Posted January 9, 2018 by Steven Miyao
The market continues to deliver. Assets under management are breaking records, lifting revenues. Operating margins reached an average 34.2% during the third quarter – the highest in the last eight quarters – among the 15 publicly-traded asset management firms that make up the DST Research, Analytics, and Consulting Asset Manager Composite.
But just under the surface of these encouraging results, a much more complicated and daunting picture emerges. In the third quarter of 2017 alone, the top 10 asset managers accounted for 50% of all net flows, while more than half of the 719 asset managers in the industry experienced net outflows. For the last two and half years, active funds and active ETFs suffered negative flows of roughly $500 billion. Meanwhile, more than $1.3 trillion poured into passive funds and ETFs, according to data from Morningstar Direct.
When markets are strong, it is often easy to overlook the tough choices confronting our industry. But there are tectonic shifts in the market that managers urgently need to address: changing demographics, lower fees, and technological innovations.
My annual long-term industry outlook involves eight predictions:
We will see firms that are already successful taking some significant steps forward, evolving their business models to address the most important industry shifts. Fee-based advisors, specifically RIAs, and automated advice solutions will be the big winners in the wealth management space. The wirehouse firms will have the scale to incorporate both of these successful models. Small and midsize broker-dealers will struggle to compete.
The value of asset allocation will continue to decline and become more automated, even for the advisors who provide personal advice. Investors will continue to gravitate toward lower fee products, only paying for truly differentiated alpha. The asset managers that will thrive in this environment will advance their low-cost product solutions, evolve their marketing and distribution strategies, and invest heavily in data.
categories: advisor engagement/client engagement, industry trends, investment strategy, etf/etfs, internal & hybrid wholesaling
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