Agreement Terms for a Successful 3PM Relationship

Updated: Jun 7

As featured in Emerging Manager Monthly



The five most important decisions and critical issues that need to be resolved for an investment manager and a 3PM to form a mutually beneficial relationship are also terms which need to be included in the manager-3PM agreement.


1. The structure of the 3PM relationship depends on many factors, including product capacity, the time required to realistically leverage the opportunity and renewal items, including conditions describing how the parties unwind the relationship if one or both decide that it is not working. With full consideration of these issues, all parties need to decide on:

  • How many years will the agreement run?

  • How and when can the agreement be renewed? Is renewal automatic or results-driven?

  • What are the conditions for early termination? What are the advantages to having a one time options vs. event triggered termination?

  • Should the agreement include an option on future products and offerings?


2. The scope of the 3PM relationship needs to designate specific responsibilities and accountability to both the investment manager and 3PM. The agreement should include measurable goals and expected results encompassing the following questions

  • Does the marketing strategy require outsourcing all sales and marketing functions, or will the 3PM have a partial assignment?

  • Is the manager marketing all products or select products? Which products are marketable?

  • How important is two-way exclusivity (no competing products of 3PMs)? What is the firm's capacity by product and fee level?

  • Does the manager have a protected list of existing clients and prospects?

  • What is the portfolio manager's time commitment for travel?

  • Can the 3PM utilize sub-agents?

3. Sales and marketing support services can cover a wide range of functions, which are essential to a successful campaign; they are the foundation for the firm's recognition in the marketplace and marketing strategy implementation. To achieve result, assignment of duties must be based on expertise and given priority. These services include:

  • Sales management and results tracking to continuously monitor the marketing strategy and adjust as necessary

  • Development of marketing materials and sales kit to establish a firm's image and brand the product

  • Accurate and effective RFP production to gain visibility and win searches

  • Conference attendance and continuous review of industry publications and news articles to monitor the marketplace

  • Attribution analysis (holdings and returns based) and peer group analysis to quantify successful investment strategies and processes

  • Client service and retention


4. The financial commitment from the investment manager can be tailored to their current situation through the structure of the retainer, expense and commissions payments. Generally, the 3PM sees the manager's investment in the relationship as a commensurate with their willingness to share the costs and have "skin in the game". Manager's should have a large enough financial commitment that they are well motivated to fully participate in the marketing strategy. The 3PM in return provides exclusivity, early cost savings that can be reinvested back into the business and success oriented performance based fees. The agreement's financial terms can include:

  • Comprehensive fixed budget (paid quarterly or monthly)

  • Quarterly retainer plus actual expenses

  • Possible draw against future commissions

  • Commission schedule

  • Percentage - constant vs. declining ladder

  • Negotiated participation for pre-existing prospects

  • Length of payout - perpetual vs. number of years


5. Sales accountability is essential to the measurement of the 3PM's success. The 3PM should be willing to give the investment manager enough information to monitor their progress, without micromanaging. Each partner in the agreement needs to focus on their area of expertise to achieve the shared goal of increased assets under management. Regular communication should include:

  • Formal reports at an agreed upon frequency: annually, quarterly or monthly

  • Established methods or reporting: email, site visit, phone

  • Records of topics covered such as number of meetings and calls, and assets raised

  • A formal rating system for the prospect pipeline

  • Assignment of key point person within the investment management firm and 3PM

  • Turnaround time for manager approval on marketing issues


Agreement Terms for a Successful 3PM Relationship
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