Key Insights from the
SIFT 2012 Conference
July 18, 2012
Loren Fox, Senior Research Analyst, lfox@sionline.com
Dennis Bowden, Asst. Director, US Research, dbowden@sionline.com
What was SIFT 2012?
 On June 19-20, 130+ investment management executives from 80
organizations gathered in New York City for the Strategic Insight Fund
Trends 2012 conference. Attendees: avg. 17 years’ experience in biz
 The 1 ½-day event featured panel discussions and presentations on
mutual fund product, distribution and retirement-related topics - from
industry experts and key gatekeepers.
 Speakers included:
•
John Carroll, Head of US Retail Distribution, Allianz Global Investors
•
Carolyn Clancy, EVP and head of Fidelity’s FundsNetwork
•
Gregory Fleming, President, Morgan Stanley Smith Barney
•
Frank McCarthy, VP and Gen’l Manager of External Products, Ameriprise
•
Dan Moorman, Director of Mutual Funds, Wells Fargo Advisors
•
Peter Thatch, Managing Director of Global Funds, Merrill Lynch
•
and many others
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Scenes from SIFT 2012
www.sionline.com/conferences/2012-Fund-Trends/about.asp
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Product Themes
 Uncertainty and volatility: shift from in focus from relative to
absolute returns, search for best global opportunities,
unconstrained mandates, uncorrelated returns
 Investors, advisors focusing more on managing risk and volatility
in the post-crisis environment. Complexity
 This has meant in many cases that financial advisors take on a
more active role in managing client portfolios (Rep-as-PM)
 More financial advisors running portfolios:
 Some FAs want funds as modular building blocks
 Some FAs want bundled solutions (outsourcing complexity)
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Example of Bundled Solutions: Global Asset
Allocation Funds’ Flows Accelerate in 2012
Net Flows into Global Asset Allocation* Funds, $B
45
40
35
30
25
20
15
10
5
0
-5
-10
/12
Ytd-5
2011
2010
2009
2008
2007
5
2006
2005
2004
2003
2002
2001
2000
* Excludes lifecycle funds. Source: Strategic Insight Simfund MF
Growth of “Alternative” Mutual Funds
• Fund firms launching more "alternative" mutual funds than ever, but
there's no universally agreed definition of "alternative.“
• Lots of interest in “alt” mutual funds, but uptake among FAs lower
than expected. More education & training needed.
• Alternative mutual funds even making their way into target-date
funds.
• While mixed-asset funds have offered correlation-balanced
approaches, the industry is starting to see risk-balanced and riskparity approaches too
• Panelists expect more product innovation in: volatility; risk; global
macro strategies; multi-strategy products. More ‘absolute return’ and
hedge-like approaches, fewer traditional strategies, directional funds
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Product Themes
• Retirement income: Stand-Alone Living Benefits – attaching
VA-like guarantees to funds, SMAs
 Differences from VAs: directly owned; not tax-deferred; pays
under contractual contingency
 Stand-Alone Living Benefits are suited to fee-only FAs who don’t
use VAs, but product is emerging & prospects are unclear
• Target Date Funds: Custom target-date funds growing,
opportunities for consultants, DCIO fund managers as asset
allocators; fee disclosure regs to boost DCIO
• ETFs are here to stay. More buzz on Active ETFs (Total
Return ETF); will revenue sharing come to Active ETFs?
• Partnering/Sub-advising may grow as ’40 Act fund lineups
offer more exotic and complex strategies
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Fund Product Development
• Product development cycle is faster now than a
decade ago
• New products should meet investor needs, but should
also strengthen/extend firm’s brand
• Broker-dealer execs at SIFT 2012 encouraged fund
firms to talk with them before launching new products.
Remember that brand-new funds rarely achieve
meaningful net flows right away
• Non-traditional products can bring additional
operational complexities. Work with custodian, fund
admin as strategic partners
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Product ‘Takeaways’ from Strategic Insight
• Some advisors want funds as modular building blocks,
some want bundled solutions? Offer both types of funds
• Offering non-traditional/alternative funds? Educate
advisors on how to use the products
• Most firms need either a pro-ETF strategy or an anti-ETF
strategy – regardless of whether Active ETFs are ‘real’
• Be realistic about your core competencies; collaborate
with partners where it makes sense
• Talk to broker-dealers before launching a new fund:
come with ideas to bounce off them – don’t ask what
they need
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A Few Key Distribution Themes – Continued
Shift to Fee-Based Advisory
• Key initiative discussed in both National BD & Independent/
Regional BD panels
 One Reg’l BD exec noted his firm’s fee-based share of assets has gone
from 10% to 25%; their goal is 50%
 A Nat’l BD exec said that his firm moves 3-5% of their mutual fund AUM
from brokerage to advisory per year
• Many FAs need help shifting their business model from
brokerage to advisory (despite often instant pay raise)
 One Nat’l BD exec recommended fund firms partner with his firm’s “InField Productivity Consultants” to help FAs with their business model
• Within this movement, migration to Rep-as-PM
 Rep-as-PM FAs need guidance in asset allocation
 Helping FAs to allocate themselves, or helping them become
more comfortable with home office model allocations
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Fee-Based Advisory Should Continue To Be A
Key Driver of Growth
Sales by Channel: Annual Sales Growth (%)
35%
35%
2010
2011
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
Wrap/Fee
Based
Advisory
RIAs
IODC
Indep/Reg'l Pure Inst'l/ Insurance Nat'l BDs Bank BDs
Agents
Other
BDs
Source: SI Fund Sales Survey
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Evolution of Portfolio Construction
• With the movement to fee-based, the fund business is
becoming more de-centralized
 Death of the fund family concept
 Record Albums vs. iTunes
• “Set & Forget” doesn’t work anymore
 One BD exec noted effort to identify and shine light on these
types of portfolios as a key initiative for his firm
• Importance of strategy-centric focus
 Approach BDs with product- and platform-agnostic view
 FAs paying attention to model portfolios, even if not adopting
them
• New and innovative strategies are gaining attention
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Profitability Pressures
• Increased asset velocity within fee-based advisory
programs (particularly Rep-as-PM)
 One BD exec acknowledged the strain it is causing in
relationship between distributors & asset managers
 One fund exec noted that Rep-as-PM business is one-half as
profitable as other channels
• Preference for Institutional share classes by BDs
 SI research shows No Load shares rising to 55% of total sales in
2011
• How are fund firms responding
 More sophisticated data analysis & advisor segmentation
- Teams focused on data analysis and interpretation
- Ability to leverage predictive analysis?
 Continued evolution of wholesaler compensation toward
profitability focus
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Distribution ‘Takeaways’ from SI
• Take advantage of the various means to become a
“strategic partner” to distributors
 Helping FAs transition their business model to fee-based
 Providing asset allocation insights (as opposed to product pitch)
 Be seen by distributors as proactive rather than reactive (helping
to advance their initiatives with new ideas, innovative strategies)
• The distribution landscape is changing…so should your
strategy
 “A la carte” fund selection is changing advisor portfolio
construction
 Asset longevity is in a secular decline within advisor-sold space
 Profitability “margin-for-error” in fund distribution is shrinking
- Leverage data to segment channels & advisors more precisely
- Find ways to align distribution strategy with firm profitability
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