Despite the high levels of demand, there are still very few providers that cater specifically to expats. It’s a problem Edward Cole identified early on, and sought to rectify with his burgeoning US advice group.
The investment vehicles of wealthy families are internalising asset management and professionalising their investment teams at a rapid rate, according to Citi Private.
Asset managers courting advisers with free consulting services
Asset managers want to be seen as more than investment teams in the eyes of financial advisers, and the goal is taking them in new and interesting directions – with some even offering themselves up as ‘consultants’ in the hope of drawing in more adviser capital.
One of their core functions of an advisers is the recommendation of investment products. In an effort to separate themselves from their competitors, the providers of those products are strengthening their offering to advisers by pitching themselves as genuine business partners.
The world’s biggest asset managers, Blackrock and Vanguard, have the kind of scale to do this with great effect, giving their adviser clients access to a range of portfolio analysis and fund management comparison tools, model builders and evaluators, projection tools, charts and calculators.
For the smaller asset managers, including domestic fund managers trying to catch the edge of the wholesale advice market, offering value-add services to improve product flows is often more of a challenge. Without the scale and resources of the major institutions, these providers are forced to create other ways to build out their product offering.
BDMs as advice… consultants?
In the US, the trend to offer advisers increasingly more stuff is already ramping up.
According to advice consultants Cerulli Associates, US asset managers are scrambling to win over the growing Registered Investment Advisor (RIA) cohort, who operate with a fiduciary duty to act in the clients’ best interests. There are less RIAs than aligned broker/dealers in the US market, but RIAs tend to control more capital and their number is growing – from 18 per cent to 27 per cent in the last decade, Cerulli reports.
As it is, RIAs are well serviced, with more than two-thirds of asset managers offering “key account coverage, institutional pricing and client-facing marketing materials” to the higher net-worth advisers. But service levels are escalating.
“It is no longer a competitive advantage to provide only key account coverage or make more client-friendly marketing material available,” says Kevin Lyons, Cerulli senior analyst, adding that advisers want “more intricate resources”.
The trend to offer more to RIAs is amplified by the US advice dynamic itself; the groups that broker/dealer advisers work under in the US provide services similar to what an AFSL does in Australia, so advisers switching to the RIA side are typically more in need of help.
As a result, asset management distribution teams are jostling to bolt these services onto their product provision, Cerulli says. Almost 70 per cent offer “portfolio construction services… or investment analysis tools”, while over half (52 per cent) now plan to offer “business consulting resources” such as succession planning, growth strategies and team structuring.
“Waves of advisers are joining the independent channel, coming from firms and channels that often provided portfolio analytics tools, consulting expertise, and investment analysis as part of the adviser’s affiliation,” Lyons says, adding that asset managers need to “help fill in any gaps in research-related or even administrative services offered by their previous firms”.
Different mindset
As providers offer more services around the product, the questions becomes: do advisers really want them?
Australian advisers are probably less predisposed to accepting add-on services from fund managers than their US counterparts. At any rate, it’s unlikely the advice industry would follow this trend in the same way that the US industry has because Australia’s regulatory system is much tougher on conflicts after the royal commission, and its advisers much more sensitive to them.
By accepting ‘free’ services from providers, the perception could be that Australian advisers would be taking a step backwards in terms of professionalism and re-embedding conflicts in the industry. Certainly, accepting something like complimentary ‘business consulting’ from an asset manager would be difficult to justify under Standard 7 of the Adviser Code of Ethics, which prohibits receipt of “any benefits, in connection with acting for a client, that derive from a third party”.
Moreover, most advisers would bristle at the suggestion that they need a product provider telling them how to run their business.
“There’s a fair bit of value to be had in value-add services from a provider when it relates directly to their product, especially if it’s a particularly complex investment product and the offering helps you understand or manage it better,” says Wattle Partners principal Jamie Nemtsas. “But you would obviously need to steer well clear of any conflicts. And I wouldn’t be interested in a provider trying to tell me how to run my practice.”
As a value-add, online tools may be a more palatable option for both advisers (and regulators) than something as egregious as ‘business consulting’.
Giving away online tools is problematic, however, because there are other stakeholders whose value proposition crosses these grounds. Investment consultants (dubbed the new “captains of capital” due to their increasing role in managing model portfolios), could be affected if providers are putting high-level investment analytics and portfolio construction tools in the hands of advisers. They may also argue that putting more complex asset allocation resources in the hands of advisers invites investment risk.
But it is Australia’s licensing system that will ultimately inhibit the trend. Licensee groups hang their hat on their ability to provide the services advisers need to operate. While RIAs in the US don’t have a direct licensing group to provide these services, Australia does.
And if Australian licensees aren’t providing the tools advisers need to operate, they probably won’t be around much longer.
