agreement, because Smith Barney and Morgan Stanley have not yet integrated their computer systems. Battles said that the wirehouses get 35 to 40 basis points per year. The Golden Rainbow fund has a 118 bps expense ratio.

    Battles said Smith Barney is planning on introducing JIR's funds this month, while Morgan Stanley expects to do so in October.

    Battles said that though JIR is still looking to add its funds to other major wirehouses, it is now focusing more on marketing its funds to its new partners.

    “What's next for us is to intelligently leverage our relationships with these firms,” Battles said.

    Battles said that JIR plans on outsourcing the wholesaling function, and it is in the process of interviewing third-party marketing firms. He said that the company will make a hiring decision by the end of the year.

    Battles' advice for another small firm looking to establish a larger presence was to “cultivate national relationships.”

    “Try to develop any national connections you may have," he said, "no matter how obscure."


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