Everyone involved in the management of private assets will experience a very fluid competitive landscape in the years to come. Recent technology advances allow for a significant lower barrier to entry. Distributors, regulators and consumers are clearly aligned and this shifts the power of owning the consumer relationship to the distributors.
Regulators globally are keen to support new business models geared towards better investor services at lower cost, higher transparency and acting in the best interest of the investor. The industry responded by realizing that they should engage with regulators from the start when introducing new business models to be part of any transformative aspect impacting their business. The modern investor expects to be able to access advice anywhere and at any time, through multiple channels and devices as part of a cohesive, rich digital experience. They are also very use to interacting with non-financial digital firms possessing strong distribution capabilities.
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There are key developments expected to emerge from a more fluid competitive landscape for private asset managers.
1 – Private asset managers to move beyond traditional asset allocations to integrated holistic advice focused on life goals.
Recommending an asset allocation and managing monies to a performance benchmark based on an investor’s risk profile with the promise to deliver superior returns is already a commoditized function and accessible through low cost Robo/digital advice business models.
A holistic advice model is required to personalize a traditional asset allocation approach. This will require institutions wanting to join in the distribution power shift to adopt an integrated digital business model across distribution channels fueled by an enhanced data & analytics architecture. These tools should be deployed as a virtual relationship manager with the purpose of providing investment context and facilitating a continuous dialogue that is specific to each investor’s financial circumstances. This would also imply the provision of real time end-investor interaction with enhanced data & analytics.
2. The focus will shift from product manufacturers to portfolio distributors.
The end-client relationship across industries is now often owned by the distributor shifting the balance of power in this relationship. Asset managers’ success is increasingly determined by the performance of their distributors, who often dictate what kinds of products they will put forward to their end clients. Asset managers need to ensure that their products are aligned with their distributors and end investor requirements.
Asset managers may well choose to create their own distribution channels and seek vertical integration between their asset & wealth management function. As we’ve seen earlier in the discussion, the portfolio construction space is already commoditized not only moving from product manufacturers to distributors but moving from product manufacturers to personalized portfolio constructors to personalized portfolio distributors, applying a holistic advice model.
To ensure complete ownership of the distribution channel also requires ownership of the advisor relationship. Hence a vertical integration strategy should also allow for the provision of added value tools and capabilities for advisors.
Advisors should benefit from personalized portfolio construction capabilities as well as real time interaction with enhanced data & analytics to support their end investor relationship. Private asset managers will be allowed to own a substantial portion of the value chain in this increasingly fluid competitive landscape and compete for market share in the distributors – investor relationship – ownership model.
3. There will be a convergence of Wealth Managers & Asset Managers distribution and operating models
Retail investors are demanding access to the same asset classes and investment strategies as HNW or institutional investors. It provides asset managers the opportunity to enter the retail arena and join the ‘power shift’ by becoming a personalized portfolio distributor leveraging existing capabilities and resource delivered through digital channels.
Owning the distribution channel across target markets should be a high priority strategic item for all private asset managers in the years to come.