Some advisors are looking to put more of their money with fewer asset managers.Ratana21/iStockPhoto / Getty Images
The pace of new investment product launches may be leading advisors to rely on fewer manufacturers as a way of dealing with overwhelming choice, a move that could also encourage consolidation in the asset management space, according to a panel of industry experts.
Canadian asset managers have launched more than 300 exchange-traded funds (ETFs) so far this year as of Sept. 30, according to National Bank Financial, already surpassing last year’s record of 224 new products.
“It’s a continued challenge for many advisors to just stay on top of all the choices,” said Florence Narine, head of investment solutions at IG Wealth Management Inc., speaking Wednesday at the Securities and Investment Management Association’s (SIMA) Annual Leadership Conference in Toronto.
Advisors are already facing tougher know-your-product and suitability requirements that came with the client-focused reforms, so more product choice can also mean more work.
“Oftentimes, you’ll see a lot of dealer shelves get smaller to make that choice a little bit easier for advisors,” Ms. Narine said.
According to a report from TD Securities, based on launches as of Aug. 1, 1.4 new ETFs had been introduced every trading day in Canada this year, and 3.8 funds had been introduced each trading day in the U.S. The report cited fear of missing out as a factor for fund manufacturers that rush to market to match a novel product.
But not all launches are necessarily sticking the landing. Eve Cout, managing director with BlackRock Inc. in New York, said on the same panel at the SIMA conference that only a small fraction of ETFs launched last year in the U.S. got the US$100-million in assets under management that’s considered critical mass for a fund to survive.
Scott Davis, head of ETFs with Capital Group in Huntington Beach, Calif., said during the panel discussion that lower barriers to launching funds have contributed to the growing number of options.
“More is not necessarily better,” he said. “Perhaps it plays a bigger role in helping the number of choices than actually helping investors select the right funds or the right models or the right allocations for their end clients.”
Ms. Cout said the largest and fastest-growing advisors in the U.S. market are looking to put more of their money into fewer asset managers. That trend led her firm on a recent “acquisition spree” so it could provide private market investments to advisors, she said, referring to BlackRock’s purchases of Global Infrastructure Partners LLC, HPS Investment Partners LLC and data firm Preqin.
“Our hypothesis is our clients are engaged with us, they want to do more with fewer, and we need all the capabilities in public and private markets,” she said.
The consolidation of advisor books that will come with a wave of retirements could also contribute to consolidation among asset managers.
In a decade, more than half of the advisors that product manufacturers sell to today will have retired, Ms. Narine said, and most of those books will be with advisors who have scaled their businesses and delegated more of the investment management.
In response, dealers won’t have to provide as many options, leading to more consolidation among asset managers.
“Scale is going to be critical,” she said.