Managing the mix for best results
Best in class Last month we discussed the challenge of building the correct asset allocation structure. This month we discuss how those assets can be managed to provide the best service for your clients. In the UK, over the last three to five years, open-architecture delivery of investment through third-party distribution of mutual funds and sub-advisory relationships has revolutionised access for investors to top-performing managers and funds. It provides access to one-stop shopping and enables more consistent and robust product due to the ability to change investment content. However, it is surprising that the associated benefits are still not universally accepted. The investment decision is crucial to the investor and eclipses the value of most other forms of advice given to clients – even taxation, given consistent reduction of tax benefits across investment products. Yet, despite the importance of this decision, investment remains a small part of the advice given to clients, with the majority of time spent on advising which wrapper to use – be it an Isa, bond or unit trust rather than which fund can best meet their investment needs.
It is not always just the consumer and their adviser that benefits from open architecture. The benefits of outsourcing asset management for insurance companies are equally compelling:
- Growth in volumes by offering a greater choice;
- Protection of volumes by increased persistency, due to a more robust product;
- Completion of product ranges without increased cost base;
- Improved timelines in terms of new product to market;
- Attractive and simple to articulate product propositions.
It must be remembered that investment management businesses are incredibly difficult to manage and the challenges are considerable. They include:
- The need to deliver consistent outperformance to clients;
- The need to manage high personnel and technological costs;
- Constant requirement to deliver a wide investment choice to clients as markets and investment preferences change;
- High costs associated with establishing and maintaining a market-leading brand with clients, advisors and distributors alike; and
- The need to meet increasingly tailored service according to client demands.
Investment management is one of the most highly evolved service industries and is difficult to get right. The right balance has to be achieved between creativity and vision with structure and diligence; and the need to remain dedicated and professional – with healthy doses of scepticism. Getting it right, in the current environment of lower equity returns and reduced operating margins is challenging and hence many firms find themselves in the middle ground of asset management – a very uncomfortable place to be. Asset management polarisation There is considerable over-capacity in the asset management industry and it continues to polarise from many generalist providers into the core and boutiques model. This bifurcation will benefit both consumers and advisers by balancing both the high added value a core provider can offer with the niche of a boutique. Given the competitive environment of asset management and the need to provide clients with the best possible service, the trend to introduce open architecture is sure to continue.
