The 2007 Third-Party Distribution Research Study by Greenwich Associates asserts that a new group of professional buyers is developing at investment fund distribution platforms and these increasingly powerful buyers at organizations such as broker/dealers, bank trust departments, defined contribution recordkeepers, third-party administrators, and variable annuity insurance companies, are being given a variety of new tasks.
Those new tasks include:
- identifying investor needs,
- evaluating providers,
- assembling effective investment manager menus, and
- helping end investors choose the best managers.
“The end goal is to attract assets to the platform,” says Greenwich Associates consultant Lori Crosley, in a news release, “and the increased use of open architecture means platforms must take a smarter and more strategic approach to manager selection and thoughtful recommendation in order to create demand pull among investors in addition to supply push.”
Broker/dealers have been the most aggressive in adopting open architecture, according to the study. Only one in five broker/dealers participating limit the number of managers on their menus, compared to nearly 55% of registered investment advisers, 50% of defined contribution recordkeepers and 47% of annuity insurance companies.
Asked to identify the most important investor-driven trends influencing their markets, Greenwich Associates said more than 20% of respondents pointed to the growing emphasis on retirement income and planning and almost a quarter cited related innovation in investment fund distribution products, like guaranteed living benefits.
“At a practical level, demands for new products and advice related to retirement planning and savings are altering the criteria by which these professionals evaluate and select managers for their platforms and recommend management products to their investors,” the release said.
When asked what steps they had taken to adapt to the growing interest in advice for retirement plan participants, platform decisionmakers said they are upgrading product offerings by designing packaged products that provide income and allow for achievement of individual retirement goals.
In particular, respondents noted the growing importance of products such as retirement income vehicles, asset allocation products and low-cost passive funds, such as exchange-traded funds (ETFs). Products like target-date maturity funds are gaining traction among investors as simple and relatively professional tools for investors to build and manage their retirement savings over the course of their careers.