Asset Managers Pursue a Vehicle-Agnostic Approach That Favors Lower-Cost Structures

October 15, 2020 — Boston

Mutual fund product development efforts are expected to decline as managers seek to bring cost savings to investors through ETF, separate account, and CIT offerings

More than 90% of asset management product executives indicate that innovating new vehicle offerings is a priority as they look to provide more flexibility for clients in selecting how they want to consume the investment strategies, according to Cerulli’s latest report, U.S. Product Development 2020: Prioritizing Investment Product Initiatives.

In recent years, the mutual fund industry has come to grips with fee compression amidst investor demand for lower-cost products. “Investors want lower-cost products and they’re willing to access them through a variety of means,” states Brendan Powers, associate director.

Buyer power has become a significant factor contributing to fee compression, impacting both active and passive managers. “The collective bargaining abilities of broker/dealer home offices and investment consultants/OCIOs allow them to more aggressively pursue pricing concessions from asset managers. They also can access lower-cost investment structures that may not have been previously available to them,” adds Powers.

Since 2017, more than half of asset manager product executives have placed a high priority on building out new investment vehicles, seeking to provide more flexibility to clients in selecting how they want to consume the investment strategies. According to the research, this will result in a proliferation of exchange-traded funds (ETFs), separately managed accounts (SMAs), collective investment trusts (CITs), interval funds, and other vehicle offerings in the future.

At the same time, the industry has seen a decline in the number of managers offering mutual funds, as some have exited the industry and others have been merged with or acquired other mutual fund providers. “There are 90 fewer mutual fund managers as of 2Q 2020 than there were in 2015,” adds Powers. Despite the decline, asset managers remain bullish on opportunities for the mutual fund due to its broad appeal and current use, according to the report.

As managers approach their product development strategy, they will need to continually evaluate their product offerings to ensure they are competitively and sensibly priced relative to other strategies and to the rest of their product lineup. “It is becoming a necessity to offer multiple wrappers if a firm wants to distribute its strategies across various wealth segments and retail and institutional channels,” remarks Powers. “However, there is a need to have symmetric fees to avoid conflicts of interest for clients,” he concludes.

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