Asset Managers and Program Sponsors Look to Reframe Revenue Sharing and the Economics of Distribution

September 16, 2021 — Boston

As the wealth management industry moves toward an increasingly fee-based model, the economics of distribution, for both asset managers and managed account program sponsors, are changing

The economics of distribution are changing for asset managers and managed account program sponsors. Only one-quarter of asset managers are very willing to engage in revenue sharing, while one-third are not willing to engage in revenue sharing regardless of the asset opportunity, a signal that revenue sharing is undergoing fundamental change, according to Cerulli’s new report, U.S. Managed Accounts 2021: The Evolution of Personalized Investing.

The traditional basis point on sales arrangement, one of the most common revenue-sharing arrangements, is losing ground to alternative options. Over 60% of managers submit that flat fees—payments between asset managers and program sponsors that are tied to specific, measurable metrics—are an attractive option for revenue sharing. “These types of arrangements are perceived to be fairer by asset managers and they also hold up to the scrutiny of a fiduciary environment,” comments Matt Belnap, senior analyst. “If asset managers and sponsors are working toward a common goal, this type of arrangement not only fosters partnership, but also allays regulatory concerns on both sides,” he adds.

Moving forward, asset managers view home-office portfolio construction opportunities as the most valuable types of partnerships through revenue-sharing or partnership fees. Managers rank the opportunity to have products in home-office portfolios (83%), the opportunity to be in wrap programs (78%), and the opportunity to be on select lists (70%) as the most valuable opportunities. “If asset managers are going to pay, they want those dollars to buy as much influence as possible,” remarks Belnap.

In addition to fee arrangements, further scrutiny will be paid to conference sponsorship. While 74% of surveyed asset management executives say that conference sponsorships provide moderate value when considering revenue-sharing arrangements, one-quarter of survey participants believe they provide no value at all, making these sponsorships the least valuable revenue-sharing component rated by asset managers. Cerulli feels that conferences and meetings will remain important, and a good chunk of the industry will want to return to gathering with peers in person. However, post-pandemic, this will look different.

Regardless of assets under management (AUM) or marketing programs, few asset managers consider themselves “very willing” to enter into revenue-sharing agreements and managed account program sponsors should be prepared for a changing revenue-sharing environment. “Asset managers want partnerships and tangible benefits from payments. Pure AUM clout will not be enough to enter an agreement,” concludes Belnap.

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