The global asset management is on the cusp of fundamental change and the industry is grappling with four big change drivers as companies try to position for the future.

The four big areas of focus are the changing dynamics within each of the following – distribution, technology, regulation, and the general ability of the industry to add value to clients.

Distribution – This is changing and asset managers are looking across a broad number of channels now to maximise their potential sales.

Some managers are turning channel agnostic (interpreted as they’ll take money from wherever they can get it!) and spreading their energies across the following primary channels:

• Financial Advisers
• Wealth Managers
• Discretionary Fund Managers
• Robo-Advice Services
• Fund of Funds/Model Portfolio Services
• Direct Channel
• Fund Platforms (inc Execution Only)
• Life Companies/Insurers
• Full Service Broker Channel
• Discount Broker Channel

Asset managers are trying to win more business via these channels by executing three core strategies.

• Being more competitive
• Through product innovation
• Through partnering/ acquisitions.

Technology –This is seen as both an opportunity and a huge threat to the traditional business models of asset managers (this is happening across industries though not just in funds management – the so-called disruptors).

Value – There is a big debate around where the value and benefits are within asset management and how the industry can best innovate to meet the changing (read therein ‘more demanding needs’ of clients). Some of this is thought to be cyclical, such as the stellar run of passives during the seven year bull market. One thing is for sure there is going to be pressure regardless of where you play. Cost is just one function of where the industry is maturing – cost compression – but also ‘solutions’. What are you as an asset manager bringing to the party? What problems are you helping to alleviate? What benefit are you bringing to clients?

Regulation – Regulation + technology are the primary drivers behind the change mentioned in point one. For regulation, it’s a different form of disruption. It’s more to do with imbalance where the regulator over penalises/scrutinises one channel while putting other channels less in focus.

In the UK, for example, it’s accepted that RDR has achieved its primary aim (just as the expectation is that MIFID II in Europe will do the same) of removing inherent product recommending bias within intermediated (advised) product distribution. ie Clients being advised to buy less ideal products because of the financial inducements to advisors.

However there are a number of side symptoms or unintended consequences. Namely the rise of the Advice Gap. This is something we flagged in 2011 when CoreData coined the phrase Advice Orphans. This is where the mass market is basically excluded from the advice arena because there are no longer subsidies (adviser commission payments by the product manufacturers) to cover the cost of seeking advice.

This should in theory be filled by new tech led business model that enter the market which provide some element of guided advice – the more sophisticated are the robo-advice offers. Algorithm led solutions with client risk appetite/needs overlays.

The issues for the industry are broad but not complicated. Most groups appear to be fumbling their way forward. Perhaps giving manufacturers more credit for dynamism than they deserve… Think of it as an Olympic style indoor cycle sprint when cyclists begin very slowly and try to avoid being the first to go ‘full pelt’ for fear of getting caught. In this instance with asset managers it would be a mixture of the fear of failing, the potential for brand damage, or most likely the lack of a sense of what exactly they need to do to succeed.

The name of the game is getting closer to the end customer and simplifying communication of their proposition to help the former make more informed choices whether they are guided, partly guided or completely non-advised by planners.

Most manufacturers know what is needed but it’s a question of how much fire power the average manager has to truly be successful in other channels and when they’ve relied so long historically almost exclusively on business via financial advisers.

It’s an odd industry where the component product is the branded good yet the end client has limited awareness of the brand.

Few consumers have heard of BlackRock – yet it is the biggest asset manager on the planet.

Imagine trying to buy a car or a phone but having limited to no awareness of any brands. This is the reality for thousands of people on a daily basis beginning to make choices relating to their long term future.

Everyone is finding their way and we’ll be seeing lots more tie ups as groups grasp at opportunities across channels to secure distribution.

Aberdeen has done a deal with Hymans after losing out on Nutmeg to Schroders. While groups like Investec only care about the advisor ecosystem. Old Mutual is going vertical integration and trying to secure business that way.

Standard Life is doing similar.

A mix of open and partially closed architecture models are appearing. A minority are going tied. But the area of growth is restricted where under pressure advisers (our research shows they’re spending 24 hrs a month on compliance) are realising they don’t need to offer 5,000 funds. But maybe a limited number of funds or a series of models – and where clients are segmented into risk buckets.

The regulator, tech and market dynamics are giving some distribution channels a bump up and hindering others. This will be temporary as the regulators soften hard hit channels and step up loose channels where some scandal or blow up comes to light.