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There is no question that the investment management industry is facing yet another period of unprecedented change.
Markets appear to be in the latter stages of an extended bull run, consumers are becoming more discerning and the industry has emerged from the 2010s with a reputation that needs work.
Consolidation within wealth management means there are fewer entities for asset managers to target forcing them to seek out new types of clients, while there is also the ever-increasing competition from passive fund providers.
In this market-shaping era, who will be the winners and losers of the next decade?
RiF has surveyed and interviewed investment professionals from across the industry for its Wealth Manager Review, set to be published in Spring 2020, and while the topics of fees, regulation, asset growth and specialisms were all discussed when perusing who might be the firms with competitive edge in the foreseeable future, the issue of ‘closet trackers’ was highlighted by almost all individuals, specifically how there is no longer a place for them in the fund landscape.
DFMs pointed to Value for Money Assessments and the inclusion of non-executive individuals on fund boards as some of the ways closet trackers will be highlighted, but some went as far as saying that companies with higher numbers of benchmark-hugging funds that claim to be active will disappear even if they have significant scale now.
“The good active players will be able to hang around, the mediocre benchmark huggers will struggle.”
“Investors are prepared to pay for performance, alpha and good services. It’s the benchmark huggers that will face all sorts of problems.”
“There is a plethora of me-too vehicles that will wilt on the vine as returns get inevitably lower.”
Almost all of respondents pointed to ‘closet trackers’ when we asked who would be the losers of the industry and eventually disappear, even if they have significant scale right now.
Notably, they pointed to players in the “middle park” of the asset management space as being in a troubled area, while larger beta players and specialist, high alpha boutiques will thrive.
“Passives will have its place and will continue to make inroads into active management. Those that cannot justify their existences in terms of differentiation and long term results will come under a lot of pressure – it is not a question of distribution or price it will all be about the proposition, they have got to prove their worth. It’s not the end of the industry but it’s the end of the bad bit of the industry,” said one investment industry professional.
Research in Finance’s Wealth Manager Review 2020 aims to help asset management companies – specifically their sales, distribution and marketing teams – to improve their understanding of the wealth management market.
It addresses how previous trends have evolved and identified the emerging themes that will shape the future of the sector.
The report will seek to answer key questions:
– Will financial advisers continue to outsource investment management to DFMs?
– How do fund selectors make decisions around adding funds to buy lists?
– How are they building portfolios?
– How has regulation and consolidation impacted how DFMs run their business?
– Which kind of relationships do DFMs value with asset managers?
– Which sales teams and individuals do DFMs think are serving them well?
– What is DFM’s appetite for various asset classes?
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