As wealth managers adopt more non-traditional investment products such as Active ETFs AND liquid funds for alternative assetsthey are looking to get more support and offers from the asset management industry. However, many asset managers may not be keeping pace with these needs, according to a newly released survey by the Money Management Institute and Broadridge Financial Solutions, a technology company that focuses on financial services.
The survey found that 89% of wealth managers expect to see increased allocations to active ETFs and alternative investments. Most asset managers agree with them, including 92% predicting increased allocations to active ETFs and 85% predicting increased allocations to alternative assets. However, there is still a gap between the interest expressed in these investment options by wealth managers and what many asset managers have on the line.
While a number of asset managers have taken the lead in offering non-traditional investment products, “It's the second round that's been reluctant to come in for a number of reasons,” said Craig Pfeiffer, president and CEO of the Money Management Institute. “There's a pretty high upfront cost, not necessarily dollars, but an upfront cost to go into this space. The first part is building the distribution. The second part is building competence in your organization and in your distribution, and you'll see in the search that it refers to specialists. You will see a lot of distribution of conversations, sales teams, competencies and skills. This is a space similar to, but very different from, traditional markets. And so I think that's made people more thoughtful about coming in.”
MMI and Broadridge found that 74% of wealth managers they surveyed want asset managers to make a greater investment in product specialists for non-traditional vehicles, up from 38% who expressed this sentiment in 2023. Six in 10 asset managers respondents planned to follow these calls, with the greatest emphasis on alternatives, private market investments and other non-traditional products.
For example, the survey showed that 89% of wealth managers plan to launch, add or expand live/custom indexing products for their customers. However, 49% of asset managers indicated that they are not actively involved with direct/customs indexing, and 60% of those that do not currently offer these types of products have no plans to introduce them.
Another 51% of wealth managers expressed interest in asset managers converting existing active mutual funds into active ETFs. Only 35% of asset managers surveyed said they are planning such conversions.
Liquid alternative investment fund vehicles were another popular option among wealth managers, with 78% identifying them among the top three fund wrappers for growth potential. STILL only 49% of asset managers indicated that they are offering or developing liquid funds for alternative investments.
“When we looked at some of the product structures that were really resonating with asset managers in terms of where they were developing versus wealth managers in terms of their preferred wrappers, we found a disconnect there,” said Tim Kresl, director. of distribution knowledge at Broadridge. “Both were very focused on the continued growth of registered funds – interval funds, tender offer funds, what have you. But we looked at the wealth management community and right below registered funds, there was a lot of interest in liquid funds on the alternative side. “How can I maximize liquidity but still have access to some of these inherently illiquid investment opportunities?” Because what they're hearing from their customers is that no matter how much money they have, some liquidity is still very important. Whereas asset managers were a bit more focused on the private funds space.”
Most wealth managers (83%) also indicated they would like to approach non-traditional products like active ETFs and alternative investments as integrated parts of their overall portfolionot as independent investments. Only 65% of asset managers shared that vision.
The survey, which interviewed 175 MMI members, was conducted in May and June this year by MMI and Broadridge in association with independent market research firm 8 Acre Perspective. Respondents included 99 asset management professionals, primarily in distribution and distribution management roles, 36 wealth management professionals and 40 professionals from technology and solution provider firms. Approximately 35% of asset management respondents were from firms with $1 trillion or more in AUM.