Recently, SS&C’s Research, Analytics and Consulting wrote a piece for Ignites, where we outlined our 2020 predictions for the asset and wealth management industries. The following is a more in-depth review of our 2020 predictions.
In our “Shaking Up and Shaking Out” whitepaper, released earlier this year, we outlined actions to help firms prosper in this era of rapid disruption. With the market increasingly separating the wheat from the chaff, leading firms are responding by “picking a lane,” engaging in M&A, and making large technology investments to retain their investment, distribution and marketing edge. These asset managers are focusing on the most promising distribution pockets across broker/dealers and RIAs while working to develop parallel strategies for success in the institutional, retirement and alternatives marketplace.
Today’s leaders have much to consider when formulating their plans for 2020 and beyond. Here are some trends that we believe will continue to impact our industry in the coming years.
The shift to holistic wealth management and financial advice will continue. According to our Advisor Insights surveys, conducted in association with Horsesmouth, financial advisors would rather spend less time on investment and business management, and more time on acquiring and retaining customers. While manager selection and asset allocation will remain critical, this will increasingly be influenced and/or controlled by centralized investment professionals. In addition, technology advances will allow advisors to spend less time on administration and more time on their customers. The long-term winners will be large, team-based broker-dealer and RIA advisor practices that are able to offer personalized customer experiences across a spectrum of services from financial planning to tax and estate management.
Models will continue to gain ground. As financial advisors focus on building scale, less time will be spent on investment selection and monitoring. In an environment where valuations are stretched, volatility is likely to increase. With distributors looking to manage risk associated with Rep as PM and Rep as Advisor programs, models will likely be the immediate winner. Both home office and third-party models are readily scalable and can be customized to fit clients’ specific needs. We believe that distributors will increasingly delegate model design to asset managers who, given fiduciary obligations and the influence of the SEC’s Regulation Best Interest, will find it difficult to include proprietary strategies that are not truly best-of-breed. This will create significant opportunities for large asset managers, but also for best-of-breed small to mid-sized managers, who will be able to expand beyond their traditional home office audience by positioning their products for inclusion in larger asset managers’ models.
Asset managers will close funds while simultaneously launching new ETFs. In Ernest Hemingway’s “The Sun Also Rises,” the character is asked how he went bankrupt, to which he responds, “Gradually and then suddenly.” For many ETFs and mutual funds, it may be a similar story, as margins compress and it becomes increasingly difficult to raise new assets. Consolidation has so far been gradual, but we anticipate further mutual fund and ETF closures. The one area where we predict significant product development activity is in active non-transparent ETFs, where the SEC’s recent approval of several new structures has set the stage for a burst of innovation. If spreads (and fees) are reasonable and managers trust that their intellectual property will remain confidential, we believe they have the potential to be a viable product wrapper. In fact, if this does prove to be the case, look for pressure from the industry on the IRS to allow conversions from a mutual fund to an ETF structure without adverse tax consequences.
Alternative investing will become more and more mainstream. As the popularity of alternative assets among institutional and high net worth investors grows, we believe retail access will continue to improve. At present, the SEC is actively exploring this issue, as evidenced by its June 2019 release, “Harmonization of Securities Offering Exemptions,” which notes a 2-to-1 imbalance in private versus public fundraising. Meanwhile, interest in interval funds and non-listed real estate investment trusts (REITs) is growing, as more providers bring funds to market and distributors become more familiar with these products. We also expect to see increased efforts to include illiquid assets in long-term savings vehicles, especially Target Date Funds. And, at the higher end of the market, we expect to see more partnerships between investment managers and fintech platforms that streamline advisors’ access to alternative investments.
Leading firms will align smart investments in data and technology with a focused distribution strategy. As more firms begin to “pick their lane,” they will be able to right-size their data and technology spend, making investments that support their overall distribution strategy. In particular, we expect more asset managers to use machine learning technologies to empower, inform and align their sales and marketing teams. Rather than taking over client interactions from humans, these augmented intelligence initiatives will focus on generating actionable, data-driven insights, enabling firms to deliver an integrated customer experience across the full range of digital and in-person touchpoints.
More firms will integrate their sales & marketing teams, creating customer-centric organizational structures. Asset managers are increasingly recognizing the need for a holistic approach to customer engagement. Account-based marketing is now widespread, with marketing and national accounts departments partnering to prioritize distributor relationships at over half of firms. While many firms have been moving towards greater sales and marketing alignment, a few leaders have taken this a step further by combining sales and marketing into a single organization (“smarketing,” if you will) or creating multi-functional sales, marketing and product “pods” that face off against specific segments of customers. We expect more firms to go down this path in 2020.
There will be an increased focus on marketing to retail investors. With the exception of a few firms with a strong direct-to-investor presence, most asset managers haven’t prioritized marketing to investors. However, with more and more consumers doing their own research to validate their advisors’ recommendations, this may be set to change. As asset managers get on board with this trend, we expect more firms to develop brand awareness campaigns focused on end investors. We also expect to see firms making their websites more investor-friendly, using simpler, clearer language and tactics like storytelling and multimedia to create a more engaging experience for retail investors.
Asset Management, Research, Analytics, and Consulting, Wealth Management