Politics are weighing heavily on the discussion at NICSA’s annual Strategic Leadership Forum in Florida — both the legacy of Barack Obama and the uncertainty surrounding the new Trump administration.

The impact of the Department of Labor’s fiduciary rule on the asset management industry is ongoing, says NICSA President Jim Fitzpatrick.

Despite an expectation the rule will not survive under the new president, the latest example of it’s influence comes from Janus, which announced it is seeking SEC approval for two new share classes designed to meet the DoL fiduciary requirements.

All firms are committing to expensive choices with little guidance on how to benefit from them, Fitzpatrick says.

"The DoL fiduciary rule is a huge focus," he says. "Cloaked in uncertainty, the industry must come to a consensus on how to move forward — what business practices to adopt, what formal procedures to put in place."

The fiduciary rule is just one of the major pressures affecting the fund industry, which is why discussion of disruption not only dominates the event's agenda, it is also the theme of the conference.

"Change is nothing new for the investment management industry and it can come in many forms, from the regulatory landscape to new technologies that improve or replace current operations," he says. "What's important is strategic preparation and critical process development. We'll be discussing an array of potential disruptors — from the DoL fiduciary rule to robo advisers and data analytics, to name a few. And, most importantly, we'll be rolling up our sleeves and taking a deeper dive into tangible business solutions and best practices."


Fitzpatrick believes seeking opportunity in an age of disruption is a rallying cry for every management firm that may be wondering on how to move forward.

"The industry is already in the throes of weathering the disruption of low-cost indexing, robo advisers, and fund aggregators," he says. "What the future looks like is anybody's guess but it will likely include solutions for integrated risk models while leveraging big data solutions.

"With each of these themes come shifting business models and potentially costly and cumbersome operational adjustments; but each ushers in opportunities to better serve our clients."

Action, says Anne Hebard, managing director at Boston Financial Data Services, is preferable in "an environment in which many are in a state of panicked paralysis." Her firm is participating broadly in the conference, offering up experts to speak on several panels discussing managing various disruptors, from robo advisers to swing pricing.


There is, however, ample reason for concern. Ahead of the conference, NICSA conducted a survey of its members and found many are expecting an increase of orphaned accounts due to the DoL rule.

Of note: 83% of NICSA survey participants said they are already receiving resignation requests from broker dealers and RIAs as broker/dealer of record on accounts.

Additionally, the vast majority are contemplating changing procedures to address non-brokered accounts in response to the DoL fiduciary rule.

The DoL fiduciary rule is also spurring account custody changes, such as BlackRock's decision to move more than $1 trillion in client assets from State Street to JPMorgan Chase.

Beyond the challenges wrought by regulation and emerging technology, the shift of investor assets to passive has been felt by many.

According to Bloomberg News, 30 of the 50 largest mutual fund firms suffered net redemptions in the first 11 months of 2016. Actively managed funds suffered outflows of $286 billion in the first 11 months while $428.6 billion shifted to passive mutual funds and ETFs.


Such disruption even extended to M&A dealmaking, according to new research from PwC. Though there was a 5% increase in deal values in 2016 (total disclosed deals worth $10.1 billion), the consulting firm reported M&A deal volume overall was down 13%.

"Considering the level of uncertainty surrounding 2017, it is difficult to guess whether the healthy levels of M&A will continue or the deal makers may choose to wait out [the year] to minimize execution risk," stated Sam Yildirim, U.S. asset management M&A leader at PwC.

Fitzpatrick says the active/passive debate will continue and the ETF market trends will continue to be watched very carefully.

"Asset managers should also expect the continued evolution of operations, technology, distribution, and product strategies," he adds. "For example, DoL, fee pressures and other influences are driving the creation of new share classes. Distribution is being modernized via robo advisers and data analytics. And fintech, sooner or later, will ultimately leave its mark on the industry."


Given the series of challenges, firms have to be talking to each other more, not less, says Dan Houlihan, executive vice president of corporate and institutional services at Northern Trust.

"Opportunity abounds for industry leaders to increase their impact on short-term and long-term business development in response to the DoL ruling," says Houlihan, who is also chairman of NICSA's board.

"Practical policy routed in efficiency must start with us. Associations like NICSA are important in engaging financial community members directly to design and implement programs in ways that work for us and our clients."

Fitzpatrick says his organization is hoping to be more involved in helping the industry find solutions to its numerous challenges.

One of the initiatives being considered is providing certification programs for NICSA members.

"This will be a multi-year project but is aimed at augmenting member training programs in order to provide additional training, education and technical expertise for the employees," he says.

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