Ask mutual fund and ETF providers what the top trends of fund servicing will be in 2014. They'll point you to technology, compliance and distribution.
Technology: In a nutshell, according to Cerulli Associates, financial services firms understand the need to spend money to make money. A newly released study by the research firm shows that supporting their 2014 firm-wide efforts to innovate new products and services, expand distribution, and build brand awareness requires managers to invest in their businesses. Investment in technology and costs of compensation ranked among the areas with the greatest impact on margins.
Compliance: Just look at the SEC's Northern Lights ruling to look at compliance gone wrong. An SEC investigation that arose from an examination of the Northern Lights Fund Trust and the Northern Lights Variable Trust found that some of the trusts' shareholder reports either misrepresented material information considered by the trustees or omitted material information about how they evaluated certain factors in reaching their decisions on behalf of the funds and their shareholders.
The SEC claimed that the trustees and the trusts' chief compliance officer Northern Lights Compliance Services were responsible for causing violations of the SEC's compliance rule, and the trusts' fund administrator Gemini Fund Services caused violations of the Investment Company Act recordkeeping and reporting provisions.
With calls for heightened regulatory scrutiny, fund managers are pumping up their efforts surrounding compliance - an area they say could pose a large risk if not significantly funded. "It's become one of the pillars of running an asset management businesses," says our regulatory and compliance columnist Todd Cipperman, founding principal of Cipperman Compliance Services. "Now entire infrastructures are built around the compliance function," he says.
Distribution: In the wake of the JOBS Act, which lowered the barriers of entry for money managers to distribute alternatives to retail investors, discussions around mutual funds and ETFs pursuing this investment class will gain steam in 2014, managers say.
"They will be marketed as diversifiers and for their uniqueness," says Barry Fennell, a senior research analyst at Lipper specializing in mutual fund research and performance. While some managers doubt the value of alternatives, others see the space as ripe for opportunity and profit in 2014.