Trends in the Advisor Market

Asset managers and distributors are always looking to uncover strategies that strengthen partnerships with financial advisors — and NICSA members had a free opportunity to do so during a #WebinarWednesday event late last month.

Meredith Lloyd Rice, Vice President at Cogent Syndicated, a division of Escalent, presented the webinar, in which she shared highlights from the June 2019 Advisor Brandscape® report. Based on a web-based survey of 1,500 advisors representing all channels, the report measured the impact of brand and loyalty on revenue in the advisor marketplace. Rice outlined five significant takeaways, providing insight on a range of business issues.

The Growing Influence of RIAs

Rice said that according to the report, the RIA channel continues to expand in both size and influence.

“RIAs manage the largest books of business — $437 million on average — and the proportion of RIAs managing at least 1 billion in assets under management has increased from 9% to 16%,” she said. “RIAs now control a remarkable 59% of advisor-managed mutual fund assets and 68% of advisors’ ETF assets, an even greater share than last year.”

Trends in Products and Asset Class

In terms of product, the proportion of advisors selling ETFs reached an all-time high of 82%, a figure largely driven by those managing at least $100 million in assets. Advisors’ allocations to ETFs have also increased significantly over the past year, from 16.6% in 2018 to 19.4% today. 

Though they forecasted little change in their mutual fund allocations last year, advisors now plan to increase their ETF reliance at the expense of mutual funds.

“Advisors expect to pare back reliance on mutual funds from 36.1% today to 32.4% over the next two years,with 32% of new dollars now going to ETFs compared with 26% of new dollars going to mutual funds,” Rice said.

When it comes to asset class, Rich said allocations to active U.S. equities have declined in favor of passively-managed investments, but active U.S. fixed income represents a potential area of growth for active managers.

Consolidation in Mutual Funds and ETFs

The Advisor Brandscape® report also found that consolidation is continuing in the mutual fund market and evident for the first time in the ETF category. Amid this increasingly competitive environment, Rice said firms must address the areas that are most important to advisors.

Few firms distinguish themselves as ETF leaders; however, there are still opportunities for newer entrants to stand out. “Firms looking to launch ETFs have an opportunity to find the right fit to distinguish themselves,” Rice said. “Whether it’s leveraging a certain product or expertise in a specific asset class, there are opportunities for asset managers who’ve built a strong reputation in the market.”

Advisors’ Use of Model Portfolios

The majority of advisors surveyed said they rely on model portfolios to some extent, signaling an opportunity for managers to position solutions in this area. 

“Advisors report being most reliant on models they build themselves, with nearly half (47%) saying they use self-built models often or always,” Rice said. “Thus, asset managers should consider how they can best support advisors’ portfolio construction needs, whether as a resource and helping them to build their own models or as a third-party model provider.”

The Advisors’ Role

This year’s Advisor Brandscape® report also revealed that advisors spend the majority of their time nurturing client relationships — especially within broker/dealer channels. The research categorized these advisors into two groups: technical and non-technical, with technical advisors defined as spending at least 40% of their time on investment selection and portfolio construction. 

“With 4 in 10 advisors meeting these criteria, technical advisors rely more heavily on individual securities and less on packaged products like mutual funds compared with non-technical advisors,” Rice said.

Finally, the report found the most significant drivers of loyalty to vary somewhat between technical and non-technical advisors.

“Within the mutual fund market, ‘long-term performance’ and ‘investment team stability’ are even more important among technical advisors,” Rice said. “’Short-term performance,’ being ‘easy to do business with,’ and ‘an advisor website’ are more important among non-technical advisors.

NICSA thanks Cogent for sponsoring this webinar. View the archived webinar for additional insight, and be sure to share your thoughts with us.

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the NICSA 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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