Home / Opinion / Grumbles over Evidentia deal highlight growing pains in the rise of asset consultant cohort

Grumbles over Evidentia deal highlight growing pains in the rise of asset consultant cohort

An evolutionary leap in the retail investment product landscape is taking place, with asset consultants displacing financial advisers across rich corners of the value chain. Scarcity Partners' big bet on Evidentia, and how it's being received, brings into focus just how seismic the shift really is.

At a dinner hosted by The Inside Network in December, which brought together twenty sales executives from prominent investment product providers, one thematic stood out during discussion: BDMs aren’t really selling to financial advisers any more, because asset consultants have taken their place.

Over the last decade, these asset consultants (or investment consultants, who often package their service into an outsourced CIO role) have become the real power players in the retail capital deployment game.

There are a couple of themes linked this development. One is the immense growth of managed accounts and the model portfolios that run on them, which has effectively shifted a large portion of the investment responsibility from the adviser to the investment committee and/or CIO. Most advisers don’t recommend direct equities and managed funds these days, they plump for model portfolios based on a client’s risk appetite.

  • In parallel, the adviser’s value proposition has changed. No longer the data-driven investment expert, they’re increasingly seen as holistic financial coaches.

    All this means that the people selling investment products – from traditional fund managers through to large-scale ETF providers – have an entirely new challenge. Instead of selling to a broad swathe of financial advisers, or a chummy group of licensees, they’re pitching to a concentrated cohort of highly qualified investment analysts. The keys to a very rich castle are in the process of shifting from the hands of advisers and licensees to a mostly new and, in all likelihood, more appropriately qualified bunch of professionals.

    Mark this point in time. When equity players are getting more interested in asset consultants than fund managers, a fundamental shift in power has started taking place.

    Arguably, everyone’s a winner in this. Clients have true investment experts dealing with their portfolios on modern investment platforms that have significant advantages over traditional wrap platforms, while advisers are valued for what they’re best at, which sits somewhere on a spectrum between financial coaching and relationship management.

    The biggest winners, of course, are the people within (and behind) this burgeoning new class of asset consultants. No longer sideline contributors, investment consultants have become huge players in the financial services value chain.

    Along the way, the value (and quantum) of investment consultancies has skyrocketed.

    When three former Pinnacle executives, together with key players from Magellan and Clearview, banded together to launch Scarcity Partners in November, its stated ambition was ‘GP staking’ – a subclass of private equity which typically involves taking minority stakes in fund managers.

    Ostensibly, this sounded like a ‘Pinnacle-light’ model, where a firm builds up a stable of fund managers they both have equity in and help develop via their own distribution network and capabilities. Scarcity’s model was always going to diverge from that (they don’t do distribution), but they certainly appeared to share Pinnacle’s interest in taking stakes in traditional fund managers. In conversation with Investor Strategy News in November, its managing director Adrian Whittingham (pictured) confirmed this to editor Lachlan Maddock, noting that they had a penchant for fund managers plying their trade in the alternatives sector.

    Imagine the shock when Scarcity Partners’ first big bet was a reported 30 per cent, $30 million stake in Evidentia – not a fund manager, but a growing asset consultancy of 24 staff and $8 billion under management.

    Mark this point in time. When equity players are getting more interested in asset consultants than fund managers, a fundamental shift in power has started taking place.

    And mark something else – a simmering pot of contention that has the potential to boil over. Sources say at least one of Evidentia’s biggest clients, a good-sized advice group, is unhappy about the Scarcity deal. While there’s no foul play involved, the line of thought is that the Evidentia team leveraged its relationship with these advisers to crystalise a large chunk of capital for their own egregious benefit.

    Whether this grievance is fair or not will probably depend on who you ask, but the broader issues raised by the situation are interesting for all stakeholders. In this new dynamic, where asset consultants are taking revenue that used to go to advice groups, plus using it to inflate their own contingent value, can the relationship between the two cohorts flourish or will it devolve into a maelstrom of mistrust and contention?

    Perhaps more importantly, how much power will the owners behind these consultancies amass? Asset consultants aren’t niche service providers any more, they’re heirs to immense capital business value and increasingly wield influence over retail capital allocation – at scale.

    They often wear another mantle, as well – that of the Responsible Entity. Let’s hope they live up to it.

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.

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