Advice firms moving up the value chain… Be wary, it’s a different type of business

Our last Trialogue shed some light on a couple of opportunities created by the growth in managed accounts. This week we take a different angle, identifying opportunities for advice firms to leverage managed accounts and other similar structures to move up the value chain, and the threat that presents for fund managers (whose revenue streams are at risk).

So where did this start? Dealer group model portfolios have been around for years – providing a method for advisers to implement relatively standardised investment solutions across their client base.  For the majority of advisers this remains a comparatively manual process requiring individual SOAs.

Recently we have seen a move by some dealer groups to offer more formal investment management services – prompted at least in part by the banning of volume-based platform rebates that had previously been an important part of the revenue mix for dealer groups.

The Tria Managed Funds Review shows us just how much success these ‘implemented model’ strategies are enjoying.  For example, Perpetual’s Implemented Portfolios fund range (offered through Perpetual Private) is in the top 5 funds by  annual net flow across three asset classes (global equities, fixed income and property/infrastructure), and Mosaic (offered by IOOF/SFG) is in the top 20 largest managers by assets for those same asset classes. But the table below (which is merely a snapshot) shows it’s not just the big names having success. 


This trend to investment management within advice has seen two primary models emerge: 


Each of these structures enables the advice group to deliver an investment solution created bespoke for its clients’ needs (whilst collecting asset management margin).  The actual investment offers vary widely – from low cost diversified portfolios of ETFs to higher cost active multi-manager funds or direct equity portfolios.

We think advice firms taking a more active role in investment management is potentially a positive change. But they should be wary of the implications as there are very different types of capabilities required to be successful (and avoid failure).  Entering the business of funds management shouldn’t be taken lightly – there are a number of instances of parallel businesses extending into funds management and ultimately failing (think van Eyk).

Therefore it’s absolutely key that these firms are set up for success with the appropriate infrastructure and oversight across functions such as investment process, research, operations, risk, compliance and product. 

For fund managers this trend is another sign of the ever-shrinking opportunity set in true retail as advisers trend away from building discretionary portfolios for clients and increasingly rely on centrally-developed models and other solutions. The implication is that margins for asset managers will be lower, but servicing requirements are also different; managers will increasingly be able to leverage ‘head office’ relationships with dealer groups rather than having more substantial, geographically distributed sales teams servicing individual advisers. 

Posted In: Trialogue