Forget asset management, asset allocation advice might be the revenue generator moving forward.
The ongoing fight for low(er) fees within the 401k industry and larger investment management space has asset managers responding to accelerating fee compression by offering technology platforms and asset allocation advice, the latest research from Cerulli Associates, a global research and consulting firm, finds.
“There are multiple causes of fee compression in asset management, which compound upon each other to prompt industry change,” Bing Waldert, director at Cerulli, said in a statement.
“For example, greater regulation has formalized the buying process and created demand for low-cost passive products,” Waldert continued. “Under the influence of professional buyers, eliminating the highest-priced products is often the first screen, creating a race to the bottom as managers try to avoid having above-average fees.”
The increasing importance of asset allocation advice is therefore fueling a decline in asset management fees overall.
“In some cases, asset managers are dropping fees on asset management products to near zero, instead choosing to charge for asset allocation, a task traditionally performed by the wealth manager,” Waldert added. “The growth of asset allocation advice demonstrates how asset and wealth managers are using these industry trends to enter each other’s value chains and attempt to capture a greater share of a shrinking fee pool.”
While it has not yet fully come to pass, Cerulli expects that automation will continue to compress fees.
“Automation will lower the cost of transactions, bringing down fees in wealth management,” Waldert concluded. “In addition, digital advice platforms emphasize asset allocation, which pressures fees in individual asset manager products and benefits exchange-traded funds (ETFs).”