Registered Rep.: In the wake of the financial crisis, how has the mutual fund distribution model changed?

Neil Hennessy: If you look at the major players — Merrill Lynch, Morgan Stanley, etc. — essentially sending wholesalers into the branches isn't working anymore. There's a three-tier system to getting distribution. First, you have to tell your story to the gatekeeper, and if they like it, they pass it off to the analyst. The analyst then has to take it to the analytical team, which screens the fund for whether it will go on their platform or not. Once on the platform, you need to be one of the recommended funds that goes into the pie chart. For example, if there are 11 mid-cap funds, only one goes into the pie chart.

The broker/dealers want financial advisors to be a quarterback. They don't want them out there picking stocks, mutual funds, or variable annuities. They want them to sit down with the client, and find out what the client wants, in terms of goals. Based on that, they decide which pie chart fits best with the client. It takes away a bit of the litigation risk. It also allows advisors to add to what the client needs, such as mortgages. It's a whole different ballgame now.

RR: How have you dealt with this changing dynamic in distribution?

NH: You try to get to the gatekeepers. You also try to distinguish yourselves from the other 8,000 mutual funds out there. We're a quantitative shop. All our formulas are on our website and in our prospectuses. Everybody knows how the money is invested. What you see is what you get. It also comes down to how well your numbers match up with others in the same category. We've been fortunate that the media has been very good to us. In the last year, you saw the Hennessy name once every two days.

RR: You've said that your distribution is about 40 percent through advisors and 60 percent direct. In what ways have you tried to reach a wider network of advisors?

NH: We try to build relationships with advisors. Returns are returns, but we really try to think about what can we give advisors to help with their clients. We're not on Wall Street. We're out in Novato, Calif., so we don't have to keep up with what everyone's doing down the street. Out here, we have time to think, and we use common sense and logic when it comes to serving advisors.