The classic fund manager distribution model is due for an overhaul with traditional distribution relationships set for technology-led disruption, according to a new global report.
Asset managers will have to become deeply intertwined with distribution partners to offer end clients a more personalised service, the Oliver Wyman/Morgan Stanley study says.
“We expect a significant shift in the way they interact, from a simple intermediated distribution between an asset manager’s wholesale team and the wealth manager’s fund selection team towards a deeper technical integration,” the report says. “This will support delivery of more customized content, products and solutions, enabling a more personalized end-client experience at lower costs.”
Technology could also enable more fund managers to go direct-to-consumers via “end-to-end wealth ecosystem[s]” that cut out the middle-people.
However, the ‘Time to evolve’ study says only a few fund managers would likely ply the direct route.
“Despite the opportunity for direct distribution models, we expect intermediated channels via wealth managers to dominate,” the paper says. “A strategic priority of asset managers will be refining the interface with wealth managers and adapting their operating models accordingly.”
Investment firms will need to focus on three core functions to thrive in the new ‘wealth management 3.0’ market, namely: ensuring their content, products and reporting flows seamlessly through distribution partner systems; upgrading operational technology; and, “supercharging” service to financial advisers and clients.
“Tailored market insights, data and analytics, and better access to investments through digital- and human-led channels and portals will enable advisors to deliver value to their clients across the full lifecycle,” the report says.
On the distribution side of the coin, wealth managers will also have to adapt to the tech-enhanced environment by building “omnichannel capabilities”, creating variable service (and price) models and keeping a tighter focus on managing value for both clients and the business itself.
Financial advisory firms should aim to create “transparency on client-level economics, develop a systematic approach to measure, manage and communicate value creation with the support of digital dashboards with real-time information”.
“This will enable dynamic management of revenues, costs and profitability at the product, advisor and client level,” the study says.
Advisory businesses will also be able to profitably service a wider client base in the wealth 3.0 world, reversing a decades-long trend that has seen advice gravitate to the high net worth (HNW) market.
“At the other end, the lower HNW and affluent segments have been undervalued and underinvested in, which has limited value creation at the industry level,” the report says. “Wealth managers are increasingly realizing that they are leaving money on the table in the lower segments. Indeed, we see a revenue pool of ~$230BN in the lower HNW and affluent segments.”
Wealth intermediary firms are also likely to assume greater market power over the next few years, requiring fund managers to position in kind.
“For asset managers, the wealth management channel becomes ever more important. We expect the share of the wealth and retail client segment of total assets under management (AuM) to grow from 58% to 64% in the next 5 years,” the report says. “Asset managers face fundamental choices: partner and distribute through wealth managers, build captive digital-led wealth management distribution solutions, or establish open platforms geared towards this segment.”
The ‘blue paper’ was put together by a large panel of authors from both firms including Christian Edelmann, Oliver Wyman partner, and Betsy Graseck, Morgan Stanley global head of banks and diversified finance research.
Oliver Wyman is part of the Marsh McLennan group that also includes Mercer.