Mutual fund and ETF providers are being challenged with the shift in demographics and the trend toward goals-based investing. It has made the end-client relationship ever more valuable and as a consequence has increased the influence of the distributors (i.e., the gatekeepers) who own those client relationships (RIAs, financial planners, wirehouses, etc.). What does this mean for the asset managers who increasingly rely on the gatekeepers and want their products available to the platform's clients? Certainly performance, investment process, and risk are still key determinants for the inclusion of an asset manager on platforms (this is assuming open-architecture, no-conflict-of-interest platforms - not pay-to-play engagements in which revenue sharing arrangements are a big influencer of product availability). But is technology also a consideration for gatekeepers? Can the asset managers leverage technology to get, and deepen, the relationship with the distributors?


Historically asset managers often perceived technology primarily in terms of core operating productivity and back-office efficiency. Technology remains a high priority as respondents to the survey indicated asset valuation services, computer security and a variety of other technology-related expenses as spending priorities in 2014.

However, over the last decade technology has become a priority for other aspects of the successful asset manager as well. The investment decision process, risk management, and client interaction/support/value-add activities are also vying closely for priority in technology spend for asset managers. This makes sense from a distributor's perspective.


Most successful asset managers have recognized how important technology is as means to improve investment performance and to communicate that investment performance to distribution partners. This is especially true as the investment marketplace becomes more sophisticated and investment strategies more complex. The gatekeepers want and expect more than just product fact sheets and simple performance reports. Investment in business-intelligence platforms and best-of-breed analytics/vendors will be necessary to provide the robust performance and risk analysis gatekeepers are increasingly demanding. For asset managers that haven't made those commitments, know that many of your competitors have and they are now leveraging them for distribution opportunities. Survey results bear this out with "Analytics," "Big Data," "Data Management," and "Portfolio management systems/software" all scoring highly for spending priority. This priority is also noteworthy in that it survives cost cutting as well, having some of the smallest responses to "the top 5 areas in which you expect costs to be cut the most."


It is not surprising that Risk Management Systems are also a top priority for technology spending. Even five years after the global financial crisis, gatekeepers know the importance of vetting risk management at the enterprise and the investment strategy level during the due diligence process. Asset managers now have to be able to demonstrate to clients (as well as to regulators in many cases) that they have sufficient enterprise risk management processes and procedures to mitigate all aspects of investment and operational risk. The existence of these processes, and the technology used in them, help the distributors mitigate sub-optimal investment partners and products. Even without large scale economic crisis the industry periodically witnesses a Madoff situation to remind it why committing to technology in this area is important. All else being equal, sensible gatekeepers will partner with the asset manager that has made a commitment and priority here.


Asset managers are recognizing that the better they can assist their distribution partners with real value-add services and information the more they will stand out from their competition and the better they can strengthen their relationship with the gatekeepers. Many asset managers are prioritizing their technology spend to improve the delivery of content and support. This can be seen in high response rates to priorities like "website services to customers" and adopting new technologies like "cloud computing," "iPads/tablets," and "Mobile apps." Likewise, some asset managers are finding success sharing their technology with the distribution partners in consultative relationships or providing services to supplement the distribution partners own practices (providing asset allocation models, scenario/stress-testing of portfolios/asset classes, risk factor decomposition). Financial intermediaries continue to gain clout and have abundant choices in the asset management firms they choose to do business with. Although technology will not be a prime determinant in the due diligence process for these gatekeepers, it can be a differentiator. Asset managers that commit to technology spending in the areas of investment process, risk management, and value-add support & services will likely have an advantage in being selected for use by the distributors.

Chris Bouffard is chief investment officer at The Mutual Fund Store.

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