As the asset management industry continues to evolve and face new challenges, outsourcing investment management to outsourced managed portfolio solutions (MPS) as part of a top to bottom tech stack, has become an increasingly popular solution for financial advisers. With a suite of MPS, advisers can expand their investment capabilities while freeing up time for client-facing activities, mitigating regulatory risk, and reducing overhead costs.
According to a study in the US by AssetMark, 99% of financial advisers who outsource investment management have experienced significant improvements in at least one area of their business.
TANGIBLE BUSINESS IMPROVEMENTS AS A RESULT OF OUTSOURCING
% of Outsourcing Advisors
1. High-Touch Service + High-Tech Capabilities = A Perfect Match
The next generation of outsourced portfolio management solutions are combining high-touch service with high-tech capabilities to deliver a tailored, holistic experience for advisors and their clients. These providers offer a consultative service model that is highly customisable to meet the unique needs of each client.
They also leverage advanced technology, such as data analytics tools and cloud-based platforms, to automate manual processes and support mission-critical business operations such as portfolio construction, rebalancing, and billing.
This combination of high-touch service and high-tech capabilities can help advisers to scale their practices effectively while building stronger relationships with their clients while also delivering better investment outcomes for their clients.
Supplementing the AssetMark study, research conducted in 2021 by independent research firm 8 Acre Perspective reveals that Asset Managers’ satisfaction levels with outsourcing have only increased.
Tangible Business Improvements as a Result of Outsourcing
% of Outsourcing Advisors
However, advisers should not blindly accept the premise that outsourcing investment management is always the right solution. It’s important to carefully consider the unique needs of your firm and clients when selecting an appropriate technology and asset management partner.
2. Improved Investor Reporting
In addition to the rise of outsourced solutions, there are several other trends that are shaping the asset management industry. One of the most important trends is improved investor reporting.
Investors are increasingly demanding transparency and clarity around the performance and operations of their investments, leading asset managers to invest in data analytics tools and services that can offer intuitive visualisations and automated reporting.
TImproved investor reporting not only meets investors’ expectations for transparency but also helps asset managers to differentiate themselves in a crowded market. By offering clear and comprehensive reporting, asset managers can build trust with investors and attract new clients.
3. Active vs Passive Investing
Another trend is the rise of passive investing, driven by the low fees associated with passively managed funds and the demand for better returns. This has led to a younger and less experienced type of investor, as well as a push towards alternative asset classes as investors search for ways to meet their expected returns.
Active management still has its place in the market. Some investors prefer actively managed funds, as they believe that skilled fund managers can outperform the market over the long term.
However, with interest rates at historic lows, investors are seeking higher returns from their investments. This has led many investors to look beyond traditional asset classes such as stocks and bonds, and towards alternative investments such as real estate, commodities, and gold.
4. End of the 60:40 Portfolio
The traditional 60/40 portfolio (60% stocks and 40% bonds) is also losing steam, with investors seeking more diversification and exposure to liquid alternative assets such as volatility, structured products and gold as a substitute for bonds in providing defensive qualities to a portfolio, like private equity and hedge funds.
One approach that asset managers are taking is to incorporate alternative asset classes into multi-asset portfolios. This approach allows investors to benefit from the return potential of liquid alternative assets while still maintaining a diversified portfolio that manages risk.
5. Cybersecurity and Risk
As with any industry, cybersecurity and risk management are critical concerns for asset managers. They must recognise that they have a responsibility to protect the sensitive client and employee data that they hold, as well as their proprietary intelligence and competitive edge.
A lack of investment in these areas can have disastrous effects on an asset manager’s business, including the loss of proprietary intelligence and a competitive edge, as well as a loss of investors’ trust.
Investors are becoming increasingly aware of the importance of cybersecurity and risk management, and they are looking to partner with asset managers who prioritise these areas. By demonstrating a commitment to protecting their clients’ data and mitigating risks, asset managers can build trust with investors and differentiate themselves in a crowded marketplace.
6. Digital Transformation
To address these challenges, asset managers are turning to digital transformation. It involves automating manual processes, adopting artificial intelligence (AI), and using cloud-based technologies to improve efficiencies and compliance. By digitizing and automating routine tasks, asset managers can free up time for more strategic activities, such as investment research and client engagement.
The trend towards digital transformation is expected to continue in the asset management industry as firms seek to improve efficiencies, comply with regulations, and meet the demands of a digital-savvy investor base.
SUMMARY
The asset management industry is facing several challenges and trends, from the rise of outsourced asset management solutions and improved investor reporting to the end of the 60/40 portfolio and the need for digital transformation. As financial advisers contemplate growing their practices, it’s important to consider these trends and challenges and work with the right partners to deliver a tailored, holistic experience that enables advisors to focus on scaling effectively while forging stronger relationships with clients.
