Data from the November 2017 issue of The Cerulli Edge – U.S. Edition demonstrates the ongoing centralization of investment influence in the hands of the home offices of large broker/dealers and registered investment advisers.
The research is presented mainly for the benefit of asset managers, but there are important implications for the advisory audience. As Cerulli researchers explain, nearly three-quarters of fund manager wholesalers polled consider broker/dealers’ centralization of investment decisionmaking to be an emerging challenge that could threaten and redefine the way they do business.
“The convergence between retail and institutional markets is causing asset managers to shift their distribution structure,” explains Marina Shtyrkov, an analyst at Cerulli. “Some of the most attractive opportunities they see in the retail financial landscape resemble an institutional sale. In response, asset managers are reassessing how their distribution teams are interfacing with the different pockets of the market.”
This new research follows previous Cerulli analyses showing home-office discretion over advisory clients’ investment exposures will increase significantly under the Department of Labor (DOL) fiduciary rule and other competitive pressures. Tom O’Shea, associate director at Cerulli, explains a big part of the trend comes from the fact that home office leaders, tasked with meeting new fiduciary compliance standards across potentially large groups of advisers/reps in the field, are increasingly desperate to boost control of and visibility into day-to-day practice operations. In addition, they can now leverage new tools and strategies allowing firms to clearly identify underperforming or non-process-compliant advisers, “who can then be persuaded to use portfolios created by the headquarters consulting group.”
With the latest data in hand, Shtyrkov observes that “B/Ds are also encouraging their adviser forces to outsource investment management responsibilities to the home office in order to reduce liability, which inherently limits the wholesalers’ potential for demonstrable influence.”
“Due to these challenges, asset managers are moving towards coverage models where they can better serve the largest [advisory] practices with professional buyer tendencies,” states Kenton Shirk, director at Cerulli. As fund distribution teams work to refocus their energies on top practices, they will be reconsidering and “blurring” the old distinctions between wirehouse and independent mega teams, Shirk says.
“Distribution leaders are beginning to consider approaching coverage through a different lens—one that is not built on channel affiliation,” he concludes.
According to Cerulli’s analysis, which defines retirement specialists as advisers who generate a minimum of 50% of their revenue from retirement plans, “only approximately 6% of all advisers qualify as a retirement specialist.”
“There are not enough advisers with the retirement expertise and experience to serve the 500,000-plus plans in the adviser-sold segment of the defined contribution market,” the analysis warns. “The responsibilities of a retirement specialist adviser are evolving beyond investment expertise to include DC plan design and participant engagement.”
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