T. Rowe Price rode the no-load revolution of the 1980s and 1990s, spurning brokers, advisers and the sales loads that enticed them. And to this day, the vast bulk of its $938 billion in assets remains in no-load shares.
But in the last few years, the Baltimore-based fund company, which has $582.9 billion in U.S. mutual fund assets, has been reaching out to advisers far more aggressively than in the past. Earlier this year, it joined the Schwab and Fidelity no-transaction-fee platforms, longtime favorites of registered investment advisers.
"It was a multiyear negotiation with both firms," said John Halaby, head of the financial institutions group within U.S. Intermediaries at T. Rowe Price. "We had heard for years that they wanted access to that platform."
And its expanded team of regional investment consultants — T. Rowe Price's name for wholesalers — has been targeting RIAs with surprising gusto.
Steve Janachowski, president of Brouwer & Janachowski, recalled a recent meeting with a T. Rowe Price wholesaler. "She's very aggressive, she knows her stuff, and is taking this very seriously," he said.
But you're not going to see T. Rowe Price with an array of new share classes, a la American Funds, or a stable of index products, like BlackRock.
"Advisers are seeking to consolidate their investment manager and product lineups," T. Rowe Price CEO Bill Stromberg said. "They prefer investment managers with a history of stability, consistency and strong, repeatable investment processes. They look for strong after-fee performance against index benchmarks — and we meet those criteria."
A key question, though, is whether advisers will turn to T. Rowe Price and its active management bent. Mr. Janachowski, for example, ultimately decided not to use a T. Rowe fund that he was researching. "It had good performance, the fees were reasonable, but it had too much overlap with other positions we had," he said.
The company's slow entry into the adviser market means that it has considerable catching up to do. It has many of the same qualities that brokerages have found attractive about American Funds and BlackRock over the years: solid performance, low fees and a commitment to serving their customers.
But the company's asset growth in the RIA channel gives every indication that its outreach to advisers is starting to work.
The fund company, named after its founder, rose to prominence from its philosophy of growth investing and its dedication to the direct market channel. T. Rowe was one of the earliest dedicated no-load distributors, along with American Century in Kansas City and Vanguard in Valley Forge, Pa., relying on word of mouth and the interest of self-motivated investors.
But like other early no-load pioneers, T. Rowe Price no longer relies on people reading newspaper or magazine ads and sending it checks. "That's actually a small part of their business today," said Christopher Shutler, an analyst with William Blair & Co. "About 80% of their shares are not sold directly. The intermediary channel — broker-dealer and 401(k) — is very important to them."
T. Rowe backed into the advisory market through its relationships with institutional investors. George Riedel, T. Rowe's head of U.S. Intermediaries, started with the company nearly 20 years ago. "Our goal was to work with the largest pools of financial assets across the U.S.," he said. "We grew that business predominately through subadvisory relationships in the insurance business, and that's how the advisers got the first taste of T. Rowe Price — through the separate accounts in annuities that advisers sold to their clients."
The company got some valuable lessons on how to sell to advisers when their funds became available on traditional brokerage platforms, thanks to the 2005 "Merrill Lynch rule," which allowed stockbrokers to charge a percentage of assets as their fees for advice. Suddenly, brokerage research teams weren't always looking for the juiciest share classes.
"They were looking for the funds with the best modern portfolio theory stats — performance, Sharpe ratio, information, cost — all the things T. Rowe Price was heralded for," Mr. Riedel said. "We were able to get significantly well-positioned on a number of platforms we had not been privy to before."
Although the Merrill Lynch rule was overturned in court in 2007, forcing brokerage firms to convert fee-based brokerage accounts to advisory platforms, the fee mentality was now in place and growing.
The subsequent shift to fee-based advisory services over the past decade has been mirrored by asset shifts at T. Rowe Price. Nonretirement intermediary assets under management now stands at just 21% brokerage and 79% advisory services.
"What is now a 100-person, multiasset portfolio adviser team used to be two people sitting in the basement of Wheat First Butcher Singer," said Tom Morelli, head of the broker-dealer group within U.S. Intermediaries at T. Rowe Price.
The company now has 21 wholesalers supported by offices in Baltimore and Colorado Springs, Colo.
"The reaction we see first in the adviser marketplace these days is, 'Where have you been?' What had kept them from really working closely with us is that we have not been in their offices, building those relationships and supporting them face to face," Mr. Morelli said.
What do they have to offer?
T. Rowe Price is the nation's fourth-largest mutual fund company by assets, and of its 110 funds with a five-year record, 89 have beaten their category average, according to Morningstar.
"They are excellent active managers," said David Sims, president of Sims Capital Management, whose closed-end fund Eagle Capital Growth Fund (GRF) has T. Rowe as its largest stock holding. "They keep doing the right things."
T. Rowe is an equity-centric shop, and its flagship funds have impressive records. T. Rowe Price New Horizons (PRNHX) ranks in the top 1% of all small-cap growth funds the past decade, according to Morningstar, and T. Rowe Price Growth Stock is in the top 16% of all large-company growth funds. Its target-date funds are all within the top 10% of their peers.
While performance is always an inducement for advisers, T. Rowe has always excelled at research aimed at investors and advisers, and that has been its primary selling point to the adviser community. For example, T. Rowe's regional investment consultants offer white papers on asset allocation, as well as timely stock and bond research.
"The other day, President Trump made a statement on Puerto Rico's debt, and we were quick to produce a paper about how little Puerto Rico paper we had, what are the questions you should have and why did this happen. We had speed to market with our intellectual capital," Mr. Riedel said.
Online tools also are a growing part of the fund company's outreach to advisers. Its Art of Cleanup proprietary tool is aimed at advisers who are moving from a commission-based to a fee-based practice. It lets them screen funds according to compliance with the Department of Labor's fiduciary rule. The tool tells advisers which funds should be eliminated and how they might be replaced with others. And T. Rowe already has a lineup of so-called "clean shares" that are an easy fit for the new rules.
"We are well-positioned for the new fiduciary landscape and already do business with nearly one of three advisers in the U.S.," Mr. Stromberg said.
Its regional investment consultants, who are paid on salary rather than commission, can put advisers in touch with T. Rowe's experts on asset allocation and portfolio construction.
"They keep in touch with us to provide in-depth information on any of their investments we utilize for clients," said Daniel Lash, partner at VLP Financial Advisors. "They also go out of their way to help in other ways when asked."
One new way: Separate accounts.
"Earlier this year we launched our first retail separately managed account, which includes a suite of large-cap equity and municipal bond strategies and gives advisers and their clients access to institutionally priced products and greater control over portfolio trading and tax considerations," Mr. Stromberg said.
But the firm still faces some obstacles in the adviser arena.
Just four index funds
T. Rowe is unlikely to appeal to financial advisers who want a smorgasbord of passively managed index funds: The company has just four. And it shows no inclination to beef up its passive investing lineup.
"It's a race to the bottom," explained Rob Sharps, group chief investment officer at T. Rowe Price. "We don't want to push into passive."
Advisers who want the lowest-cost index fund can get it elsewhere for two basis points a year, but Mr. Sharps said T. Rowe can deliver better outcomes. "The average golfer never breaks 100, but it's not hard to find one who will. We have a real case that we can do better than passive."
But the decision to stay in active management has cost them, Mr. Shutler said. "The move to passive in large-cap equity funds has been a material headwind to net asset flows. If you look at the last three years, their net inflows have been $2.5 billion, but their total market appreciation has been $116 billion."
Nevertheless, any inflows to a largely actively managed fund company are an achievement, said Russel Kinnel, director of mutual fund research at Morningstar Inc. "It's a rarity in this world for a fund group that doesn't have Vanguard in its name," he said.
T. Rowe also has an active financial planning division, as well as a robo-adviser, called Active Plus — the only robo-adviser that uses only active management. Not surprisingly, some advisers view them as competitors.
The company generally feels that customers will sort out what they want most. Mr. Riedel thinks that, eventually, customers will prefer human advisers.
Importantly, the adviser market is directly in the sights of T. Rowe Price's top brass. Nearly two decades ago, their intermediary business had $25 billion in assets and they jokingly called the unit "the island of misfit toys," Mr. Riedel said. Today, the same division has $440 billion, a sum that includes broker-dealers, defined contribution retirement plans and insurance.
"We made the right decisions along the way," Mr. Riedel said.