Advisers Using Fewer Asset Managers

Cerulli's latest report, “Advisor Portfolio Construction Dynamics,” reveals that as advisers are building investment portfolios for their clients, they are using fewer asset managers in their practices.

“Despite the proliferation of new products and providers, over the last several years, we have documented the extent to which advisers are using fewer asset managers. In 2008, just 37% of advisers reported regularly using five or fewer asset managers, but by 2011, this number increased to 57%,” said Scott Smith, head of Cerulli’s intermediary practice and lead author of the research.

The report notes there are several factors that have contributed to this ongoing concentration. For one, some advisers fear the risks of dealing with many providers because each new manager brings with it potential issues. For example, if a manager’s name ends up in a negative headline, it could cause concern for clients. However, once an adviser believes in a manager’s people and process, they can be more willing to broaden their relationship, creating attractive asset-gathering opportunities for managers.   

Another factor contributing to advisers’ use of fewer asset managers is the growth of exchange-traded funds (ETFs). A single manager can provide coverage of several asset classes within an ETF structure. While use of passive products has not pushed aside traditional active products, advisers are willing to consider them to address specific needs or to serve as complements to active products.   

In the report, Cerulli includes a channelized view which identifies the advisers who are most concentrated with a primary provider.    

“The concentration of assets with a primary provider is highest in the registered investment adviser (RIA) and bank channels. RIAs report an average of just more than 40% of assets with their primary provider, reflecting the high use of passive products and the existence of single-manager devotion prevalent in the channel. In contrast, bank advisers are more likely to be implementing fund-of-funds solutions or operating in a commission environment where reducing sales charges by using a single manager is an ongoing concern,” said Smith.