It is predicted that investment managers will grow their assets by less than 1% over the next four years, based on a trend that began in 2008.
It’s a trend that also applies to independent RIAs and financial planners.
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Before 2008, asset growth of 6% to 7% was commonplace. Now, asset managers are struggling with declining revenues from the slowdown in asset flows.
A management consultant to the asset management industry, Casey Quirk, said in a recent white paper that competition will become more fierce but that firms that know how to innovate will experience success.
The consultantancy says that there are four areas where successful firms will outshine their competitors.
One is by offering uncorrelated and superior returns on equity, fixed income, and/or alternatives.
Two is through cost-effective indexing and exchange-traded funds (ETFs).
Three is through asset allocation expertise—it’s the most open playing field and the most in demand by clients. Four is by selling open-architecture, best-in-class solutions.
The consultancy says the firms who excel in these areas will win 90% of the new assets available over the next five years.
Asset allocation will take a variety of forms. Some will be developed in-house by advisors while other advisors will choose to outsource it.
The outsourcing crowd will need to develop the best selection models possible and apply them to specific clients.
Long-term accumulation planning is becoming the foundation for generating income streams from portfolios.
Allocations are also including distribution planning, a component Casey Quirk says will distinguish successful revenue growers.
Of course, there are other factors in asset allocation that will do as much or more to distinguish advisors. Shifting to goals-based allocation more directly aligns your work with your clients' goals.
Understanding the influence of the dynamics in the family on decisions made about the family wealth also can affect asset allocation as well as asset location.
These latter factors remain under the radar and are rarely discussed in combination with the other factors highlighted here. They have a yet-to-be unleashed power to catapult advisor businesses beyond the competition.