Product rationalization, prompted in part by the increasing move toward model portfolios and fiduciary accounts, remains an obstacle for asset managers—nearly half (47%) of key account personnel consider this a major challenge to securing platform placement, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

While the first half of 2021 passed without any major announcements of product rationalizations by broker/dealer (B/D) platforms, home offices have stated that they are exercising more stringent ongoing due diligence and remain willing to cut underperforming or underused products. This has translated into stricter screening when onboarding strategies. The heightened due diligence process is a particularly acute challenge for more than two-fifths (44%) of key accounts teams. Most (88%) find the role of third-party consultants in the due diligence process a moderate or major challenge.

At the same time, the playing field for mutual funds and exchange-traded funds (ETFs) has grown increasingly crowded. More than 200 ETFs and 100 mutual funds have launched this year, making it imperative that distribution teams do their best to stand out when attempting to onboard strategies. “This proliferation means that managers must take the time to understand how to best align their investment expertise with advisor needs,” comments Ed Louis, associate director. This is particularly important as the move to asset allocation models takes hold at home offices. “Home-office teams are pushing advisory practices to embrace investment outsourcing to both manage risk and allow advisors to focus on managing client relationships using asset allocation models. Securing model mandates is becoming more attractive, as advisors become increasingly difficult to access,” he adds.

Securing success can bring its own issues, however. “Managers pursuing model opportunities must be prepared to navigate not only the heightened due diligence and service requirements that come with the space, but also the potential accompanying volatility in asset levels that can occur if funds get removed from the mandates they’ve fought so hard to win,” he concludes.