Transparency, regulation, a changing clientele and products and new security threats - as industry heads gather in Boston this week for the annual FundForum USA conference, attendees say they are looking to their peers to compare practices and seek advice and solutions to challenges facing asset managers.
"I'm always interested to hear what's going on in Washington and how our political leaders are looking at issues related to retirement and savings," says Ted Truscott, CEO of global asset management at Columbia Management and a keynote speaker at the event.
"I'm also interested in the distribution view of what products are needed in the marketplace," adds Truscott. "Finally, it will be fascinating to see how my colleagues are viewing these challenges and opportunities."
Truscott will be part of an industry leadership panel discussing asset manager challenges at the conference. Among the key questions he and his colleagues will address is what the successful asset management firm of the future will look like.
Getting there, Truscott says, will require firms to transition to solutions and outcome-oriented investing, a trend spurred by clients seeking smoother returns and wanting to forget the recent financial and economic crises.
"The scars of 2008 and 2009 are still fresh in their minds and the risk of a portfolio majority invested in equities has proven to be too much risk for clients," Truscott says. "Therefore, asset management businesses are gearing up to offer these products.
"This is a sea change that requires different investment personnel, additional sales training, and takes products especially in the retail space to a new level of complexity. The compliance and derivatives processing requirements go up commensurately."
The client influence on asset manager products is becoming more sophisticated, notes Amin Rajan, CEO of Create-Research, a U.K.-based think tank that advises global fund managers, and one of the conference's moderators.
"Both defined contribution plan members and retail investors are increasingly drawing a distinction between 'product alpha' and 'solutions alpha,' " Rajan says. "The first is about beating the markets, the second about meeting investors' redefined.
"Solutions alpha will remain the epicenter of innovation. So our session will concentrate on what constitutes best practices in delivering outcomes targeted by investors. This is about jettisoning the culture of benchmark hugging and meeting clients' expressed needs."
Truscott notes that asset managers should be wary of trying to follow every trend. "There is still demand for traditional product and a fight for market share in this space," he says. "Firms cannot simply walk away from a large installed base in favor of this new line of business."
But Rajan says the asset management industry at large needs to embrace the high-touch service model as a standard.
"An important element of service is now about getting closer to clients so that their needs are identified and delivered," Rajan says. "Likewise, an important element of the state-of-the-art infrastructure is about embedding checks and balances that ensure that clients are put at the heart of the business."
Transparency is also increasing in the context of product proposition and pricing, says Craig Philips, head of CoreData Research International, a financial services research firm and consultancy.
"For proposition it's more about clarity. Being clear and distinctive in your value add, while for pricing the notion of transparency is that clients are better placed now to understand who they're paying - or at least what they're being charged - and what they're getting for their money," says Philips, who will give a keynote on how U.S. firms measure up in their investment solutions with their peers globally.
"Greater transparency is ultimately pushing the industry to innovate, which of course is a good thing," Philips adds.
Despite recent electronic attacks on financial institutions, cyber security concerns shouldn't impact decisions to outsource services, Philips says.
One of the biggest challenges facing the asset management industry today is manufacturers deciding on where to position themselves in order to support financial advisors and be deemed the most effective, he says. "Globally, distribution is increasingly a meritocracy, whereby the notion of solutions has overtaken a product-first approach," he notes. "Advisors are seeking strategies and products that meet specific needs versus pushing products to clients. Suitability is the new mantra of distribution."
"This affects the advisors, distributors, platforms and asset managers, with everyone having to demonstrate value for their part in the process. In terms of how it affects the asset managers, it comes down to the products. For example, are people paying for alpha but getting 75% benchmark hugging because managers are petrified of under-performing their peers?"
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