Posted May 22, 2017 by Steven Miyao
Most of the industry recognizes that we are at a pivotal moment. But how many of us truly appreciate the seismic nature of the shift?
I believe that the industry will change more in the next ten years than it has in the last thirty, and that only half of existing asset managers and broker dealers will survive the next five to ten years.
Here are the four megashifts in the market that every executive has to tackle. This is a wake-up call to all executives who believe that incremental changes are sufficient to position your organizations for the future.
Machine learning, natural language processing, and advance analytics will move the needle on technology that can replicate human interactions. AI is already part of our consumer experience in the form of machine-generated content and recommendations. It will also become an integral part of the portfolio management infrastructure, investment decisions, financial planning and advice. Asset management firms are not at liberty to incrementally grow their Data Science teams. It is critical that firms identify potential acquisitions (quant shops or firms that have advance data science teams) or partner with a third party firm that already has technology infrastructure and analytics expertise.
As data becomes more available, market players merge and new forms of advice appear. The middle layers of distribution and service consolidate. The end result will bring customers closer to manufacturers. A few broker-dealers and platform providers are building out their investment products, including the creation of proprietary ETFs and mutual funds. They are also increasing their investment advisor capacity by acquiring asset managers or partnering with investment consultants. A number of asset managers have already acquired or built technology and automated portfolio providers to provide the option of going direct to market as intermediaries take more control of the portfolio management process.
Transparency and regulatory changes are compressing fees and challenging business models. They are indicative of a long-term trend that could lead to the elimination of management fees as we know them, following a new pricing paradigm. Asset managers need to clearly showcase the value of their products so that investors are willing to pay a premium. Otherwise, asset and operational scale is absolutely necessary to survive in a low fee environment.
Mutual funds have gone from being the primary option for co-mingled investing to one of many options available, a shift that has broad ramifications across the industry. Asset managers should see themselves as more than just ‘40 Act managers. Firms need to be flexible and thoughtful in the delivery of their intellectual property to distributors by prudently considering how each investment strategy can be optimized to deliver on their investment objectives while minimizing the impact of cost and tax on returns. This requires the consideration of multiple product wrappers, such as ETFs, SMA, Interval funds, and so on. It also means examining how technology assists in the application of these options in client portfolios.
I believe it will be hard for us to recognize the industry in five to ten years. I urge every executive to force themselves to think about these megashifts and assess how nimble and bold they must be to adjust to this new era of asset and wealth management.
categories: business analytics, distribution strategy, etf/etfs, mutual funds, industry trends
The views expressed in this publication are solely those of the author and do not necessarily reflect the position or policy of DST Systems, Inc. or its affiliates, subsidiaries, joint ventures, officers, directors, or management.
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