Seismic looked at the disparity between what consumers expect from a product or service, the realities of what each can deliver and how the wealth management space isn’t immune from such differences in perspective. Clients and advisors are approaching investing with contrasting strategies and goals, but just how disruptive has this been to the fundamentals of asset management? How far upstream has the disconnect actually traveled?
Based on the latest insights from industry insiders, quite extensively, especially as regulations like the DOL fiduciary rule compound the difficulty of proposing and managing new strategies and products based on what wealth advisors are looking for to satisfy clients’ needs. Sway Research, which focuses on asset management distribution, found that 26 percent of retirement/benefits consultants and 35 percent of retirement advisers believe the DOL rule will prompt them to use fewer asset managers.
This data supports what FundFire reported last week, which is that broker-dealers are undertaking a product rationalization and streamlining process in order to better justify that each investment offering is in the best interest of one client or another.
“I think that there’s no doubt… that [product] rationalization is going to happen,” said Warren Terry, managing director and head of the financial advisor platform at Wells Fargo Advisors, during the Money Management Institute (MMI) Fall Solutions conference in Boston. “It has to, because we need to be able to substantiate why this is in the best interest of the client. I think the key is to make sure you have a really deep understanding of where your partner firm is trying to go and make sure your product offerings are really focused on the outcomes that they expect.”
Roger Paradiso, head of alternative distribution strategies at Legg Mason believes that firms that offer a variety of strategies, including separately managed accounts (SMAs), exchange-traded funds (ETFs) and closed-end funds, in addition to mutual funds, will be at an advantage.
Therefore, this product rationalization is having a direct effect on asset managers, as they’re pressured to respond in kind and deliver the types of offerings and outcomes expected by broker-dealers. To not remain attentive and objectively evaluative could more than likely lead to lost partnerships, thus AUM outflows.
Identical to what was outlined last week as a method for managing expectations and reality between advisors and clients, consistent communication and goal alignment are essential to a cooperative and mutually beneficial partnership. The clearer a manager can relay to an advisor how a product delivers the outcome a client wants, the more effective and subsequently valuable that offering and manager will be regarded as by broker-dealers.
“It gives the broker-dealers a lot more power,” Tim Clift, chief investment strategist at Envestnet, said. “They’re kind of forcing the change. As an asset manager, you are looking at your offering and saying, ‘is this going to be competitive in this new industry?’ A lot of times it’s not. We’re looking at [more asset managers] being sold or merging.”
Thus, the imbalance between expectations and reality exists all the way up the wealth advisory value chain, and because of a multitude of factors, seemingly led by the DOL rule’s imminence, an industry adjustment or even correction is underway, redefining and realigning supply and demand within financial services.
