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Across the spectrum of institutional and retail channels, intermediation by third parties is increasing; fee negotiation and vehicle choice will be key to gaining third-party approval
November 2020, BOSTON—Cerulli sizes the 2019 total U.S. professionally managed market at $51.5 trillion. The split of U.S. professionally managed assets continues to favor institutional client channels (53.8%) over retail client channels (46.2%), although retail client channel marketshare has increased 5.2 percentage points since 2009, according to Cerulli’s latest report, The State of U.S. Retail and Institutional Asset Management 2020.
Retail and institutional distribution is increasingly intermediated by third parties. In retail client channels, the share of assets that move through the third-party distribution channel has increased from 72.8% in 2014 to 74.3% in 2019. Similarly, the share of institutional client assets moving through third-party distribution has climbed from 45.6% to 53.6%. “Centralized influence points, such as investment consultants and broker/dealer (B/D) home offices, can help amplify distribution efforts as they provide a single point of contact for what is the potential of multiple client relationships,” remarks Brendan Powers, associate director.
B/D-affiliated financial advisors are shifting to fee-based business models and increasingly adopting asset allocation model portfolios, emphasizing a focus on financial planning and delivering holistic advice. “In this case, platform shelf space and model inclusion will be gatekept by the home office,” adds Powers. The collective bargaining power and negotiating skills of investment consultants on the institutional side means that the fee negotiation process will be a challenging part of winning new business.
Across both channels, the use of vehicles is shifting as investors and their intermediaries have access to a greater variety of options. The report cites that open-end mutual funds (31.7%) and institutional separate accounts (22.4%) hold 54.2% of U.S. professionally managed assets. However, both vehicles’ five-year compound annual growth rates lag those of model-delivered and manager-traded dual-contract separate accounts, exchange-traded funds (ETFs), and collective investment trusts (CITs). “Investors are increasingly open to vehicles beyond traditional open-end mutual funds and institutional separate accounts. Cost, transparency, and customization are becoming increasingly important attributes,” comments Powers. “Looking forward, asset managers should be focused on building out new investment vehicle capabilities to the extent that they can provide more flexibility to clients in selecting how they want to consume the strategies their firm offers,” he concludes.
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