Another effect of the fiduciary rule? A rhetorical question if there ever was one.
New research from global research and consulting firm Cerulli Associates finds that managers who are looking to enter the business of mutual fund and money management subadvising must prepare for the rigorous due diligence involved.
“In recent years, this process has become more intense, receiving greater attention from the board of directors and a more thorough evaluation from sponsor due diligence teams,” James Tamposi, research analyst at Boston-based Cerulli, said in a statement. “Firms struggle with compliance because the retail asset management industry is more regulated than the institutional-only space. Firms with efficient compliance systems are better able to keep up with the demands of not only the due diligence process but also the sub advisory relationship itself.”
Many research participants declared that compliance is the most time-consuming non-investment-related task in a subadvisory relationship. In addition to winning new mandates, sponsors cite the importance of compliance in maintaining subadvisory business as well.
“The subadvisory due diligence process is extremely thorough and asset managers looking to get into subadvisory should be aware of the hurdles that lie ahead,” Tamposi continued. “A clear investment philosophy and process, combined with adherence to a stated investment objective, are paramount in winning business. When dealing with compliance, managers should view it as an opportunity rather than a cost. Especially in the subadvisory industry, effective compliance is an asset to the relationship.”
These findings and more are from the July 2017 issue of The Cerulli Edge – U.S. Edition, which discusses how multi-asset-class solutions, multi-sub advisor mutual fund arrangements, and thorough due diligence drive a burgeoning market.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
