Asset managers are pivoting from relying on mutual funds as their prime source of profitability to presenting new products and vehicles that financial advisors and their clients demand, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

Cerulli finds building out new vehicles is a top priority for 69% of asset managers, as is building out or delivering illiquid alternatives capabilities (62%). Building/delivering customization at scale is also a high priority for 46% of firms, as initiatives such as building out or acquiring direct indexing technology have been top-of- mind.

Notably, Cerulli observes increased use of institutional separate accounts, used by 92% of firms. “The use of separate accounts aligns with firms’ initiatives to deliver customization and serves institutional clients that expect customized solutions to meet their unique needs,” says Matt Apkarian, associate director. Moreover, 83% of managers say institutional separate accounts represent a large opportunity, the highest of all vehicle structures.

Exchange-traded funds (ETFs) also offer a large opportunity for 79% of asset managers are used by 54%. In addition, 25% of asset managers not using ETFs plan to build them during the next 12 months, while 33% are not considering them. Plans for developing ETFs are split between building out new products (50%) and replicating existing strategies, either with (29%) or without (14%) tweaks.

Close behind institutional separate accounts and ETFs are open-end mutual funds, collective investment trusts (CITs), and model-delivered separate accounts, all seen as large opportunities by more than half of asset managers. “Even in the face of consistent outflows from active mutual funds, asset managers still believe there is opportunity to fill gaps in product lineups and improve on products they (or their competitors) already offer,” says Apkarian. “CITs continue to steal marketshare from mutual funds due to heightened retirement plan sponsor demand for the structure, which in most cases means a negotiable fee structure,” he adds.

Overall, to satisfy the unique needs of investors, asset managers must deliver more solutions across a broader range of asset classes and vehicle structures and work to provide scalable solutions that can be customized at the individual investor level. “Asset managers that built their businesses on the backbone of the mutual fund structure over the last several decades must determine in which direction to pivot their offerings and retain assets that continue to flee from active mutual funds,” concludes Apkarian.