Managers Rebalance Product Rationalization Efforts as Advisors Seek Active and Passive Products

April 11, 2024 — Boston

Financial advisors see merits of allocating to both active and passive funds

Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry and imperative to the product rationalization process, according to the latest Cerulli Edge—The Americas Asset and Wealth Management Edition.

In particular, product rationalization decisions related to active and passive products are necessary as the industry debates how much marketshare passive assets ultimately will command. While the movement from active to passive management has been strong over the past decade, there are signs it is slowing as asset managers seek to implement active management in vehicles outside of the mutual fund—producing gray areas as to what falls under the umbrellas of active and passive management.

Recent years have seen an increase in the blending of active and passive management to reduce overall strategy costs. Financial advisors believe active and passive work hand in hand, reducing overall fees with passive investments while implementing active for certain asset classes. According to the research, 81% of advisors believe passive investments help to minimize portfolio costs, 82% believe active managers are ideal for certain asset classes, and 74% believe that active and passive investments complement each other. Understandably, focus on fees and returns net of fees are a significant portion of the competitive positioning for passive management. “The focus on fees illustrates the need to pay attention to external factors as part of the product rationalization process,” says Matt Apkarian, associate director.

Rationalization teams at asset managers will benefit by understanding where—and how—to blend management styles. “With vast amounts of data available today, the ability to predict addressable markets, demand, asset-gathering potential, resource requirements, and other criteria associated with product rationalization now can be more fact-based than ever before,” says Apkarian. “Listening to distribution resources and intermediary partners should be an integral part of the product rationalization process, as they both have insights and an element of control over changing demand within the industry.”

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