Posted May 31, 2017 by Jason Dauwen
If I offered up a crystal ball that would show you the future of asset management, would you look into it? What if this crystal ball didn’t tell you just one future, but would give you three futures. Still interested?
When you look into the crystal ball, it shows you a dramatically different view than current industry trends today. Passive investments have fallen out of favor and there’s resurgence in active management. Though fees remain lower, asset managers have a bevy of opportunities to market and sell their funds and demand from advisors is reminiscent of the heydays of skyrocketing mutual fund growth. The only barrier to sales is having enough time in the day to get to every advisor office that wants to buy product.
The crystal ball then shows another future: advisors stop meeting with wholesalers. They prefer models over portfolio construction. They rely heavily on robo advisor technology to manage much of their book. When they need assistance, they reach out to Fintech companies who are supplying better, more effective algorithms that have automated many of the advisor‘s practices. They even assist with prospecting and practice management. Asset managers are left to compete for limited shelf space at extremely small margins.
In the crystal ball’s final future, asset managers and advisors are working together as partners to solve challenges in the advisor’s practice. Advisors rely on the expertise of asset managers for product selection, portfolio construction, and practice management. When challenges arise in an advisor’s practice, their first instinct is to call the asset manager who can find solutions. This symbiotic relationship allows the advisors and the asset managers to flourish together.
After seeing these three futures, what would you do? Would you go hire a hundred external wholesalers to beat your competitors to the resurgent active management space? Would you pour all your resources into building the world’s best robo advisor? Would you reinvent your distribution model to prepare for better partnerships with advisors?
The challenge for asset managers today is that there is more uncertainty in the future of the industry than there ever has been. As product rationalization reduces the number of funds on platforms and fee transparency puts pressure on firms to lower fees combined with the emergence of new technologies and evolving advisor preferences and approaches, the amount of impending change is overwhelming.
Each of the futures presented above were relayed to me in some fashion by industry experts. And I’ve heard a number of industry executives wish they had a crystal ball to gain clarity on what will happen.
When it comes to the future, knowing exactly what will happen isn’t possible. This three-future crystal ball may be a more accurate way to view the future (or should I say futures) than the traditional crystal ball because the future is not written in stone. It’s malleable as the elements shaping the future constantly change. The better approach is to recognize that there are many possible futures and to find solutions that accommodate all of those scenarios.
There’s one certainty right now: the industry is changing more and at a faster pace than we’ve ever seen. Change brings with it risk, but it also brings opportunities. For more on what is changing and how to assess your readiness and prepare for many possible futures, see our latest distribution research series, Prevailing in a Changing Distribution Landscape.
categories: distribution strategy, fund distribution, passive funds/passive investment, robo advisors, wholesaler compensation
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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