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RIAs need to increase their service offerings to maintain their place in the marketplace

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A confluence of competitive threats, including an industry-wide shift away from brokerage, broader adoption of financial planning, and the popularity of independent business models, is eroding the registered investment advisor (RIA) channels’ key differentiating factors, according to Cerulli’s latest report, U.S. RIA Marketplace 2021: Meeting the Demand for Advice.

In response, more RIAs are considering whether to extend their service offerings to deepen their impact with existing and prospective clients.

To unlock the RIA channels’ success formula and protect against advisor movement to independence, broker/dealers (B/Ds) are increasingly developing independent affiliation options, promoting financial planning, and creating more opportunities for advisors to conduct fee-based or fee-only business.

By 2023, 93% of advisors across all channels expect to generate at least 50% of their revenue from advisory fees. Likewise, over the past five years, the number of financial planning practices across all channels grew at a 5.3% compound annual growth rate (CAGR).

As a result, B/Ds are impinging on what has historically been viewed as largely unique to the RIA channels—an independent, fee-based business centered on financial planning. In addition to this convergence of business models, investor influence, democratization of services, and client acquisition challenges are encouraging RIAs to reevaluate their position in the marketplace. For some, this means expanding their service offerings to combat value differentiation concerns and capture emerging opportunities.

According to the research, trust services (19%), digital advice platforms (17%), and concierge/lifestyle services (16%) rank as the top-three areas of anticipated service expansion for RIAs within the next two years.

“While implementing these additional services may help RIA firms move upmarket and generate greater revenue, RIAs will need to reinvest in the business by hiring more staff, adding technology tools, producing marketing materials, or paying a third-party provider for outsourced support,” says Marina Shtyrkov, associate director.

To preserve profitability levels as they add services, advisors can either adjust their fees upward or implement alternative pricing structures. These nontraditional fees are not correlated to portfolio performance and can help RIAs offset the increased costs of delivering additional services, thereby reducing profit margin pressure. For RIAs that offer financial planning, nontraditional fees also ensure that the firm’s pricing is more closely aligned with its value proposition.

Ultimately, value differentiation challenges will become a question of firm economics—one that RIAs must be ready to answer.

While Cerulli does not believe that all RIAs must expand their service set to remain competitive, under the right circumstances, additional offerings can help firms capture new opportunities and tackle competitive challenges.

“Like any business decision, the addition of a service should allow advisors to better address their target market and achieve stronger alignment between that segment’s needs and the firm’s offerings,” says Shtyrkov and added: “RIAs will need to consult their strategic partners (RIAs custodians, asset managers, service providers) to help them navigate these choices, weigh the tradeoffs of service expansion, and mitigate the risks of thinning profit margins.”

Looking for an Alternative Offshore Investment Option?: a New VIS with DWS

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Next Wednesday, April 6, at 10:30 am ET, there will be a new Virtual Investment Summit hosted by Funds Society titled “Looking for an Offshore Alternative Investment Option? U.S. private real estate may make a lot of sense despite what you might think.”

Kevin White, co-head of global real estate research at DWS will participate in the event along with Stella Gonazles Vigil, head of Latin America coverage at DWS.

With geopolitical and economic uncertainty in Latin America, not to mention other parts of the world, investors are increasingly looking at alternative options offshore to complement their existing portfolio. Despite what you might think about rising rates and inflation in the U.S, its property market is actually well-positioned to potentially benefit from these economic developments given its fundamental outlook and shifting market dynamic as well as historical performance under such conditions.

You can register in this link to attend the virtual event: Virtual Investment Summit with DWS, 6th of Abril, at 10:30 am ET.

Ponentes:

Kevin White – Co-head of Global Real Estate Research, DWS

Based in New York, Kevin joined DWS in 2015 with nearly two decades of real estate, economic and financial services experience. Prior to joining, Kevin served in investment strategy and research at Cole Capital and at Property & Portfolio Research (PPR). Previously, he was an economist at International Data Corporation and a tax policy officer in the Department of Finance at the Government of Canada. He earned a BA in Economics from Queen’s University, holds a MA in Economics from University of British Columbia and is a CFA Charterholder.

Stella GonazlesVigil – Latin America Coverage, DWS

Based in New York, Stella is a senior member and relationship manager for Latin America Coverage, working with different investors in the region. She joined DWS in 2012 as an investment specialist for liquidity management and prior to that worked with institutional clients at Banco de Credito del Peru – BCP. Stella earned a BA in Economics from University of Lima, a MBA from Duke University, and holders Series 7 and 63 licenses as well as CESGA – Certified Environmental Social and Governance Analyst.

John Manley – Product Specialist-Real Estate/RREEF Property Trust, DWS

John Manley is a Product Specialist for RREEF Property Trust, a real estate investment solution for investors. Prior to his current role, he was a Property Specialist for DWS’s Alternatives platform, focused on the portfolio and asset management activities of RREEF Property Trust since September 2015. Before then Mr. Manley was an Analyst with Deutsche Bank’s Private Bank Structured Lending team where he focused on credit solutions for ultra-high net worth individuals, private equity funds and family offices. Mr. Manley joined Deutsche Bank in 2013 through its Graduate Program, an intensive training and development program. He holds a B.S. in Applied Accounting and Finance from Fordham University.

Santander Acquires 80% Of a Brazilian ESG Consultancy Firm

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Captura de Pantalla 2022-03-08 a la(s) 14 — . ..

Banco Santander announced that it has reached an agreement to acquire 80% of WayCarbon Soluções Ambientais e Projetos de Carbono, a Brazil-based ESG consultancy firm.

WayCarbon has been advising public and private organizations on their energy transition for 15 years, with 170 employees serving clients across 18 countries.

The business provides three core services to help clients develop and implement strategies to increase their sustainability: ESG consultancy; management software to support the tracking and implementation of ESG strategies; and carbon credit trading.

The acquisition is an important step to further enhance Santander’s own sustainability offerings to support the bank’s clients across all markets in their energy transition. It will also help Santander progress further in its own ESG objectives by engaging in the voluntary carbon market, reforestation and forest conservation programmes and other emissions trading schemes, the company’s press release said.

The carbon markets allow companies, non-profit organizations, governments and individuals to buy and sell carbon offset credits, an instrument that represents the reduction of a specific amount of emissions.

José M Linares, global head of Santander Corporate & Investment Banking (Santander CIB), said: “As an industry leader in ESG, WayCarbon will help us with our own objectives and our clients´ in their transition to more sustainable business models. Santander has vast experience in sustainable projects and is a global leader and pioneer in renewable energy finance. This deal will help maintain Santander at the forefront of this critical space”.

On the other hand, WayCarbon CEO Felipe Bittencourt said: “WayCarbon, which has B-corp certification reflecting its commitment to generating profit with a purpose, is focused on catalyzing the transition to a low-carbon economy and has been growing fast in the last few years. This agreement with Santander will expand our business’s global scale, with specialized products and services for a wider range of companies in its ten core markets in Europe and the Americas, so we’ll have a greater impact”.

Santander aims to raise or facilitate $130 billion (120 billion euros) in green finance between 2019 and 2025 and $239 billion (220 billion euros) by 2030 as part of its responsible banking agenda and its support for its customers transitioning to a low-carbon economy.

It is already carbon neutral in its own operations. To reach net-zero emissions for the whole group by 2050 in support of the Paris Agreement objectives and the transition to a low-carbon economy, Santander will align its power generation portfolio with the Paris Agreement by 2030.

The transaction, which is expected to close by the second quarter of 2022, subject to closing conditions, will have a negligible impact on the group’s capital and deliver a return on invested capital of 30-50% in 3-4 years.

Women Are Less Likely to Invest in Finance

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Captura de Pantalla 2022-03-08 a la(s) 13 — . ,,

BNY Mellon Investment Management commissioned an independent global study examining investment attitudes and behaviors, and concluded that women are less likely to invest.

The Pathway to Inclusive Investment study, was the first in a new series that will address diversity, set out to understand the barriers to higher levels of women’s participation in investing and the potential impact if investing were more accessible to women, the firm’s release said.

The research surveyed 8,000 individuals in 16 markets, as well as 100 asset managers, with combined assets under management of nearly $60 trillion.

Pathway to Inclusive Investment reveals that women are less likely to invest than men, exacerbating existing financial disadvantages and limiting women’s collective influence as investors.

It also shows that women want to invest in a way that has a positive social and environmental impact, and that if women invested at the same rate as men there could be more than $3.22 trillion of additional capital to invest globally, with more than $1.87 trillion going to more responsible investments.

By encouraging higher levels of female investment, capital could flow even further into funds with ESG objectives. More than half of women (55%) would invest-or invest more-if the impact of their investment aligned with their personal values, and 53% would invest-or invest more-if the fund they invested in had a clear purpose for good.

This is even more pronounced among younger women. According to the study, seven in ten women under 30 (71%) who already invest prefer to do so in companies that support their personal values, compared to 53% of women over 50 who invest.

On the other hand, the research identified three key barriers to women investing:

The income barrier: On average, women around the world believe they need $4,092 in disposable income each month – or $50,000 a year – before investing some of their money.

The perception that investing is inherently high-risk: Only 9% of women say they have a “high” or “very high” level of risk tolerance when it comes to investing, while 49% have a “moderate” level and 42% have a “low” tolerance for risk.

The commitment crisis: Globally, only 28% of women feel confident about investing some of their money. The industry must find ways to attract and inspire more women to invest, which in turn could increase confidence and participation in investing.

The survey of asset managers highlights the extent to which the investment industry remains male-oriented. Nearly nine in ten asset managers (86%) admit that their default investment client – the person their products are automatically targeted at – is a man.

Nearly three-quarters of asset managers (73%) believe the investment industry could attract more women to invest if the industry itself had more female fund managers, who could also be important role models. However, half of the asset managers in the survey revealed that only 10% or less of their fund managers or investment analysts are women.

Anne-Marie McConnon, Global Chief Client Experience Officer at BNY Mellon Investment Management said: “As women, we all have different obstacles to overcome to achieve our individual financial goals. Some of these are influenced by demographics and personal circumstances, but others are the result of the way the investment industry has traditionally targeted women.”

She added that the study, Pathway to Inclusive Investment, underscores that the traditional stereotype of the investment stakeholder is outdated and that young women should be considered.

“Young women are also interested in investing, but they need to be inspired to do so,” she concluded.

Transition Risks and Opportunities for Sovereigns

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green-gf8fc524fe_640 — Pixabay CC0 Public DomainTransición ecológica . Transición ecológica

As average global temperatures continue to rise apace, the scientific consensus is that human activity is the main cause of long-term changes to temperatures and weather patterns – largely due to greenhouse gas emissions. It is now widely acknowledged that climate transition is not only an environmental imperative, but also increasingly an economic one. As sovereign bond investors, we need to be cognisant of these risks and seek to incorporate them into our investment analysis, recognising that climate-related risks are significant as are the costs to transition to a low-carbon, more sustainable future.

Furthermore, we believe a country’s stage of economic development, quality of governance standards, and its willingness and ability to mitigate climate change events are particularly important when assessing financial stability. At Colchester, we primarily assess a country’s vulnerability to climate change through two channels, namely physical risk and transition risk. Whilst physical risk takes account of a country’s vulnerability to changes in weather, climate and natural disasters; transition risk is a forward-looking assessment associated with a country’s transition pathway to a lower carbon economy.

The recent United Nations (UN) climate conference in 2021, COP26, focused the world’s attention on the urgent need to tackle climate change. The final agreement, the Glasgow Climate Pact, calls for countries to reduce coal use and fossil fuel subsidies and urges governments to submit more ambitious emissions reduction targets by the end of 2022 in order to keep the 1.5°C goal alive. A clear implication is that given the expected decline in demand for fossil fuels over the coming decades, major fossil fuel resource producers may eventually face a loss of revenue from these commodities and will need to diversify into other economic sectors. Some of the economies most exposed to fossil fuels within our investment universe are shown in the chart.

However, it is worth highlighting that the risks surrounding heavy fossil fuel reliance can be mitigated through strong governance and well-considered policy choices. For example, Norway’s disciplined approach to managing oil revenues (which is invested in its $1.36 trillion sovereign wealth fund and governed by a strong fiscal framework, data as end of 2021) cushions its fiscal position and provide resources to support the country’s transition to a more sustainable economic path over the longer term. Furthermore, advances in technology are reducing the cost of alternative sources of energy where, for example, Norway’s electricity and heating is now largely covered.

Source: World Bank Indicators, Colchester, as of 2019. Note: “Oil or Coal or Natural gas rents are the difference between the value of crude oil or coal or natural gas production at regional prices and total costs of production,” as defined by the World Bank for the purposes of this data source.

Climate-related risk exposures vary greatly across countries, and we note that many lower-income and fossil fuel producing countries are more vulnerable. For example, India’s Prime Minster Narendra Modi has argued that poorer countries should be given a longer transition period including a period of rising emissions as they develop and move up the income curve. Nevertheless, India’s announcement that it aims to reach net zero emissions by 2070 and to meet fifty percent of its electricity requirements from renewable energy sources by 2030 is very ambitious. Coal and oil have supported India’s economic growth to date and the rapid growth in fossil energy consumption has meant India is now the fourth largest CO2 emitter in the world. However, going forward, India has the opportunity to pioneer a model of further economic development that avoids carbon-intensive approaches. According to the IEA, renewable electricity is growing at a faster rate in India than any other major economy, with new capacity additions on track to double by 2026. Despite India’s target, challenges remain, not least in terms of the financing cost. India has called for $1 trillion in climate finance from developed countries to help accelerate the shift to clean energy, arguing that developing countries have historically contributed less than advanced economies to emissions and yet are being asked to shoulder a larger burden in the net-zero transition.

Colchester’s assessment of climate-related risks is a work in progress. Our analysis will become more fine-tuned as more data sources, applicable measures, frameworks and analysis that are more directly relevant to an assessment of a sovereign are developed. We are also an active participant in industry efforts to devise appropriate frameworks within which to assess sovereign assets. An example of this industry framework development is the collaborative industry initiative ‘Assessing Sovereign Climate-related Opportunities and Risk Project’ – known as “ASCOR”. Colchester has joined as a member of the Advisory Committee and the initiative aims to provide a common lens and framework to understand sovereign exposure to climate risk and how governments plan to transition to a low-carbon economy.

This article should not be relied on as a recommendation or investment advice. Colchester Global Investors Limited is regulated by the UK Financial Conduct Authority, and only deals with professional clients. https://www.colchesterglobal.com for more information and disclaimers.

Allfunds Launches Nextportfolio3, The New Version of its ESG-focused Portfolio Management and Advisory Solution

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desk-ged4a9a63c_1920 — Pixabay CC0 Public Domain. Allfunds lanza nextportfolio3, una nueva versión de su solución de asesoramiento y gestión de carteras orientas a la ESG

Allfunds launches nextportfolio3, a new version ready to meet the industry’s ESG challenges. The continued evolution of this tool reinforces Allfunds’ leading role in the digital transformation of the wealth management industry, the company said.

The third version of Allfunds’ nextportfolio tool, which offers advanced portfolio management solutions to more than 400 global institutions, responds to the high demand from financial institutions for ESG analysis and information. According to them, in this new version of nextportfolio3 users will now benefit from four major services such as ESG reports and filters at fund and portfolio level, so that clients can better direct their investments towards ESG-oriented funds, thus meeting the demand for more sustainable portfolios.

It will also feature a portfolio optimizer by asset allocation and fund selection, which allows firms to adjust their portfolios to achieve optimal allocation and efficiency in line with specific levels of risk; and an advanced risk and return attribution module that helps detect the specific contribution of holdings or assets, and provides information to determine the effectiveness of investment diversification. It also features a new end-client portal and mobile app that offers an excellent user experience with new investment analysis and tracking functionality.

“We are delighted to launch a new version of our nextportfolio solution, building on Allfunds’ 20 years of experience in developing technology products that support asset and wealth management with greater efficiency and agility in response to evolving market dynamics. We have leveraged Allfunds’ deep expertise and access to market data to achieve a stronger and more powerful portfolio analysis tool in nexportfolio3. Analysis and reporting tools have been incorporated with a clear focus on ESG management, helping distributors make the best decisions for their clients,” explained Salvador Mas, Global Head of Digital at Allfunds.

This tool is part of the set of digital solutions of the Allfunds platform available for fund managers and distributors. According to the company, the launch of this new version of nextportfolio proves its commitment to the constant development of its offering, introducing new leading solutions to offer efficiency and growth paths to companies in the midst of the transition to an increasingly digitized industry.

Suprabrokers Announces the Launch of Its Wealth Management Division and a Strategic Alliance With Stonex

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Miami-based SupraBrokers created its Supra Wealth Management division to offer new investment opportunities and enhanced financial planning solutions for its clients.

To support the launch of the new Wealth Management division, the company signed an agreement with StoneX, a global financial services platform, expanding its product and solutions offerings for businesses, organizations and investors.

SupraBrokers, with presence in the US, Mexico, Guatemala, Ecuador, Argentina and Uruguay, has Juan Camilo Vargas as Managing Partner of the Wealth Management operation, together with a “team of professionals and specialists in capital markets”, says the company’s press release accessed by Funds Society.

Supra Wealth Management will be the division specialized in wealth management, investments, planning and financial solutions, and is designed to meet the challenges of access to global markets through customized products according to the needs of its clients. It is a registered and supervised entity by the Central Bank of Uruguay with an active license as a Portfolio Manager.

StoneX Group, formerly known as INTL FCStone, connects clients to global markets by offering them access to a wide range of investment solutions and products.

It begins “a new stage with great challenges, but we are sure that our more than 30 years of experience are a guarantee of quality and added value for our entire network,” said Vargas.

On the other hand, SupraBrokers CEO, Robert Parra spoke about the new bet on the Wealth Management division that “is a game changer for us and allows our distribution partners to broaden their horizons by offering their high-level clients a competitive private banking platform, as well as professional investment advice”.

SupraBrokers defines itself as a leading insurance and investment broker in Latin America, with more than 30 years in the industry. It is headquartered in Miami and has offices in Mexico City, Buenos Aires, Montevideo, Guatemala, Quito and Guayaquil.

Through its platform, it connects agents and insurers “in a transparent ecosystem that allows all parties to work efficiently, guaranteeing the well-being of individuals and corporate clients,” the company explains.

Emerging Market Equities Present an Attractive Opportunity in 2022

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kaohsiung-g004c99283_640 — Pixabay CC0 Public DomainChina . China

After a strong rally alongside developed market equities in 2020, 2021 was a difficult period for emerging markets investors. Last year, the MSCI EM Index trailed it’s developed market counterpart, the MSCI World Index, by nearly 25%– the largest spread between the two indices in nearly a decade. Hampered by a lack of vaccine availability, many emerging economies reopened in fit and starts, often lagging the pace of restart in developed markets. Implications of inflation, and the overhang of expected monetary tightening, were points of consternation. In China and Brazil, the first and third largest economies in EM, regulatory uncertainty and geopolitical tensions roiled local stock markets.

Despite these challenges we believe there’s a lot of positive energy stored up in emerging markets right now, and that investors may be overlooking a potential opportunity in 2022.

Valuations are Supportive

On a forward-looking earnings basis, the MSCI EM Index is trading at a 42% discount relative to the S&P 500 Index. This represents a significant increase in the pre-COVID spread between the markets— as U.S. valuations have expanded by 17% over the past two-years while EM valuations have contracted by 3%.

Valuation’s differentials are even more stark on a historical basis. Over the past decade, forward looking valuations for the S&P 500 Index have stretched by nearly 75% while emerging market valuations have expanded less than 25%. As we look forward to a more normal post-pandemic market environment, where elevated levels of economic uncertainty begin to dissipate, the prospect of a valuation re-rate provide opportunity for EM relative performance.

EM’s Relative Growth Potential is Attractively Priced

While growth expectations in 2022 are above long-term trend for both developed and emerging markets, the IMF forecasts that EM economies will continue to see strong post-COVID growth over the next five years. On the other hand, developed economies are expected to return to sub 2% real growth following 2022. While widening spreads between valuation estimates would seem to support a narrowing of the EM vs. DM growth spread, markets are anticipating an acceleration of the relative growth gap between developed and emerging economies.

Coupling relative valuation estimates with growth forecasts, emerging market equities appear to have priced in a healthy degree of caution and reflect an attractive longer-term relative value.

EM is Ahead of the Curve on Monetary Tightening

Inflationary pressure mounted globally as supply-and-demand mismatches were driven by COVID disruptions and exacerbated by the record amount of government stimulus deployed to avoid a deep global recession. While a cycle of policy rate tightening is expected to begin soon across many developed markets, with the Federal Reserve signaling its first rate hike in March, nearly half of the central banks represented in the MSCI EM Index, including South Korea, Mexico and Brazil, have already began raising rates in an attempt to contain rising prices.

With a head start at combating inflation, and generally less burdened by the aggressive stimulus measure out of developed markets like the U.S. and Europe, EM central banks may be able to turn dovish at an earlier pace than many advanced economies.

EM Laggards may be Poised to Bounce Back in 2022

Brazil saw significant deterioration in its macro outlook during the second half of 2021, as political tensions related to upcoming election, and economic uncertainty driven by COVID stimulus, both accelerated. To manage surging inflation, (which was up 11% YoY) the Brazilian Central Bank has had to raise their target rate to 10,75% (from only 2,75% in March 2021). The increasing likelihood of a more centrist president, coupled with aggressive rate raising aimed at stabilizing the currency and inflation, should be a positive catalyst for 2022.

As a result of these issues, the MSCI Brazil Index is trading at a Forward 12mo P/E of 7X. For context, Brazil was trading at 14X (12mo fwd) entering 2020. While not free of problems, the substantial valuation de-rate seems to be compensating for heightened uncertainty and may presents a strong buying opportunity in 2022 and beyond.

Similar to Brazil, China was major drag on EM performance during the second half of 2021. Regulatory tightening measures, especially on property and technology sectors, caused a lot of heartburn. From an economic perspective, China’s twenty year history of unprecedented growth should garner the benefit of the doubt from investors. Additionally, we have seen some positive policy signs recently which should provide an increased level of investor confidence. During December’s Central Economic Work Conference, an annual meeting where the CCP sets 2022’s economic agenda, policymakers stressed the importance of stabilizing growth and the potential for regulatory easing to support the property sector. Despite 2021 headwinds, China is still looking at ~5% GDP growth in 2022 and better-than-expected reflationary efforts out of Beijing could lead to an overshooting of that target.

Prior to 2021, the last yearly period where we saw China underperform EM by a double-digit margin was 2016. There were some similarities in 2016 to what we saw in 2021. Most notably, a lack of clarity around regulatory policy that pushed investors for the doors. As investor uncertainty faded, China led a strong rebound for emerging markets in 2017—posting a return of 54% and outpacing the MSCI World Index by more than 30%. The MSCI EM Index as a whole beat the MSCI World Index by ~15%.

While we are not necessarily calling for a repeat of 2016 in 2022, it’s important to remember that following periods when sentiment towards EM has waned, it’s often be a great entry point for investing in EM equities.

Thornburg is a global investment firm delivering on strategy for institutions, financial professionals and investors worldwide. The privately held firm, founded in 1982, is an active, high-conviction manager of fixed income, equities, multi-asset solutions and sustainable investments. With $49 billion in client assets ($47 billion AUM and $1.9 billion AUA as of December 31, 2021) the firm offers mutual funds, closed-end funds, institutional accounts, separate accounts for high-net-worth investors and UCITS funds for non-U.S. investors. Thornburg’s U.S. headquarters is in Santa Fe, New Mexico with offices in London, Hong Kong and Shanghai. For more information, please visit www.thornburg.com.

For more information, please visit www.thornburg.com

2022 Will Be a Pivotal Year for Active ETFs in the U.S. Market

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usa-ge0c015151_1920_0 — Pixabay CC0 Public Domain. 2022 será un año crucial para los ETFs activos en el mercado estadounidense

2022 will be a transitional year for active exchange-traded funds (ETFs), according to Cerulli Associates. Its latest research U.S. Exchange-Traded Fund Markets 2021: Reaching a Growing Investor Base finds ETF industry participants are adamant that the active ETF opportunity is currently the most significant. In this context, as managers look to bring active product to market, they should continue monitoring the various approaches to launch and understand the tradeoffs associated with each.

The research asserts that the transparent active opportunity is most attractive relative to semi-transparent, strategic beta, and passive offerings. 70% of polled ETF issuers are either currently developing or planning to develop transparent active ETFs. With 266 billion dollars in assets encompassing multiple asset classes and a consistent growth trajectory, transparent active ETFs are already a well-built category and development has more recently been spurred by the ETF rule.

However, Cerulli notes that out of 104 billion dollars in active equity exposures, only a sliver is in true active equity products given that a significant portion is allocated to thematic and strategic-beta-like offerings.

The research points out that managers can also be successful with semi-transparent offerings. 50% of polled ETF issuers either are currently developing or planning to develop semi-transparent active ETFs. “Because holdings overlap and the number of holdings between the same product in two structures can vary significantly, this can lead to performance dispersion. This also complicates the cost-benefit analysis, requiring additional diligence from advisors and home offices”, Cerulli explains.

“Managers considering launching active ETFs should also keep an eye on the dual-share-class structure used by Vanguard, which comes off patent in 2023,” according to Daniil Shapiro, associate director. Previous Cerulli research finds that 38% of issuers are at least considering offering products via this structure. “Considering managers’ interest in offering products in a wrapper-agnostic manner, there is certainly some simplicity to be gained from having the same exposure available for sale via two structures—therein avoiding some of the previously referenced concerns about different exposures in what may be expected to be the same semi-transparent ETF,” adds Shapiro.

Cerulli believes that as issuers and legacy mutual fund managers seek to identify their market entry approach—whether via launching transparent or semi-transparent product, a conversion, or dual-share-class structure—many are still taking a wait-and-see approach to see which firms win out while others are placing bets.

“Ultimately, while the transparent active opportunity may be the most significant asset-gathering opportunity, managers can also be successful via semi-transparent ETFs with the right distribution approach. Conversions should be considered in unique circumstances, while developments regarding the dual-share-class structure should be monitored”, concludes Shapiro.

2,000 Wealth Management Firms Are Targets for Wealth Tech Expansion

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Captura de Pantalla 2022-03-02 a la(s) 12 — . Pexels

The true market opportunity for financial technology firms lies in the hands of 2,000 wealth management firms controlling roughly $10 trillion in assets under management, according to Cerulli’s latest report, State of U.S. Wealth Management Technology 2021: Aligning Firm Strategy with Technology Decisions.

The segment of the market most likely to license market-leading vendors consists of broker/dealers (B/Ds), RIAs, and bank/trust firms looking to distinguish themselves to advisors and investors by controlling the client experience and building what they believe to be a best-in-breed tech stack.

These firms are not at scale to do massive internal development like the wirehouses, but are at scale to sign meaningful enterprise agreements with wealth tech vendors, according to the research. These firms are constantly in search of organic growth through client acquisition or inorganic growth through advisor recruiting or M&A.

According to the research, three-quarters of these firms state that their tech philosophy is to license market-leading vendors and to maximize integration between tools.

“There is a meaningful segment of firms that is seeking to leverage top external vendors while also optimizing integration,” states Bing Waldert, managing director of Cerulli.

As noted for many of these firms, their value proposition revolves around optimizing the advisor experience, in part through technology. “Market-leading tools in categories such as performance reporting or financial planning should help the advisor create a better service experience for his or her clients,” he adds.

Portfolio accounting (75%), financial planning (58%), tax-optimization (56%) are the top-three applications licensed from external vendors by wealth managers, according to the research.

For wealth managers working in the high-net-worth (HNW) and ultra-high-net worth (UHNW) segments, the complexity of more affluent clients dictates more specialized solutions. This will be most true in categories such as performance reporting and financial planning.

Performance reporting systems will need to support private investments that are not valued daily and often not held at mainstream custodians. Likewise, a firm might offer a standard offering, such as a homegrown goal and financial planning system, but still offer connectivity to other third-party solutions for more complex clients. “HNW investors are trying to solve for issues such as illiquid business interests, minimization of taxes, and estate planning. Financial planning for this segment must be able to support the necessary complexity,” states Waldert.