In our “After the Storm: Charting a New Course through Uncertainty” whitepaper, we examine the importance of asset managers’ ability to provide products and solutions that are unique and differentiated. This is especially true given that, in the pursuit of goal-oriented outcomes, the market will likely place an even greater emphasis in the coming years on asset allocation at the expense of individual funds and strategies. We emphasize the importance of product, along with culture and business strategy, in the creation of a disruption-resilient business, and we discuss how asset managers should be thinking deeply about how they will work with wealth managers to provide investment ideas that incorporate their intellectual capital in a low return environment that is increasingly cost-conscious.
Firms need to execute on four principles we believe are key to success for disruption-resistant products.
The democratization of investment management services and products, including models and separately managed accounts (SMAs) that managers customize to the needs of individual clients, will be an important catalyst for change in the asset management industry. More broadly, technology will continue to enable the transition toward customization/personalization, and it will not be long before models that use packaged investment products in the form of ETFs, mutual funds and SMAs are themselves partially disintermediated by customized portfolios constructed using fractional shares. These portfolios will be increasingly available to the mass affluent and will utilize the latest in technology to implement ESG overlays, risk-minimizing option strategies and tax optimization.
2. Product rationalization
Firms must do a better and more disciplined job of rationalizing products that are not aligned with their value proposition and partners’ needs. At the same time, managers would be well served by a focus on the shift from accumulation to decumulation and the need for non-correlated return streams that cannot be easily replicated with indices. Products with the ability to convert total return into income in a tax-efficient manner will likely be in demand as Baby Boomers continue to age into retirement.
3. Vehicle flexibility
Although not all firms will be able to justify offering strategies in every vehicle or product wrapper, asset managers need to ensure their leading strategies are available to investors in various structures. In essence, we advocate for a “less is more” product approach that is narrow and deep, one that recognizes and builds upon strengths, rather than tries to be too many things to too many people.
4. Partner alignment
Customer needs must be at the center of every major product decision. The ability to help wealth management partners identify and integrate an asset manager’s value-add or intellectual property in order to satisfy unmet customer requirements and effectively utilize technology to deliver products across a variety of platforms will be key to success. Those firms able to truly align their product offerings and distribution efforts with the needs of their wealth management partners will have a distinct advantage.
Rapid change and uncertainty are a hallmark of the world in which SS&C and its clients are working together in order to build successful businesses. Asset managers need to build disruption-resistant business models that are able to adjust to changing conditions and trends quickly. To learn more about these trends, download our "After the Storm: Charting a New Course through Uncertainty" whitepaper.
Written by Michael Andrews, CFA
Head of Investment Products Research & Consulting