Identifying Growth Opportunities in an Evolving Asset Management Industry

On Thursday, March 1, members attending NICSA’s Strategic Leadership Forum gained insight on emerging trends and opportunities for asset managers and fund companies from the perspective of a leading independent investment research company.

Kunal Kapoor, CEO of Morningstar, shared his view on the influx of change in the industry with the 350+ asset management executives in attendance at the SLF. “What’s happened in the last two decades is we went from a no-load fund type of world [to] what is now an advisor-dominated world,” Kapoor said. “The balance has changed pretty dramatically, and I think this is at the heart of the issues that many of you are trying to grapple with.”

Kapoor outlined four reasons behind the shift. The first, and of greatest importance, is that low-cost investments are gaining market share. “I don’t believe it’s an active vs. passive thing,” he noted. “I honestly believe it’s a low-cost vs. high-cost issue, and even within active management, the low-cost providers are in fact winning — and that should tell us something.”

The second factor is that accounts are becoming fee-based. “This means that advisors in particular are increasingly charging not on a commission basis, but an ongoing fee basis,” Kapoor said. Tied to this is global regulatory expansion, which many believe is driving the fee-based trend. Kapoor begs to differ: “We could have taken away all of the debates last year in the U.S. — for example, around the fiduciary rule and whether it should or shouldn’t happen — and fee-based accounts would still be happening in a very, very decisive manner.”

The fourth cause for change is adoption of technology. “[With] some of the newer fintech firms, if you open an account with them, it’s one click,” Kapoor said. “The question is: what are they doing differently that we can all learn from?”

The implication of the change is straightforward, according to Kapoor. “If you are an asset manager, the question to ask yourself is what your revenue mix might look like in the future, and how you’re going to differentiate yourself,” Kapoor said.

Kapoor’s presentation was followed by a panel discussion featuring top product and distribution leaders within the asset management industry.

Noreen Beaman, CEO at Brinker Capital, said the investment management firm was committed to providing lower cost offerings. “Brinker Capital … had to rethink the value chain,” Beaman said. “We were very fortunate. With the help of a lot of our partners, we were able to have 100 percent replication of the mutual funds in a sub-advisory structure to bring a solution to our clients at a much less expensive price point, and it allowed us to manage the DOL rule.”

Barry Mandinach, Executive Vice President, Head of Distribution at Virtus Investment Partners, provided the wholesaler perspective. “FAs are really paid on assets under management, not sales,” he said. “If you’re not positioning yourself to talk about how you can help them either grow or protect their capital, their asset base, then you’re really not going to connect with a financial advisor.”

Jim Bumpus, National Sales Manager at Columbia Threadneedle, said wholesalers have vastly different jobs than they did 10 years ago. “The technical proficiency, the focus not just on products but optimizing portfolios — that’s hard to do alone, so you really have a be a quarterback of resources as a wholesaler.”

Ultimately, Bumpus said ensuring a positive experience for the end client is most important, and at the end of the day, change is natural. “It’s a competitive industry, and it’s occasionally going to be rocked by changing forces in the marketplace whether it’s technology, regulators or price,” he said.

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA event panel, they do not necessarily reflect the views of NICSA or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.



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