5 things we learned from Fund Forum USA

Guest blog from Accudelta Managing Director Conor Smyth:

Five things we learned from Fund Forum USA

I recently visited Boston for the Fund Forum conference, which was attended by senior distribution and leadership executives from the fund industry in the US. A number of current industry topics were discussed including smart beta, robo-advice, liquid alts, outcome oriented solutions, active ETFs, and the increasingly prevalent use of distribution analytics to focus sales activity.

The key takeaways that I had from the event are summarized below:

1. The continued evolution from style boxes to solutions

A common theme through the event was that we have moved from a world of style boxes to solutions. Bob Reynolds, Putnam CEO, agreed with this – talking about the need for sophisticated and personalized target date products, and the use of SMAs within 401k plans.

To address this, many platforms and wealth managers are also building model based offerings and solutions to achieve specific goals through investment in multiple strategies – getting into these model portfolios is the new Holy Grail.

2. Robo-advisors are a cost model change, not a business model disruptor

Mark Casady, CEO at LPL Financial, took the position (and I agree with him) that Robo-advice isn’t the Uber of financial advice – it is a cost model change to meet a need within the broader market. LPL also saw the rollout of their robo-advisor platform as a tool to help train advisors.

An analogy used for these “augmented advice” robo-offerings was that they were fine for checking your blood pressure and vitals, but for high-end advice you need a high-end physician, and robo-advisors will never address this need

3. Downward pressures on fees will continue

The industry is under continued fee pressure across the board, both from a manufacturing and distribution perspective. A shift to a fee-for-advice culture along with competition from low-cost passive offerings such as ETFs has significant implications for pricing, product use, and portfolio construction.

In addition to this, the continuing wave of regulation is demanding sustained investment and increasing the cost base for asset managers.

Today’s asset managers need to be content with margins in the high 20s and early 30s. The days of margins in the 40s are gone.

4. Re-emergence of active management

Because of the volatility in today’s market, many speakers at the event pointed to investors returning to active management to find returns. However, there is a decreasing tolerance for “average” active management. Brian Jacobs, new Head of U.S. Retail Distribution for New York Life, chaired a panel with three more distribution heavy hitters – Bill Connolly from Putnam Investments, Chris Thompson from AB, and Joe Kringdon from Columbia Threadneedle Investments.

The end investor is concerned about volatility, losing their money, and where they will get income from. Advisors are confused about how to address this and how to position active management. As the panel commented “at some point, active lost control of the conversation to passive” – and now active managers need to earn their way back with differentiated performance net of fees. The panel discussed the product strategies that are relevant today – including adaptive risk allocation, alternatives, long/short equity and managed volatility.

5. Investment distribution needs to be more focused

Distribution teams within asset management firms needs to be much more focused on where they spend their time and activity – the days of casting a wide net are gone. Distribution platforms are also looking to add value in this space by providing intelligence back to the manufacturers, for example LPL’s offering with SponsorWorks, which helps to make wholesalers more efficient.

During  the distribution panel discussion, the growing RIA channel and family offices were highlighted as a priority for all firms. This is consistent with what I hear on a day to day basis, and it is clear that a strategic approach to sales will be necessary if firms are to achieve the distribution alpha they strive to accomplish .

In summary, there is a lot going on in the world of asset management right now, and the next few years will define the industry. Now is the right time for firms to take a step back in order to carefully and strategically plan where they go from here. Otherwise, in a couple of years, it will be too late.