Financial Advisors

Three Asset Management Forums: Topics Framing the Industry for 2018 and Beyond

“Rapid change requires a forward-looking vision for your business and the fund industry we operate in.” - Bob Dorsey, Ultimus Fund Solutions

In a year of much hyperbole with broad statements on the demise of this and the decline of that, I found these notes from a wide range of industry discussions from three different Asset Management Forums to be a sobering and informative overview on the important industry trends. Coming from different vantage points, they paint a picture on how the industry is evolving.

At the Investment Company Institute General Membership Meeting (May 22-25, 2018)

To open the ICI conference - the leading association representing regulated funds globally - President of the Conference Planning Committee and CEO of PGIM Investments, Stuart Parker , discussed a few major industry trends of importance that the Conference was focusing on:

First trend in this year’s program involved the globalization of the fund industry, how foreign investment is growing at a significant pace, and an overview of regulatory issues in Europe and the UK that may affect US funds with panels examining “Cross-Border Challenges and the Global Convergence of Regulatory Matters.”

Second trend discussed  was how technology’s effect on almost every aspect of the mutual fund industry and knowing what technology to harness where, and how best to apply it, is consuming an increasing amount of the industry’s time.  Machine learning, artificial intelligence, and blockchain are enabling mutual funds to speed processes, be more efficient, protect fund shareholders from cyber threats and improve the user experience for shareholders.

Third trend is the changing equity marketplace with a growing importance of private capital in today’s investment world and how it intersects with the regulated fund industry. It was pointed out that coinciding with a decreasing number of IPOs and the dramatic decline in public companies from 7,607 to 3,618 since 1997 is the significantly growing number of private equity firms in the past twenty years to an all-time high of more than 7,700—almost doubling since 2006. These firms have a record level of $1.7 trillion of cash ready to put to use. Many companies are now choosing not to go public to raise capital in the traditional way mainly due to cost and compliance burdens and are actively exploring other funding choices like private equity or other newer forms of evolving financing like initial coin offerings (ICOs) and crowdfunding.

Further In the regulatory space, SEC Commissioner Michael Piwowar held a regulatory session discussing topics like the e-delivery rule for shareholders and the much-talked-about ETF registration process. A key discussion was on making changes to the currently extensive ETF exemptive order process by making it similar to a mutual fund registration process. Making this process more uniform will allow investment advisers to bring more creative ideas and strategies to the ETF space.

At the Ultimus Fund Solutions Client Conference (May 3-5, 2018)

Ultimus Fund Solutions- one of the largest, independent mutual fund services and middle-office technology providers for RIAs in the country -dedicated their conference theme for their asset management clients to Momentum. Bob Dorsey, CEO & Managing Director of Ultimus, articulated the need for asset management firms to build and maintain a forward momentum in their business.

“Rapid change requires a forward-looking vision for your business and the fund industry we operate in” Dorsey said. He emphasized that firm leaders need to realize that what is needed is a dedicated, long term, multi-year process of making strategic decisions to address the new operating environment of accelerating change in the industry, markets and client perceptions. You cannot take a few steps and believe it will create immediate success. He illustrated his points by describing the steps that Ultimus took to grow and build the momentum of the firm.

Discussions and topic sessions throughout the Conference reinforced this message. Common themes emerged that included:

  1. The dedicated use of technology – Two areas were explored: 1.) development internally and with vendor partners on building APIs throughout the firm so all systems are able to talk to each other and 2.) development of a digital strategy to achieve straight through processing capability, freeing up personnel to do more analysis and less data input functions.
  2. Merging Tech with a collaborative management style and experienced creative talent – Firms need to bring in experienced but creative talent and be organized as teams working in a collaborative way across departments. This allows knowledge sharing and helps with talent retention through fostering camaraderie and an active learning environment. Ultimus believes the only way financial firms can compete in our new operating environment of accelerating change is that everyone and everything in a financial firm needs to be fluidly talking and working with each other - from people to systems.
  3. Evolving changes in the markets – Ultimus echoed ICI recognition of decreasing number of IPOs and the dramatic decline in public companies with the resultant significant growth of private equity. From Ultimus’ perspective, this shift in the market requires a proactive response and became a key rationale for the firm’s recent acquisition of Woodfield Fund Administration, a private fund administrator. The acquisition provides further diversification of Ultimus’ revenue stream from mutual fund servicing to also include private fund servicing.

Other general and breakout sessions with industry experts covering other important trending topics in the asset management industry including cybersecurity, distribution strategies, fund governance, regulation and compliance issues:

  • Panel discussion on the use and business applications for asset managers on different fund structures including private funds, CITs, interval funds and retirement share classes.
  • Discussion on regulatory hot topics like the anticipated proposal for an ETF Rule and the recent SEC rule proposals on best interest standard for broker-dealers with retail customers and the standard of care level for investment advisers. On the latter, they encouraged Investment Advisors to comment and to stay tuned for clarifications on a very complex and confusing set of proposals.
  • Of particular interest was Todd Cipperman, Principal of Cipperman Compliance Services, who reviewed his list of top 10 compliance trends in the industry and provided 10 action items for asset managers to best position and protect themselves from the recent trend in regulatory actions.

At the Investment Adviser Association Leader’s Conference (September 26-28)

The annual Leaders Conference of the Investment Adviser Association (IAA) - a leading not-for-profit organization that exclusively represents the interests of the SEC-registered investment advisory profession - took on industry change needed by bringing in speakers and ignited discussions that  focused on four fronts:

New thinking on active mgmt – A significant re-examination of the active versus passive debate and the conventional “wisdom” around the topic was launched with a panel representing serious academic study, investment research, institutional investors and retirement plans sponsors. The following research was shared: Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on Actively Managed Mutual Funds

Conclusions from discussions were that active managers have a variety of skills and differentiated expertise that can add value in numerous ways including stock selection and corporate oversight that are valued by institutional and retirement investors. Further, when viewed from a wider perspective, active and passive managers are not in an adversarial relationship, have exhibited different performance cycles and they can be deployed in different ways in different markets. So, the active versus passive debate should be revisited, and may well be beside the point, as it was noted that most investors are not interested in how their portfolios measure up to an index versus meeting their financial goals in a risk adjusted way.

Key demographic trends and their effects – A noted futurist, Ken Gronbach, explained that since the rise and fall of population groups determine the underlying level of demand for every consumer product or service - including financial services – demographic trends become economic destiny. The key leading demographic trends and how they will impact the industry are:

  • Baby boomers are retiring, replacing the silent generation as the largest cohort among retirees and near-retirees with the implication being that boomers and their broad range of needs, in addition to investment management, will be the largest segment of advisors’ client base for the foreseeable future.
  • The GenX is much smaller than the Baby Boomers before and the GenY generation that follow it with the implication that it will create a talent management challenge for advisory firms hiring employees and advisors in their 30’s and 40’s to service their Baby Boomer clients.
  • The United States is becoming ever more diverse to the point that, by 2045, non-Hispanic whites will be a minority group with the implication being that advisory groups, to grow and thrive, will need to diversify their client bases and workforces.

Future of wealth management – Chip Roame provided his insights from following the leading edge of strategic initiatives in the industry’s fastest growing businesses. Highlights included:

  • Baby boomers will continue to dominate the industry as they account for 83% of all money in America making millennials and other groups not as strategically important in the near future.
  • Cost conscious investing is on the rise impacting mutual funds, alternative investments and industry business models.
  • Wealth management and advisory firms are rising in interest, especially from the increasing needs of baby boomers, to the extent that those firms return to their roots of more holistic financial planning versus just stock selection. But, that model is changing to more episodic advice versus paying an ongoing fee and that technology, like robo-advice, will need to become a factor in financial planning.
  • The RIA model will continue to grow in total, at the expense of other models, but the RIA model will need to continually re-evaluate itself and change to meet evolving industry trends as mentioned above.

Upgrading practices for talent management –Today’s hyper-competitive employee/talent market and the need for industry firms to continue to evolve with a rapidly changing marketplace, requires a different approach to the hiring and recruiting process. Firms need to think beyond compensation for multiple ways to attract and retain top talent. Four recommendations given were: focus on culture fit, define the career path, provide multiple career paths and rethink the old talent management processes like the typical interview process, questions asked and how to onboard candidates.

These discussions above demonstrate the need to expand and more deeply explore previous “conventional thinking” on topics being discussed in asset management and the investment management industry overall. The announcements of the “death of things” is grossly exaggerated as the industry is moving on.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Bill Hortz

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

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