E X H I B I T 9 ( Continued )
Investment Advisors (RIAs) and eliminating their fee income. Again, investment professionals need to learn how to adapt to these changing scenarios. Each approach seems to work well until the next “hot money” fad. Unwittingly, investors are following a market power shift from a manager-centric approach (those who actu- ally manage the money) to a marketing-centric approach that focuses on ad dollars and aggressive sales tactics. The change in the marketplace is significant; it has cre- ated an industry where much of the organization costs go toward marketing and raising assets. This has forced market consolidation as small managers do not have the resources to compete for assets. Ironically, however, large companies are building inefficiencies into their long-term operations by spending such a large amount on marketing and sales. This may create an opportunity for entrepreneurial managers who can employ efficient means, through technology or viral marketing, to reach investors directly. Raising assets is the lifeblood of any financial ser- vices company. Without new assets the firm will be less apt to meet expenses and endure dimmed hopes of survival. Some managers employ third-party mar- keters (TPM). TPMs supply managers with external sales agents who base compensation on a percentage of assets raised. In principle, their services appear as a “no lose” opportunity. In practice, however, this may not be the case. TPMs have recently started to incorpo- rate monthly retainers (e.g., $5,000 to $10,000) along THE COST OF RAISING ASSETS
Capital Management was among a series of quant funds that imploded during this era. Subsequent to the 2001 recession, investors saw a shift toward passive investing through ETFs and explored tactical asset sector style rotation strategies that would shift assets with changing market conditions. Currently, investors seem enamored with “smart beta” approaches and “robo-investing.” Computer-generated portfolio allocations or robo- investing models are squeezing out traditional Registered Note: Figures show the average amount of assets per investment company, in U.S.$ billions (e.g., 0.66 is $660 million dollars). Source: Fidelity platform, September 1, 2015: 16,660 listed mutual funds and ETFs.
E X H I B I T 1 0 Total Assets in Equity Mutual Funds (U.S.$ billions)
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