It’s odd that of the 12 published submissions to APRA’s consultation on hybrids, not one advocated getting rid of them altogether. Is the regulator trying to protect banks and retail investors from themselves, or is it simply “jumping at shadows”?
The Bill comes after a report from the Council of Financial Regulators warned that the financial system’s reliance on financial market infrastructure had “significantly increased” following the 2008 global financial crisis and subsequent reforms.
US fundies targeting model makers, not advisers, in distribution rethink
The shift in capital allocation influence from financial advisers to research consultants is a global one, with the managed accounts reshaping the way US money managers distribute their funds in the same way Australian fundies are.
In Australia, the power dynamic has been changing for years as fund managers have refocussed their distribution efforts on the research consultants who run the money on proprietary model portfolios that advice groups use for their clients on managed accounts.
Rather than advisers constructing portfolios based on approved product lists and allocating capital to managers by selecting their products on traditional wrap platforms, it’s now the research consultants who select those products on managed account-enabled investment platforms. Whether it’s a fully outsourced investment role, a white-labelled model solution or an investment committee consultancy spot, the new “kings of capital” research consultants are the ones making an increasingly concentrated share of investment decisions, which means they’re allocating huge tranches of money at scale.
And while the Australian and US advice industries differ markedly (with the US market bifurcated into aligned and non-aligned providers), fund managers in both markets are altering the way they distribute in the same way.
According to US advice research outfit Cerulli Associates, asset managers need to now consider how they take advantage of the “distribution opportunity” presented by outsourced portfolio construction.
“The opportunity is readily apparent in the asset allocation model portfolio product landscape for providers of investment product building blocks to take advantage of increasing outsourced portfolio construction,” says Matt Apkarian, associate director at Cerulli Associates (pictured).
The research group reports that model portfolio assets are set to reach $2.9 trillion by 2026, with more than one-third of advisers expecting to increase their allocation to managed accounts. That money, by and large, will fall under the management of outsourced portfolio managers in research agencies.
“Asset managers not currently targeting inclusion in model portfolios as a method of distribution for their investment products should assess how they can best target the growing model landscape as a distribution channel,” Apkarian says.
“While building out a models business may not fit the capabilities and resource constraints of an investment product provider, seeking placements within models should be one of the top distribution opportunities being targeted by a provider of model building blocks.”
According to Kevin Toohey, principal at Melbourne-based investment consultancy Atchison Consultants, the research function is rapidly broadening in the US along with the model portfolio management function.
“We’ve just come back from The Inside Network’s INUSA tour, and I had the opportunity to speak to a lot of US fund managers about their distribution strategy,” Toohey tells The Inside Adviser. “While advisers remain a core part of their funnel, al most all of them now have a direct strategy for engaging researchers, investment consultants, and anyone else making decisions on model portfolios.
“It’s quite a change in the way they do business, but it hasn’t been sudden. There’s been a gradual migration over the years, they’re following the money.”
