Product Development: Where is the Puck Going?

As the asset management industry evolves, the role of product development has become more prominent than ever. “I’ve heard several asset managers say that product development is now at the heart of the firm, more than portfolio management,” Patrick Curtin, Managing Director at Citi, told attendees during a panel discussion on the topic during NICSA’s SLF in March.

Curtin moderated the panel, in which asset managers and broker dealers discussed the forces motivating investors. Sandy Bolton, Managing Director, Head of Investment Solutions – Managed Solutions Group at Merrill Lynch, focused on the move to a fee-based model. “We’re working … to create model portfolios that financial advisors can leverage to outsource the investment process and really focus on the relationship with their clients,” she said.

Gary Gallagher, Head of Investment and Managed Solutions, Fidelity Institutional – Investments and Technology SolutionsG, said there’s been a paradigm shift in the move from a product-based to solutions-based mindset. “More and more of the intermediaries that we’re dealing with are thinking about how their business model is changing,” he said. “No longer is it good enough to be really good at the investment side of the business; they have to think about providing a broader fiduciary mindset. We’re constantly thinking about how we evolve building blocks to solutions, how we package things to make it easier for our clients, and to provide scalable advice.”

“The move to fee-based has caused us to really think about the breadth and focus of our product line,” Dan Beckman, Head of US Product at Columbia Threadneedle Investments, said. “You need to be a best-of-breed product provider.”

“We’re also in the process of building complete solutions for clients,” he said. “That might include some of our own product, but also third-party beta products.”

Scott Howes, Managing Director, BlackRock, has observed increased use of a models-based practice system. “I would define that as where an advisor attempts to gravitate the majority of his or her assets, or whatever’s appropriate, to a limited number of model portfolios inside fee-based advisory for scale, to lower costs, and simplify compliance and regulatory hurdles,” he said.

The fee-based environment has also created a boom in ETFs. For Howes, bond ETFs are particularly intriguing: “The growth trajectory of bond ETFs has followed equity ETFs, so we have more work to do at BlackRock helping advisors understand how to use bond ETFs in portfolios alongside active strategies.”

From a manufacturing perspective, Gallagher said Fidelity is looking at sector-based ETFs as well as the smart beta and factor space. “More and more intermediaries are embracing the role multi-factor can play,” he said.

The separately managed account (SMA) business is growing as well. “We are still seeing a trend to low-cost ETFs, but the segments of our business that are more high-net-worth orientated will use SMA vehicles as a complement,” Gallagher said. “It’s much more of a niche play for solving investment need.”

As Baby Boomers retire in droves, Curtin said the industry must consider its talent pools. Beckman agreed. “Asset managers historically hire from within to grow their staff,” he said. “I’ve found it’s been very helpful to bring in folks who have broker-dealer experience, because they’ve got the client-side knowledge.”

Bolton said the financial advisor of the future will “embrace the fact that they have, for example, Merrill Lynch behind them making investment decisions and putting in that daily work, creating portfolios, testing them and measuring performance on their behalf,” she said. “That’s what we’re training our advisors to do.”

Gallagher said advisors should move up the value stack and focus on soft skills. “We are building our business model around helping advisors become more planning-centric,” he said. “A lot of the things they are doing today can be commoditized or better served centrally — it’s a whole shift.”

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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